Michael Foods Group Reports Third Quarter Results

November 14, 2011 Mergers & Acquisitions 0

Michael Foods Group Reports Third Quarter Results

PR Newswire

MINNETONKA, Minn., Nov. 14, 2011

MINNETONKA, Minn., Nov. 14, 2011 /PRNewswire/ — Michael Foods Group, Inc. today reported financial results for the third 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 October 1, 2011 were $0.6 million, compared to a net loss of $5.9 million in 2010. Net sales for the quarter ended October 1, 2011 were $459.5 million, compared to $429.4 million in 2010, an increase of 7%. Net sales for the nine months ended October 1, 2011 were $1,296.6 million, compared to $1,173.4 million in 2010, an increase of $123.2 million, or 11%. The quarter and nine-month periods ended October 1, 2011 were 13 and 39-week periods, while the comparable 2010 periods were 14 and 39 weeks. The additional week in the 2010 quarterly period represented an estimated $29 million or approximately 7% of the net sales. 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 quarter ended October 2, 2010.

Earnings before interest, taxes, depreciation, amortization and other adjustments (“Adjusted EBITDA,” as defined in the Company’s credit facility) for the quarter ended October 1, 2011 (13-week period) were $55.3 million, compared to $61.8 million in 2010 (14-week period), a decrease of 10.5%. Adjusted EBITDA decreased $4.7 million or 3% to $159.1 million for the nine months ended October 1, 2011 (39-week period) compared to $163.8 million in the comparable 2010 39-week period.

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

Potato

Crystal

Products

Products

Farms

Corporate

Total

Company

Quarter ended October 1, 2011

External net sales

$311,692

$31,567

$116,228

$ –

$ 459,487

Net earnings (loss)

10,504

725

966

(11,625)

570

Adjusted EBITDA

47,400

4,773

4,730

(1,575)

55,328

Quarter ended October 2, 2010

External net sales

$293,413

$31,232

$104,726

$ –

$ 429,371

Net earnings (loss)

3,848

(338)

672

(10,049)

(5,867)

Adjusted EBITDA

55,178

2,718

5,780

(1,842)

61,834

Nine months ended October 1, 2011

External net sales

$884,711

$91,580

$320,316

$ –

$1,296,607

Net earnings (loss)

37,556

2,943

7,489

(53,019)

(5,031)

Adjusted EBITDA

131,566

14,220

18,979

(5,649)

159,116

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 October 1, 2011 (unaudited, in thousands):

Egg

Potato

Crystal

Products

Products

Farms

Corporate

Total

Net earnings (loss)

$10,504

$ 725

$ 966

$(11,625)

$ 570

Unrealized gain on currency translation (a)

1,433

–

–

–

1,433

Consolidated net earnings (loss)

11,937

725

966

(11,625)

2,003

Interest expense

225

153

–

25,480

25,858

Intercompany interest expense (income)

7,365

514

1,123

(9,002)

–

Income tax expense (benefit)

5,676

372

500

(5,572)

976

Depreciation and amortization

19,699

2,851

1,981

1

24,532

Non-cash and stock option compensation

–

–

–

529

529

Equity sponsor management fee

–

–

–

557

557

Fees and expenses in connection with the

exchange of the 9.75% senior notes

–

–

–

104

104

Expenses related to industrial revenue bonds

guaranteed by certain of our subsidiaries

139

–

–

–

139

Unrealized loss on swap contracts

630

–

–

–

630

Other charges

1,729

158

160

(2,047)

–

Adjusted EBITDA, as defined

in the credit agreement

$47,400

$ 4,773

$ 4,730

$ (1,575)

$ 55,328

(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 October 2, 2010 (unaudited, in thousands):

Egg

Potato

Crystal

Products

Products

Farms

Corporate

Total

Consolidated net earnings (loss)

$ 3,848

$ (338)

$ 672

$(10,049)

$ (5,867)

Interest expense

268

140

–

26,950

27,358

Income tax expense (benefit)

13,427

(551)

1,540

(18,217)

(3,801)

Depreciation and amortization

19,594

2,880

1,946

1

24,421

Non-cash and stock option compensation

–

–

–

496

496

Equity sponsor management fee

–

–

–

561

561

Non-cash purchase accounting adjustments

15,930

483

1,515

–

17,928

Expenses related to industrial revenue bonds

guaranteed by certain of our subsidiaries

151

–

–

–

151

Unrealized loss on swap contracts

587

–

–

–

587

Other charges

1,373

104

107

(1,584)

–

Adjusted EBITDA, as defined

in the credit agreement

$55,178

$ 2,718

$ 5,780

$ (1,842)

$ 61,834

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

Egg

Potato

Crystal

Products

Products

Farms

Corporate

Total

Net earnings (loss)

$ 37,556

$ 2,943

$ 7,489

$ (53,019)

$ (5,031)

Unrealized gain on currency translation (a)

756

–

–

–

756

Consolidated net earnings (loss)

38,312

2,943

7,489

(53,019)

(4,275)

Interest expense

709

497

–

75,427

76,633

Intercompany interest expense (income)

7,365

514

1,123

(9,002)

–

Income tax expense (benefit)

19,942

1,517

3,870

(27,381)

(2,052)

Depreciation and amortization

59,123

8,553

5,944

5

73,625

Non-cash and stock option compensation

–

–

–

1,418

1,418

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

–

–

–

1,726

1,726

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

532

–

–

–

532

Unrealized loss on swap contracts

395

–

–

–

395

Loss attributable to the early

extinguishment of indebtedness

–

–

–

3,527

3,527

Other charges

5,188

550

553

(6,291)

–

Adjusted EBITDA, as defined

in the credit agreement

$131,566

$ 14,220

$ 18,979

$ (5,649)

$ 159,116

(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, 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

Nine Months

Quarter

Six Months

Ended

Ended

Ended

Ended

October 1,

October 1,

October 2,

June 26,

2011

2011

2010

2010

Net sales

$ 459,487

$1,296,607

$ 429,371

$ 743,995

Cost of sales

393,467

1,099,892

372,416

612,748

Gross profit

66,020

196,715

56,955

131,247

Selling, general and administrative expenses

37,095

122,620

39,157

102,283

Transaction costs

–

–

–

14,730

Operating profit

28,925

74,095

17,798

14,234

Interest expense, net

25,850

76,606

27,345

30,985

Loss on early extinguishment of debt

–

3,527

–

31,238

Unrealized loss on currency translation

1,433

756

–

–

Earnings (loss) before income taxes and equity

in losses of unconsolidated subsidiary

1,642

(6,794)

(9,547)

(47,989)

Income tax expense (benefit)

976

(2,052)

(3,801)

(13,765)

Equity in losses of unconsolidated subsidiary

96

289

121

59

Net earnings (loss)

$ 570

$ (5,031)

$ (5,867)

$ (34,283)

October 1,

October 2,

2011

2010

Selected Balance Sheet Information:

Cash and equivalents

$ 36,065

$ 9,679

Accrued interest

$ 9,770

$ 12,510

Long-term debt, including current maturities

$1,281,043

$1,238,861

SOURCE Michael Foods Group, Inc.

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