Michael Foods Reports Second Quarter Results

News provided by

Michael Foods Group, Inc.

Aug 16, 2011, 09:00 ET

MINNETONKA, Minn., Aug. 16, 2011 /PRNewswire/ -- Michael Foods Group, Inc. today reported financial results for the second 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 loss for the quarter ended July 2, 2011 was $5.2 million, compared to a net loss of $49.3 million in 2010.  Net sales for the quarter ended July 2, 2011 were $420 million, compared to $348.7 million in 2010, an increase of 20%.  Net loss for the six months ended July 2, 2011 was $5.6 million, compared to a net loss of $34.3 million in 2010.  Net sales for the six months ended July 2, 2011 were $837.1 million, compared to $744 million in 2010, an increase of 12.5%.  The quarter and six-month periods ended July 2, 2011 were 13 and 26-week periods, while the quarter and six-month periods ended June 26, 2010 were 12 and 25-week periods due to the June 2010 merger transaction. The additional week represented an estimated $29 million or approximately 7% of the net sales for the quarter ended July 2, 2011 and approximately 3% of the net sales for the six months ended July 2, 2011. The merger transaction had a significant impact on earnings in both periods, with transaction-related costs impacting the 2010 period and higher depreciation, amortization of intangibles, and interest expense impacting the 2011 period.

Earnings before interest, taxes, depreciation, amortization and other adjustments (Adjusted EBITDA, as defined in Michael Foods' credit facility) for the quarter ended July 2, 2011 (13-week period) were $47.4 million, compared to $45.4 million in 2010 (12-week period), an increase of 4%.  Adjusted EBITDA for the six months ended July 2, 2011 (26-week period) was $103.8 million, compared to $102 million in 2010 (25-week period), an increase of 2%.  

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 our operating performance and our ability to service debt with other companies in our industry.

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 financial document include changes in domestic and international economic conditions.

Unaudited segment data follows (in thousands):



Egg
Products

Potato
Products

Crystal
Farms

Corporate

Total

Company










For the quarter ended July 2, 2011




External net sales

$285,765

$29,664

$      104,590

$         -

$420,019

Net earnings (loss)

9,944

677

3,145

(18,932)

(5,166)

Adjusted EBITDA

37,960

3,975

6,946

(1,498)

47,383






For the six months ended July 2, 2011




External net sales

$573,018

$60,013

$      204,089

$         -

$837,120

Net earnings (loss)

27,052

2,218

6,523

(41,394)

(5,601)

Adjusted EBITDA

84,166

9,447

14,249

(4,074)

103,788












Predecessor










For the quarter ended June 26, 2010




External net sales

$242,399

$27,299

$        78,995

$         -

$348,693

Net earnings (loss)

17,115

(3,711)

3,045

(65,755)

(49,306)

Adjusted EBITDA

38,984

1,439

5,980

(960)

45,443






For the 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 July 2, 2011 (unaudited, in thousands):



Egg

Potato

Crystal


Products

Products

Farms

Corporate

Total

Net earnings (loss)

$  9,944

$     677

$3,145

$(18,932)

$  (5,166)

Unrealized gain on currency translation (a)

(98)

-

-

-

(98)

 Consolidated net earnings (loss)

9,846

677

3,145

(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 refinancing

-

-

-

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

Other charges

1,550

197

200

(1,947)

-

Adjusted EBITDA, as defined




   in the credit agreement

$37,960

$  3,975

$6,946

$  (1,498)

$  47,383

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

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









Egg

Potato

Crystal


Products

Products

Farms

Corporate

Total

Net earnings (loss)

$17,115

$(3,711)

$3,045

$(65,755)

$(49,306)

Interest expense

243

193

12

15,149

15,597

Income tax expense (benefit)

8,912

(1,911)

1,570

(30,365)

(21,794)

Depreciation and amortization

11,073

6,661

1,145

1

18,880

Non-cash and stock option compensation

-

-

-

35,672

35,672

Cash expenses incurred in connection




   with the transaction

-

-

-

14,730

14,730

Equity sponsor management fee

-

-

-

507

507

Expenses related to industrial revenue bonds




   guaranteed by certain of our subsidiaries

146

-

-

-

146

Unrealized gain on swap contracts

(227)

-

-

-

(227)

Loss attributable to the early




   extinguishment of indebtedness

-

-

-

31,238

31,238

Other charges

1,722

207

208

(2,137)

-

Adjusted EBITDA, as defined




   in the credit agreement

$38,984

$  1,439

$5,980

$     (960)

$  45,443

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



Egg

Potato

Crystal


Products

Products

Farms

Corporate

Total

Net earnings (loss)

$27,052

$  2,218

$  6,523

$(41,394)

$   (5,601)

Unrealized gain on currency translation (a)

(677)

-

-

-

(677)

 Consolidated net earnings (loss)

26,375

2,218

6,523

(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 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

-

(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

Other charges

3,459

392

393

(4,244)

-

Adjusted EBITDA, as defined




   in the credit agreement

$84,166

$  9,447

$14,249

$  (4,074)

$103,788

(a)  The unrealized gain on currency translation relates to an intercompany note receivable denominated in Canadian currency due from our foreign 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):









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

Other charges

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, MN, 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 July 2, 2011 and June 26, 2010

(In thousands)















Company

Predecessor

Quarter

Six Months

Quarter

Six Months

Ended

Ended

Ended

Ended

July 2,

July 2,

June 26,

June 26,

2011

2011

2010

2010

Net sales

$420,019

$    837,120

$348,693

$ 743,995

Cost of sales

361,937

706,425

290,687

612,748

 Gross profit

58,082

130,695

58,006

131,247

Selling, general and administrative expenses

40,504

85,525

67,523

102,283

Transaction costs

-

-

14,730

14,730

 Operating profit (loss)

17,578

45,170

(24,247)

14,234

Interest expense, net

25,551

50,756

15,556

30,985

Loss on early extinguishment of debt

-

3,527

31,238

31,238

Unrealized gain on currency translation

(98)

(677)

-

-

 Loss before income taxes and equity





   in losses of unconsolidated subsidiary

(7,875)

(8,436)

(71,041)

(47,989)

Income tax benefit

(2,783)

(3,028)

(21,794)

(13,765)

Equity in losses of unconsolidated subsidiary

74

193

59

59

   Net loss

$   (5,166)

$      (5,601)

$ (49,306)

$ (34,283)









July 2,


June, 26,


2011


2010

Selected Balance Sheet Information:












Cash and equivalents

$      17,616


$   65,184







Accrued interest

$      20,554


$     8,793







Long-term debt, including current maturities

$ 1,285,095


$ 722,416

SOURCE Michael Foods Group, Inc.