2014

Michael Foods Reports Fourth Quarter Results

MINNETONKA, Minn., March 23, 2012 /PRNewswire/ -- Michael Foods Group, Inc. today reported financial results for the fourth quarter of 2011.

(On June 29, 2010, M-Foods Holdings, Inc. together with its subsidiaries, merged with and into MFI Acquisition Corporation, and the surviving entity was renamed Michael Foods Group, Inc. ("Company").  The merger was accounted for as a business combination and a new accounting basis was established.  The accounting policies followed by us in the preparation of the Company's consolidated financial statements are consistent with those used prior to the merger transaction.)

Net earnings for the quarter ended December 31, 2011 were $19.3 million, compared to $9.1 million in 2010, an increase of $10.2 million.  Net sales for the quarter ended December 31, 2011 were $470 million, compared to $428.9 million in 2010, an increase of 9.6%.  Net earnings for the year ended December 31, 2011 were $14.3 million, compared to a net loss of $31 million in 2010.  Net sales for the year ended December 31, 2011 were $1,766.6 million, compared to $1,602.3 million in 2010, an increase of $164.3 million, or 10.3%.  The 2010 merger transaction had a significant impact on earnings in all periods presented, with transaction-related costs impacting 2010, and higher depreciation, amortization of intangibles and interest expense impacting 2011 and the second half of 2010.

Earnings before interest, taxes, depreciation, amortization ("EBITDA") and other adjustments ("Adjusted EBITDA," as defined in the Company's credit facility) for the quarter ended December 31, 2011 were $70.9 million, compared to $63.3 million in 2010, an increase of 11.9%.  Adjusted EBITDA for the year ended December 31, 2011 increased $2.9 million or 1.3% to $230 million compared to $227.1 million in 2010.

Michael Foods Group, Inc. uses Adjusted EBITDA as a measurement of financial results, as an indication of the relative strength of its operating performance, and to determine incentive compensation levels.  Management believes that EBITDA and Adjusted EBITDA provide potential investors with useful information with which to analyze and compare with other companies in our industry our operating performance and our ability to service debt.

Certain items contained in this release may be "forward-looking statements." Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future sales or performance, capital expenditures, financing needs, ability to fund operations, intentions relating to acquisitions, our competitive strengths and weaknesses, our business strategy and the trends we anticipate in the industries and economies in which we operate and other information that is not historical information. When used herein, the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes" and variations of such words or similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance.  

All forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them, but there can be no assurance that our expectations, beliefs and projections will be realized.  There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this release, including the factors described under "Risk Factors" in our Registration Statement on Form S-4 (File No. 333-173400), which was declared effective by the SEC on July 7, 2011. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this release including changes in domestic and international economic conditions.

Unaudited segment data follows (in thousands):


Egg
Products

Refrigerated
Potato
Products

Crystal
Farms

Corporate

Total

Company












Quarter ended December 31, 2011






External net sales

$   299,542

$           35,672

$134,767

$         -

$   469,981

Net earnings (loss)

11,142

4,192

2,885

1,101

19,320

Adjusted EBITDA

51,927

10,674

10,016

(1,755)

$     70,862







Quarter ended January 1, 2011






External net sales

$   272,818

$           33,808

$122,309

$         -

$   428,935

Net earnings (loss)

26,189

2,534

4,784

(24,363)

9,144

Adjusted EBITDA

49,744

6,861

8,348

(1,643)

63,310







Year ended December 31, 2011






External net sales

$1,184,253

$         127,252

$455,083

$         -

$1,766,588

Net earnings (loss)

48,698

7,135

10,374

(51,918)

14,289

Adjusted EBITDA

183,493

24,894

28,995

(7,404)

229,978







Six months ended January 1, 2011






External net sales

$   566,231

$           65,040

$227,035

$         -

$   858,306

Net earnings (loss)

30,037

2,195

5,456

(34,411)

3,277

Adjusted EBITDA

104,923

9,579

14,128

(3,483)

125,147













Predecessor












Six months ended June 26, 2010






External net sales

$   508,085

$           57,661

$178,249

$         -

$   743,995

Net earnings (loss)

39,743

(5,122)

7,800

(76,704)

(34,283)

Adjusted EBITDA

87,458

3,558

14,564

(3,624)

101,956



Adjusted EBITDA is a financial indicator used to analyze and compare companies on the basis of operating performance. It should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles and is not indicative of operating profit or cash flow from operations as determined under generally accepted accounting principles.

The following table reconciles net earnings (loss) to Adjusted EBITDA for the quarter ended December 31, 2011 (unaudited, in thousands):




Refrigerated






Egg

Potato

Crystal





Products

Products

Farms

Corporate

Total

Net earnings


$11,142

$       4,192

$  2,885

$    1,101

$19,320

Unrealized gain on currency transactions (a)


(366)

-

-

-

(366)

 Consolidated net earnings


10,776

4,192

2,885

1,101

18,954

Interest expense


(173)

148

-

21,581

21,556

Intercompany interest expense (income)


7,347

513

1,119

(8,979)

-

Income tax expense (benefit)


9,973

2,478

3,631

(14,745)

1,337

Depreciation and amortization


19,320

2,495

1,804

2

23,621

Non-cash and stock option compensation


-

-

-

529

529

Realized loss upon the disposition of property







   not in the ordinary course of business


-

324

-

-

324

Equity sponsor management fee


-

-

-

574

574

Expenses related to industrial revenue bonds







   guaranteed by certain of our subsidiaries


138

-

-

-

138

Unrealized loss on swap contracts


554

-

-

-

554

Intercompany allocation of corporate admin costs


717

524

577

(1,818)

-

Non-cash other expenses


3,275

-

-

-

3,275

Adjusted EBITDA, as defined







   in the credit agreement


$51,927

$     10,674

$10,016

$  (1,755)

$70,862








(a) The unrealized gain on currency transactions relates to an intercompany note receivable denominated in Canadian currency due from our Canadian subsidiary, MFI Food Canada Ltd.



The following table reconciles net earnings (loss) to Adjusted EBITDA for the quarter ended January 1, 2011 (unaudited, in thousands):




Refrigerated






Egg

Potato

Crystal





Products

Products

Farms

Corporate

Total

Net earnings (loss)


$26,189

$       2,534

$  4,784

$(24,363)

$  9,144

Unrealized gain on currency transactions (a)


(738)

-

-

-

(738)

Consolidated net earnings (loss)


25,451

2,534

4,784

(24,363)

8,406

Interest expense


(25)

254

-

25,312

25,541

Income tax expense (benefit)


2,741

1,356

1,348

(1,893)

3,552

Depreciation and amortization


20,627

2,631

2,082

4

25,344

Non-cash and stock option compensation


-

-

-

542

542

Realized gain upon the disposition of property







   not in the ordinary course of business


(572)

(51)

-

-

(623)

Equity sponsor management fee


-

-

-

574

574

Expenses related to industrial revenue bonds







   guaranteed by certain of our subsidiaries


149

-

-

-

149

Unrealized gain on swap contracts


(175)

-

-

-

(175)

Intercompany allocation of corporate admin costs


1,548

137

134

(1,819)

-

Adjusted EBITDA, as defined







   in the credit agreement


$49,744

$       6,861

$  8,348

$  (1,643)

$63,310








(a) The unrealized gain on currency transactions relates to an intercompany note receivable denominated in Canadian currency due from our Canadian subsidiary, MFI Food Canada Ltd.




The following table reconciles net earnings (loss) to Adjusted EBITDA for the year ended December 31, 2011 (unaudited, in thousands):



Refrigerated





Egg

Potato

Crystal




Products

Products

Farms

Corporate

Total

Net earnings (loss)

$  48,698

$       7,135

$           10,374

$(51,918)

$  14,289

Unrealized loss on currency transactions (a)

390

-

-

-

390

 Consolidated net earnings (loss)

49,088

7,135

10,374

(51,918)

14,679

Interest expense

536

645

-

97,008

98,189

Intercompany interest expense (income)

14,712

1,027

2,242

(17,981)

-

Income tax expense (benefit)

29,915

3,995

7,501

(42,126)

(715)

Depreciation and amortization

78,443

11,048

7,748

7

97,246

Non-cash and stock option compensation

-

-

-

1,947

1,947

Cash expenses incurred in connection






   with the refinancing

-

-

-

4,760

4,760

Business optimization project expense

-

-

-

2,830

2,830

Realized gain upon the disposition of property
   not in the ordinary course of business






-

(30)

-

-

(30)

Equity sponsor management fee

-

-

-

2,300

2,300

Fees and expenses in connection with the






  exchange of the 9.75% senior notes

-

-

-

351

351

Expenses related to industrial revenue bonds






   guaranteed by certain of our subsidiaries

670

-

-

-

670

Unrealized loss on swap contracts

949

-

-

-

949

Loss attributable to the early






   extinguishment of indebtedness

-

-

-

3,527

3,527

Intercompany allocation of corporate admin costs

5,905

1,074

1,130

(8,109)

-

Non-cash other expenses

3,275

-

-

-

3,275

Adjusted EBITDA, as defined






   in the credit agreement

$183,493

$     24,894

$           28,995

$  (7,404)

$229,978







(a) The unrealized loss on currency transactions relates to an intercompany note receivable denominated in Canadian currency due from our Canadian subsidiary, MFI Food Canada Ltd.





The following table reconciles net earnings (loss) to Adjusted EBITDA for the six months ended January 1, 2011 (unaudited, in thousands):




Refrigerated






Egg

Potato

Crystal





Products

Products

Farms

Corporate

Total

Net earnings (loss)


$  30,037

$       2,195

$  5,456

$(34,411)

$    3,277

Unrealized gain on currency transactions (a)


(738)

-

-

-

(738)

Consolidated net earnings (loss)


29,299

2,195

5,456

(34,411)

2,539

Interest expense


243

394

-

52,263

52,900

Income tax expense (benefit)


16,168

805

2,888

(20,110)

(249)

Depreciation and amortization


40,221

5,511

4,027

3

49,762

Non-cash and stock option compensation


-

-

-

1,042

1,042

Realized gain upon the disposition of property







   not in the ordinary course of business


(572)

(51)

-

-

(623)

Equity sponsor management fee


-

-

-

1,136

1,136

Non-cash purchase accounting adjustments


15,930

483

1,515

-

17,928

Expenses related to industrial revenue bonds







   guaranteed by certain of our subsidiaries


300

-

-

-

300

Unrealized loss on swap contracts


412

-

-

-

412

Intercompany allocation of corporate admin costs


2,922

242

242

(3,406)

-

Adjusted EBITDA, as defined







   in the credit agreement


$104,923

$       9,579

$14,128

$  (3,483)

$125,147








(a)  The unrealized gain on currency transactions relates to an intercompany note receivable denominated in Canadian currency due from our Canadian subsidiary, MFI Food Canada Ltd.



The following table reconciles net earnings (loss) to Adjusted EBITDA for the six months ended June 26, 2010 (unaudited, in thousands):



Refrigerated





Egg

Potato

Crystal




Products

Products

Farms

Corporate

Total

Net earnings (loss)

$39,743

$      (5,122)

$  7,800

$(76,704)

$ (34,283)

Interest expense

522

253

12

30,275

31,062

Income tax expense (benefit)

20,404

(2,638)

4,030

(35,561)

(13,765)

Depreciation and amortization

23,082

10,633

2,292

2

36,009

Non-cash and stock option compensation

-

-

-

35,762

35,762

Cash expenses incurred in connection






   with the transaction

-

-

-

14,730

14,730

Equity sponsor management fee

-

-

-

1,072

1,072

Expenses related to industrial revenue bonds






   guaranteed by certain of our subsidiaries

303

-

-

-

303

Unrealized gain on swap contracts

(172)

-

-

-

(172)

Loss attributable to the early






   extinguishment of indebtedness

-

-

-

31,238

31,238

Intercompany allocation of corporate admin costs

3,576

432

430

(4,438)

-

Adjusted EBITDA, as defined






   in the credit agreement

$87,458

$       3,558

$14,564

$  (3,624)

$101,956



Michael Foods Group, Inc., based in Minnetonka, Minnesota, is a producer and distributor of food products to the foodservice, retail and food-ingredient markets.  Its principal products are egg products, refrigerated potato products, cheese and other dairy-case products.

Consolidated statements of operations are as follows:

Michael Foods Group, Inc.


CONSOLIDATED STATEMENTS OF OPERATIONS


For the periods ended


(In thousands)



















Company



Predecessor


Quarter

Quarter

Year

Six Months



Six Months


Ended

Ended

Ended

Ended



Ended


December 31,

January 1,

December 31,

January 1,



June 26,


2011

2011

2011

2011



2010


(unaudited)

(unaudited)

(unaudited)





Net sales

$      469,981

$428,935

$   1,766,588

$    858,306



$    743,995

Cost of sales

393,683

354,416

1,493,575

726,832



612,748

 Gross profit

76,298

74,519

273,013

131,474



131,247

Selling, general and








   administrative expenses

34,233

36,928

156,853

76,085



102,283

Transaction costs

-

-

-

-



14,730

 Operating profit

42,065

37,591

116,160

55,389



14,234

Interest expense, net

21,534

25,526

98,140

52,871



30,985

Unrealized (gain) loss on currency transactions

(366)

(738)

390

(738)



-

Loss on early extinguishment of debt

-

-

3,527

-



31,238

 Earnings (loss) before income








   taxes and equity in losses of








   unconsolidated subsidiary

20,897

12,803

14,103

3,256



(47,989)

Income tax expense (benefit)

1,337

3,552

(715)

(249)



(13,765)

Equity in losses of








   unconsolidated subsidiary

240

107

529

228



59

   Net earnings (loss)

$        19,320

$    9,144

$        14,289

$        3,277



$    (34,283)




















December 31,

January 1,







2011

2011







(unaudited)





Selected Balance Sheet Information:
















Cash and equivalents



$        68,118

$      44,805












Accrued interest



$        20,420

$      22,298












Long-term debt, including current maturities



$   1,251,089

$ 1,229,182






SOURCE Michael Foods Group, Inc.



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