Michael Foods Reports Second Quarter Results

MINNETONKA, Minn., Aug. 14, 2012 /PRNewswire/ -- Michael Foods Group, Inc. today reported financial results for the second quarter of 2012.

Net sales for the quarter ended June 30, 2012 were $436.7 million, compared to $420 million in 2011, an increase of 4%.  Net loss for the quarter ended June 30, 2012 was $1.7 million, compared to a net loss of $5.2 million in 2011.  The loss in the current year was primarily due to recording a $5.8 million charge for damages awarded in National Pasteurized Eggs, Inc. and National Pasteurized Eggs, LLC v. Michael Foods, Inc. et al., a patent infringement case that went to trial in June. 

Net sales for the six months ended June 30, 2012 were $881.5 million, compared to $837.1 million in 2011, an increase of 5.3%.  Net earnings for the six months ended June 30, 2012 were $7.6 million, compared to a net loss of $5.6 million in 2011.  The earnings increase was primarily due to 2011 credit agreement refinancing-related costs of approximately $8 million, the resulting reduction in interest expense, and improved margins in 2012 due to better alignment of pricing with our input costs. 

Earnings before interest, taxes, depreciation, amortization ("EBITDA") and other adjustments ("Adjusted EBITDA," as defined in the Company's credit facility) for the quarter ended June 30, 2012 were $52.7 million, compared to $47.4 million in 2011, an increase of 11.2%.  Adjusted EBITDA for the six months ended June 30, 2012 were $114.5 million, compared to $103.8 million in 2011, an increase of 10.3%.

"Our second quarter net earnings improvement highlights the underlying strength of our business model," said Jim Dwyer, CEO and President.  "While offset in part by legal costs in the second quarter, new customer acquisitions and pricing pass-through mechanisms continue to fuel our growth."

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 2011 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 30, 2012. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this release include changes in domestic and international economic conditions.

Unaudited segment data follows (in thousands):




Cheese &





Refrigerated

Other




Egg

Potato

Dairy-Case

Corporate &



Products

Products

Products

Eliminations

Total

Three months ended June 30, 2012






External net sales

$   310,291

$     35,009

$     91,361

$           -

$   436,661

Net earnings (loss)

5,122

1,009

1,935

(9,772)

(1,706)

Adjusted EBITDA

45,368

5,484

6,585

(4,758)

52,679







Three months ended July 2, 2011






External net sales

$   295,967

$     32,626

$     91,426

$           -

$   420,019

Net earnings (loss)

10,191

1,166

2,409

(18,932)

(5,166)

Adjusted EBITDA

38,207

4,464

6,210

(1,498)

47,383







Six months ended June 30, 2012






External net sales

$   620,906

$     71,829

$   188,752

$           -

$   881,487

Net earnings (loss)

18,268

3,947

4,687

(19,256)

7,646

Adjusted EBITDA

94,613

13,537

14,049

(7,696)

114,503







Six months ended July 2, 2011






External net sales

$   593,413

$     65,520

$   178,187

$           -

$   837,120

Net earnings (loss)

27,516

3,256

5,021

(41,394)

(5,601)

Adjusted EBITDA

84,630

10,485

12,747

(4,074)

103,788

Beginning January 1, 2012, we changed our internal reporting of segment information.  We now report all sales of shell egg and egg products and refrigerated potato products in their respective segments and the balance of our retail distributed products, cheese and other dairy-case products, as our third segment.  This change increased the amount of external net sales, net earnings and Adjusted EBITDA reported for prior periods for both the egg products and refrigerated potato products segments as we reclassified the egg and refrigerated potato products previously reported under the Crystal Farms segment.  The July 2, 2011 three and six-month periods have been restated to reflect the new internal reporting.  This change has no impact on the assets of the segments as none of the underlying business unit operations were affected by this reporting change.

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 June 30, 2012 (unaudited, in thousands):





Cheese &






Refrigerated

Other





Egg

Potato

Dairy-Case





Products

Products

Products

Corporate

Total








Net earnings (loss)


$  5,122

$       1,009

$      1,935

$  (9,772)

$(1,706)

Unrealized loss on currency transactions (a)


487

-

-

-

487

  Consolidated net earnings (loss)


5,609

1,009

1,935

(9,772)

(1,219)

Interest expense


178

116

-

22,725

23,019

Intercompany interest expense (income)


7,085

494

1,080

(8,659)

-

Income tax expense (benefit)


3,221

415

1,102

(5,119)

(381)

Depreciation and amortization


20,004

2,817

1,811

1

24,633

Non-cash and stock option compensation


-

-

-

529

529

Unusual charges (b)


-

-

-

5,842

5,842

Equity sponsor management fee


-

-

-

616

616

Expenses related to industrial revenue bonds guaranteed by certain of our subsidiaries


139

-

-

-

139

Unrealized gain on swap contracts


(499)

-

-

-

(499)

Intercompany allocation of corporate admin costs


9,631

633

657

(10,921)

-

Adjusted EBITDA, as defined in the credit agreement


$45,368

$       5,484

$      6,585

$  (4,758)

$52,679



(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.

(b)   

The unusual charges relate to the jury award in the National Pasteurized Eggs, Inc. trial.

The following table reconciles net earnings (loss) to Adjusted EBITDA for the quarter ended July 2, 2011 (unaudited, in thousands):





Cheese &






Refrigerated

Other





Egg

Potato

Dairy-Case





Products

Products

Products

Corporate

Total








Net earnings (loss)


$10,191

$       1,166

$      2,409

$(18,932)

$(5,166)

Unrealized gain on currency transactions (a)


(98)

-

-

-

(98)

  Consolidated net earnings (loss)


10,093

1,166

2,409

(18,932)

(5,264)

Interest expense


237

166

-

25,160

25,563

Income tax expense (benefit)


5,252

350

1,620

(10,005)

(2,783)

Depreciation and amortization


19,783

2,851

1,981

2

24,617

Non-cash and stock option compensation


-

-

-

364

364

Cash expenses incurred in connection with the transaction


-

-

-

264

264

Business optimization project expense


-

-

-

2,830

2,830

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


-

(266)

-

-

(266)

Equity sponsor management fee


-

-

-

569

569

Fees and expenses in connection with the exchange of the 9.75% senior notes


-

-

-

197

197

Expenses related to industrial revenue bonds guaranteed by certain of our subsidiaries


236

-

-

-

236

Unrealized loss on swap contracts


1,056

-

-

-

1,056

Intercompany allocation of corporate admin costs


1,550

197

200

(1,947)

-

Adjusted EBITDA, as defined in the credit agreement


$38,207

$       4,464

$      6,210

$  (1,498)

$47,383


(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 30, 2012 (unaudited, in thousands):





Cheese &






Refrigerated

Other





Egg

Potato

Dairy-Case





Products

Products

Products

Corporate

Total








Net earnings (loss)


$     18,268

$        3,947

$      4,687

$     (19,256)

$        7,646

Unrealized loss on currency transactions (a)


84

-

-

-

84

  Consolidated net earnings (loss)


18,352

3,947

4,687

(19,256)

7,730

Interest expense


380

246

-

45,195

45,821

Intercompany interest expense (income)


14,176

989

2,161

(17,326)

-

Income tax expense (benefit)


10,538

1,805

2,628

(10,542)

4,429

Depreciation and amortization


40,022

5,634

3,621

3

49,280

Non-cash and stock option compensation


-

-

-

1,053

1,053

Unusual charges (b)


-

-

-

5,842

5,842

Equity sponsor management fee


-

-

-

1,221

1,221








Expenses related to industrial revenue bonds guaranteed by certain of our subsidiaries


286

-

-

-

286

Unrealized gain on swap contracts


(1,159)

-

-

-

(1,159)

Intercompany allocation of corporate admin costs


12,018

916

952

(13,886)

-

Adjusted EBITDA, as defined in the credit agreement


$     94,613

$      13,537

$     14,049

$       (7,696)

$     114,503



(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.

(b)

The unusual charges relate to the jury award in the National Pasteurized Eggs, Inc. trial.

The following table reconciles net earnings (loss) to Adjusted EBITDA for the six months ended July 2, 2011 (unaudited, in thousands):





Cheese &






Refrigerated

Other





Egg

Potato

Dairy-Case





Products

Products

Products

Corporate

Total








Net earnings (loss)


$     27,516

$        3,256

$      5,021

$     (41,394)

$       (5,601)

Unrealized gain on currency transactions (a)


(677)

-

-

-

(677)

  Consolidated net earnings (loss)


26,839

3,256

5,021

(41,394)

(6,278)

Interest expense


484

344

-

49,947

50,775

Income tax expense (benefit)


14,266

1,145

3,370

(21,809)

(3,028)

Depreciation and amortization


39,424

5,702

3,963

4

49,093

Non-cash and stock option compensation


-

-

-

889

889

Cash expenses incurred in connection with the transaction


-

-

-

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


-

(354)

-

-

(354)

Equity sponsor management fee


-

-

-

1,169

1,169

Fees and expenses in connection with the exchange of the 9.75% senior notes


-

-

-

247

247








Expenses related to industrial revenue bonds guaranteed by certain of our subsidiaries


393

-

-

-

393

Unrealized gain on swap contracts


(235)

-

-

-

(235)

Loss attributable to the early extinguishment of indebtedness


-

-

-

3,527

3,527

Intercompany allocation of corporate admin costs


3,459

392

393

(4,244)

-

Adjusted EBITDA, as defined in the credit agreement


$     84,630

$      10,485

$     12,747

$       (4,074)

$     103,788



(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.

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 Periods Ended

(In thousands)

 



Three Months Ended


Six Months Ended



June 30,


July 2,


June 30,


July 2,



2012


2011


2012


2011

Net sales


$ 436,661


$ 420,019


$ 881,487


$ 837,120

Cost of sales


363,096


361,937


728,521


706,425

  Gross profit


73,565


58,082


152,966


130,695










Selling, general and administrative expenses


52,036


40,504


94,716


85,525

  Operating profit


21,529


17,578


58,250


45,170










Interest expense, net


22,956


25,551


45,725


50,756

Unrealized (gain) loss on currency transactions


487


(98)


84


(677)

Loss on early extinguishment of debt


-


-


-


3,527

   Earnings (loss) before income taxes and equity in losses of unconsolidated subsidiary


(1,914)


(7,875)


12,441


(8,436)










Income tax expense (benefit)


(381)


(2,783)


4,429


(3,028)

Equity in losses of unconsolidated subsidiary


173


74


366


193

    Net earnings (loss)


$    (1,706)


$    (5,166)


$    7,646


$  (5,601)
















June 30,


December 31,







2012


2011

Selected Balance Sheet Information:


















Cash and equivalents






$  100,611


$   68,118










Accrued interest






$    20,501


$    20,420










Long-term debt, including current maturities






$1,246,591


$ 1,251,089

 

 

 

 

SOURCE Michael Foods Group, Inc.




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