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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
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Commission file number 0-15568
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MICHAEL FOODS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 41-1579532
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Suite 324, Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 546-1500
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of February 16, 1996 was approximately $124,000,000 based on the
last price of such stock as reported by the Nasdaq National Market.
The number of shares outstanding of the registrant's Common Stock, $.01
par value, as of February 16, 1996, was 19,332,001 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to General Instruction G(2), the responses to Items 5, 6, 7 and 8 of
Part II of this report are incorporated herein by reference to the Company's
Annual Report to Stockholders for 1995.
Pursuant to General Instruction G(3), the responses to Items 10, 11, 12 and 13
of Part III of this report are incorporated herein by reference to the
information contained in the Company's Proxy Statement for its 1996 Annual
Meeting of Stockholders expected to be held on June 4, 1996, which forms part
of the Registration Statement of North Star Universal, Inc. on Form S-4 to be
filed with the Securities and Exchange Commission on or about March 21, 1996
or, in any event, before April 29, 1996.
PART I
ITEM 1 - BUSINESS
GENERAL
Michael Foods, Inc. (the "Company") is a diversified producer and distributor
of food products operating in four basic areas - egg products, distribution of
refrigerated grocery products, potato products and dairy products. The
Company, through its egg products division, is one of the largest producers,
processors and distributors of shell eggs, extended shelf-life liquid eggs and
dried, hard-cooked and frozen egg products in the United States. The
refrigerated distribution division distributes a broad line of refrigerated
grocery products directly to supermarkets, including cheese, shell eggs,
bagels, butter, margarine, muffins, potato products, juice and ethnic foods.
The potato products division processes and distributes refrigerated and frozen
potato products for foodservice and retail markets throughout the United
States. The dairy products division processes and distributes soft serve mix,
ice cream mix, and extended shelf-life ultrapasteurized milk and specialty
dairy products to fast food businesses and other foodservice outlets,
independent retailers, ice cream manufacturers and others.
The strategic thrust of the Company is to grow value-added food product sales,
primarily in the foodservice market, by focusing on developing, marketing and
distributing innovative, refrigerated products. The key to this strategy is
"value-added", whether that be in the product, the distribution channel or in
the service provided to customers.
EGG PRODUCTS
M. G. Waldbaum Company ("Waldbaum") is a producer, processor and distributor of
numerous egg products and shell eggs. Principal value-added egg products are
ultrapasteurized "Easy Eggs(R)", which is a proprietary extended shelf-life and
salmonella-negative (pursuant to United States Department of Agriculture
("USDA") regulations) liquid egg product, hard-cooked eggs, and Simply Eggs(R)
Brand Liquid Scrambled Egg Mix. Other egg products include frozen and dried egg
whites, yolks and whole eggs, pre-cooked frozen egg patties and omelets, and
frozen breakfast entrees.
Management believes that Waldbaum is the second largest egg producer in the
United States. Waldbaum is the largest supplier of ultrapasteurized whole eggs
and hard-cooked eggs in the United States and is a leading supplier of dried,
frozen and liquid refrigerated whole eggs, whites and yolks. Waldbaum
distributes its egg products to food processors and foodservice customers
primarily throughout the United States and has some international sales in the
Far East, Europe and South America. Easy Eggs(R) and other egg products are
marketed nationally to a wide variety of foodservice and industrial customers.
Most of Waldbaum's shell eggs are sold to the
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Company's refrigerated distribution division, Crystal Farms Refrigerated
Distribution Company, which, in turn, distributes them throughout its 23 state
territory.
Shell eggs are essentially a commodity and are sold based upon reported egg
prices. Egg prices, in turn, are significantly influenced by shifts in supply
and demand. Pricing of shell eggs is also typically affected by seasonal
demand related to increased consumption during holiday periods. In general,
egg market pricing in the United States reflects levels reported by Urner Barry
Spot Egg Market Quotations ("Urner Barry"), a recognized publication. Prices
for certain of the Company's products are affected by these factors,
particularly shell eggs. The Company has endeavored to moderate these effects
primarily through a continuing emphasis on value-added products and internal
production of shell eggs. In 1995, the Company's egg operations derived
approximately 16% of net sales from shell eggs, with the remaining 84% derived
from the sales of value-added egg products. In 1995, approximately 85% of the
Company's egg needs were satisfied by production from Company-owned hens, with
the balance purchased on the spot market.
The Company's shell egg and egg products businesses are fully integrated from
the production and maintenance of laying flocks through processing of shell
eggs and further processed egg products. The Company maintains facilities with
approximately 2,600,000 pullets located in Nebraska and Minnesota. Fully
automated laying barns, housing approximately 12,500,000 producing hens, are
located in Nebraska, Colorado and Minnesota. In addition, approximately
600,000 Company-owned producing hens are housed in contract facilities. Major
laying facilities also maintain their own grain and feed storage facilities.
Principal egg processing plants are located in Nebraska, Colorado and
Minnesota.
REFRIGERATED DISTRIBUTION
Over the past 20 years, Crystal Farms Refrigerated Distribution Company
("Crystal Farms") has augmented its shell egg distribution business by
delivering a wide range of refrigerated grocery products directly to retailers
and to wholesale warehouses. Crystal Farms believes that its strategy of
offering quality branded products, many of which are sold under the Crystal
Farms name as a lower-priced alternative to national brands, has contributed to
its growth. These distributed refrigerated products, which consist principally
of cheese, bagels, butter, margarine, muffins, potato products, juice and
ethnic foods, are supplied by vendors, or other divisions of the Company, to
Crystal Farms' specifications. Cheese accounts for approximately 54% of
Crystal Farms' annual sales. Crystal Farms operates a cheese packaging
facility in Lake Mills, Wisconsin, which allows for the cutting and wrapping of
various cheese products for its Crystal Farms brand cheese business and for
private label customers.
Crystal Farms has expanded its market area both directly and through the use of
independent egg producers as distributors. Whereas Crystal Farms' market area
covered only seven states in 1987, it now includes 23 states primarily in the
Midwest and Southwest. Retail locations served by Crystal Farms number over
1,500. In 1995, sales to the warehouse operations of SUPERVALU, INC., and to
SUPERVALU owned and franchised formats, including Cub Foods, were
approximately 35% of Crystal Farms' net sales. Crystal Farms maintains a fleet
of refrigerated tractor-trailers to deliver products daily to its retail
customers from ten distribution centers located centrally in its key trade
areas.
POTATO PRODUCTS
Potato products are produced and sold by Northern Star Co. ("Northern Star"),
Drallos Potato Co., Inc. ("Drallos") and Farm Fresh Foods, Inc. ("Farm Fresh").
The potato products division processes and sells frozen potato products,
primarily french fries, and refrigerated potato products to both foodservice
and retail markets. Refrigerated products consist of a line of hash
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brown, mashed, and specialty potato products. In 1995, approximately 17% of
the potato products division's net sales were to the retail trade, with the
balance to foodservice. Refrigerated potato products accounted for
approximately 60% of divisional net sales in 1995. The potato products
division typically purchases approximately 80%-90% of its annual potato
requirements from contract producers, of which a large majority are grown on
irrigated land. The balance of potato requirements are purchased on the spot
market.
The potato products division maintains storage facilities in North Dakota,
Wisconsin and Minnesota. Processing and refrigerated/frozen warehouse
facilities are located principally in Minnesota, with smaller facilities in
California and Michigan. The potato products division maintains a high
percentage of its contracted supply from irrigated fields, as well as
maintaining geographic diversification of its sources. However, weather
remains an important factor in determining raw potato prices and quality.
Small variations in the purchase price and/or quality of potatoes can have a
significant effect on the potato products division's operating results.
DAIRY PRODUCTS
Through Kohler Mix Specialties, Inc. ("Kohler"), the Company processes and
sells soft serve mix, ice cream mix, frozen yogurt mix, milk and specialty
dairy products, many of which are ultra-high temperature ("UHT") pasteurized
products. Kohler sells its products through-out much of the central United
States from facilities in Minnesota and Texas.
Kohler's UHT processing is designed to produce bacteria-free products with
delicate flavors, such as milk, ice cream mixes and specialty dairy products
such as whipping cream, half and half and cordials. Many of Kohler's products
have an extended shelf life of up to ninety days, thus extending the trade
territory which can be effectively served by Kohler to include most of the
United States.
Kohler soft serve, frozen yogurt and ice cream mixes are made to customer's
specifications. Currently, Kohler produces approximately 65 different
formulations. Kohler believes that the customization of high quality products
and high customer service levels are critical to their business.
Kohler has approximately 600 customers, including branded ice cream
manufacturers, quick service restaurants, other foodservice outlets and
independent ice cream retailers. Kohler has a significant customer who is an
ice cream manufacturer. However, sales to this customer represent less than 5%
of the consolidated sales of the Company. In 1995, most of Kohler's net sales
were generated from customers who purchased products on a cost-plus basis.
This includes sales to most of the large fast food chains operating in its
market area. Sales of soft serve, shake, and ice cream mixes are more seasonal
than the Company's other products, with higher sales volume occurring between
May and September. The addition of other specialty dairy products in recent
years has somewhat offset this seasonality.
MARKETING AND CUSTOMER SERVICE
Each of the Company's four divisions has developed a marketing strategy which
emphasizes high quality products and customer service. In 1992, a group
(Michael Foods Sales) was formed to sell various products nationally to
foodservice and industrial customers. From 1992 - 1994 Michael Foods Sales
handled egg products, principally Easy Eggs(R), hard-cooked eggs, frozen egg
patties, and Simply Eggs(R) Brand Liquid Scrambled Egg Mix, as well as
refrigerated and frozen potato products. In 1995 the Kohler sales staff was
consolidated into Michael Foods Sales. Additionally, during 1995 the Company
tested sales of refrigerated pasta and pasta sauces in the foodservice market
under a marketing and distribution agreement with Romance Foods Co. The
agreement was terminated in late 1995 and the test ended.
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The sales group is supported by a centralized order entry and customer service
staff. Additionally, Waldbaum maintains a small sales group in Wakefield,
Nebraska, which handles shell egg sales and certain egg product sales. Shell
eggs are sold mainly to Crystal Farms. Customers for egg products include food
manufacturers and foodservice businesses. Crystal Farms sales personnel obtain
orders from retail stores which are usually placed no more than one day ahead
of the requested delivery date. In-store and co-op advertising programs are
utilized with grocers on a market-by-market basis.
ACQUISITIONS
There were no acquisitions in 1992, 1993 or 1994. In late 1995 the
institutional refrigerated potato products line of Interstate Food Processing
Corp. was acquired. This asset purchase was made for cash and included a
customer list, processing equipment, goodwill and certain other assets.
Additionally, Interstate Food Processing Corp. agreed to produce products for
the Company, for an unspecified amount of time, at its plant in Maine under a
contract packing arrangement. The acquisition is expected to add 15% - 18% to
the potato products division's annual foodservice refrigerated potato product
sales, but no material earnings impact is expected in 1996.
The Company anticipates that it will continue to make acquisitions as part of
its strategic plan.
PROPRIETARY TECHNOLOGIES
In 1988, the Company acquired an exclusive license to use a patented process,
developed at North Carolina State University, for the ultrapasteurization of
liquid eggs. The patent expires in 2006. The process results in liquid eggs
that are salmonella and listeria negative, pursuant to USDA regulations.
Salmonella and listeria are bacteria which can contaminate shell eggs. The
process also extends the shelf life of liquid eggs from less than two weeks to
ten weeks or more. The Company has an aseptic plant in Gaylord, Minnesota
which processes all of the ultrapasteurized liquid egg needs of the Company.
The Company and the patent holder have initiated litigation against several
processors of competing liquid egg products, claiming infringement of the
original and subsequent related process patents with respect to
ultrapasteurized liquid egg production. In 1992, a jury for the United States
District Court for the middle district of Florida found the original patent to
be valid and that a processor, Bartow Food Co., willfully and deliberately
infringed the patent. In another action, against Papetti's Hygrade Egg
Products, Inc., the United States District Court for the District of New Jersey
found in 1992 and 1993 that the defendant had infringed the patents and that
the licensed patents are valid and enforceable. In 1994, the Court of Appeals
for the Federal Circuit upheld this judgment. In 1995 and early 1996 there
were other developments regarding the patentability of the claims under the
patents. See Item 3 "Legal Proceedings."
TRADENAMES
Waldbaum markets its products using several tradenames including "Logan
Valley", "Wakefield", "Sunny Side Up(R)", "Michael Foods", "Deep Chill",
"MicroFresh(TM)" and "MGW". Ultrapasteurized liquid eggs are marketed using the
"Easy Eggs(R)" tradename. The Company's liquid scrambled egg mix is marketed
under the tradename "Simply Eggs(R) Brand".
Crystal Farms products are marketed principally under the "Crystal Farms(R)"
tradename. In addition, Crystal Farms is the principal distributor of
"Bongards" cheese in Minnesota. Crystal Farms also distributes eggs, butter,
cheese, bagels, and ethnic foods under a number of other customer-owned
tradenames.
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Within the potato products division, Northern Star markets its frozen potatoes
to foodservice customers under a variety of brands, including "Northern Star".
The "Simply Potatoes(TM)" brand is used for retail refrigerated products, with
"Farmer Select" used on retail frozen products. Drallos and Farm Fresh also
maintain various tradenames for certain of their products. The "Quality Farms"
brand of Interstate Food Processing Corporation is now controlled by the potato
products division and is used in the sale of institutional refrigerated potato
products.
Within the dairy products division, "Kohler" and "Midwest Mix, Inc." are two
main tradenames.
COMPETITION
All aspects of the Company's businesses are extremely competitive. In general,
food products are price sensitive and affected by many factors beyond the
control of the Company, including changes in consumer tastes, fluctuating
commodity prices, and changes in supply due to weather, production and feed
costs.
The Company's egg products division is considered the second largest egg
producer and the second largest egg products supplier in the United States, and
competes with other suppliers of shell eggs and egg products. While the shell
egg and egg products industry is highly fragmented, there has been a trend
toward consolidation in recent years and further consolidation in the industry
is expected. Other major egg producers include Cal-Maine Foods, Inc. and Rose
Acres Farms, Inc. A major egg products producer is Papetti's Hygrade Egg
Products, Inc. The Company believes that Waldbaum is among the lowest cost egg
producers in the United States. The Company also believes that Easy Eggs'(R)
salmonella-negative aspect, extended shelf-life and ease of use are significant
competitive advantages in the foodservice and industrial food markets for eggs.
The Company's refrigerated distribution division competes with the refrigerated
products of other suppliers such as Beatrice Companies, Inc.; Kraft Foods,
Inc.; Land O' Lakes, Inc.; and Sargento Cheese Company, Incorporated. Crystal
Farms believes that its emphasis on a high level of service and lower-priced
branded products has enabled it to compete in its market area with larger
national brand companies.
Within the potato products division, Northern Star's frozen potato products
compete with larger producers such as Carnation Co., J. R. Simplot Co.,
Lamb-Weston, Inc., and McCain Foods, Inc. Within the retail frozen market,
Ore-Ida Foods, Inc. is a major competitor. The Company believes it has a
dominant market share in refrigerated potato products sold in the U. S., where
competitors are generally smaller local or regional companies.
Within the dairy products division, management believes that Kohler provides
the majority of the soft serve mix, and a significant percentage of ice cream
mix, sold in Minnesota, Wisconsin and South Dakota. Kohler also has a large
percentage of the UHT soft serve mix and UHT fluid milk business with quick
service restaurant chains in the central U. S. Competitors include local
dairies utilizing conventional pasteurization and regional dairies with UHT
products.
GOVERNMENT REGULATION
All of the Company's subsidiaries are subject to federal and state regulations
relating to grading, quality control, product branding and labeling, waste
disposal and other aspects of their businesses. The subsidiaries are subject
to USDA or FDA regulation regarding grading, quality, labeling and sanitary
control. Waldbaum's egg breaking plants are subject to continuous on-site USDA
inspection. All other subsidiaries are subject to periodic USDA inspections.
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Crystal Farms' cheese and butter products and Kohler's soft serve mix and ice
cream mix are affected by milk price supports established by the USDA. The
support price serves as an artificial minimum price for these products, which
may not be indicative of market conditions that would prevail if such supports
were abolished.
All of the Company's subsidiaries must also comply with state and local waste
disposal requirements. Waldbaum disposes of chicken waste primarily to farmers
for use as fertilizer. Northern Star disposes of solid waste from potato
processing by selling the solid waste to a processor who converts it to animal
feed and disposes of effluent under a waste discharge permit issued by the
Minneapolis-St. Paul Metropolitan Waste Control Commission. Farm Fresh holds a
permit with the Los Angeles County Sanitation District to discharge industrial
waste into the Sanitation District's sewage system. Waldbaum has permits to
discharge waste products into available sewer systems and maintain discharge
ponds for certain wastes.
EMPLOYEES
The Company employed approximately 2,600 employees at December 31, 1995. Of
this total, Waldbaum employed approximately 1,200 full-time and 300 part-time
employees, none of whom are represented by a union. Crystal Farms employed
approximately 300 employees, none of whom are represented by a union. Northern
Star employed approximately 450 employees of whom 385 are represented by the
Bakery, Laundry, Allied Sales Drivers and Warehousemen Union affiliated with
the Teamsters. Farm Fresh had 36 employees and Drallos had 4 employees at
December 31, 1995 with none being represented by a union. Kohler employed 133
people at December 31, 1995. Historically, Kohler increases its number of
employees by approximately 10 to 20 percent during the summer season. Its
production personnel and drivers are represented by the Milk Drivers and Dairy
Employees Union. The Michael Foods Sales, Distribution and Customer Service
groups collectively employed approximately 170 people at December 31, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Officer
Name Age Position Since
- ---- --- -------- -----
<S> <C> <C> <C>
Gregg A. Ostrander 43 President and Chief Executive Officer 1993
Jeffrey M. Shapiro 48 Executive Vice President and Secretary 1987
John D. Reedy 50 Vice President - Finance, Chief 1988
Financial Officer and Treasurer
Mark D. Witmer 38 Assistant Treasurer 1995
Bill L. Goucher 49 President - Waldbaum 1993
James J. Kohler 42 President - Kohler 1988
James D. Clarkson 43 President - Northern Star 1995
Norman A. Rodriguez 53 President - Crystal Farms 1989
Kevin O. Kelly 38 President - Michael Foods Sales 1993
</TABLE>
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ITEM 2 - PROPERTIES
FACILITIES
The Company maintains leased space for its executive headquarters, customer
service office and sales office in suburban Minneapolis, Minnesota.
The egg products division owns and operates 29 pullet growing houses, each
containing approximately 14,600 square feet, in Wakefield, Nebraska; two grain
elevators in Wayne, Nebraska; 87 laying houses, each containing approximately
19,500 square feet, in Wakefield, Nebraska, Bloomfield, Nebraska and Hudson,
Colorado; two feed mills in Wakefield, Nebraska, one in Bloomfield, Nebraska
and one in Hudson, Colorado; processing facilities in Wakefield, Nebraska
(approximately 323,000 square feet), Hudson, Colorado (approximately 49,000
square feet), Bloomfield, Nebraska (approximately 80,000 square feet); and
warehouse, office and distribution facilities aggregating approximately 40,000
square feet located in Wakefield, Nebraska, Hudson, Colorado, Daytona Beach,
Florida, and Bloomfield, Nebraska. Additionally, leased space approximating
11,000 square feet is located in Daytona Beach, Florida. Waldbaum owns in the
aggregate approximately 950 acres of land in Nebraska, Colorado and Minnesota
and leases land in Bloomfield, Nebraska.
The egg products division also owns and operates facilities in Minnesota,
including 9 pullet growing houses (approximately 160,000 square feet) at
Gaylord, Minnesota; 48 laying houses, each averaging 15,000 square feet, in
Gaylord and LeSueur, Minnesota; feed mills in Gaylord and LeSueur, Minnesota;
processing facilities in Gaylord, Minnesota (approximately 164,000 square feet)
and LeSueur, Minnesota approximately (29,000 square feet). The Gaylord,
Minnesota facility includes a centralized warehouse for the distribution of the
Company's core refrigerated foodservice products. Waldbaum owns an unused
facility located on eight acres of land near Richfield, North Carolina. This
facility contains approximately 53,000 square feet and is expected to be sold
in the first half of 1996. Waldbaum leases space for its administrative
offices in suburban Minneapolis, Minnesota.
The refrigerated distribution division leases administrative and sales offices
in suburban Minneapolis and several small warehouses across the United States.
In January 1994, a new 33,000 square foot distribution center was opened in
LeSueur, Minnesota. Wisco Farm Cooperative owns and operates a 48,200 square
foot refrigerated warehouse on a 19 acre site in Lake Mills, Wisconsin. A
19,000 square foot cheese packaging facility is also located in Lake Mills.
Within the potato products division, Northern Star owns its processing plant
and five of seven raw potato storage facilities in Minnesota, Wisconsin and
North Dakota totaling over 378,000 square feet. Five of the storage facilities
are located on land owned by Northern Star. The East Grand Forks, Minnesota
and Hastings, Minnesota facilities are located on leased land. These
facilities have an aggregate storage capacity of over 200 million pounds of raw
potatoes. The processing plant contains approximately 175,000 square feet of
production area and an automated frozen storage area with a capacity of over 20
million pounds of finished product. Farm Fresh leases three buildings in Bell
Gardens, California, comprising approximately 22,000 square feet, from the
former owner of Farm Fresh. Drallos owns a building in Detroit, Michigan
comprising approximately 65,000 square feet.
In the dairy products division, Kohler's facilities in White Bear Lake,
Minnesota consist of three company-owned buildings, with the main plant
containing approximately 104,000 square feet. Kohler also leases a UHT dairy
plant in Sulphur Springs, Texas comprising approximately
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20,000 square feet. An addition to the Texas UHT dairy plant will
approximately double the size of the facility and this space is expected to be
occupied in the spring of 1996.
A production and warehouse facility approximating 35,000 square feet is
partially constructed in Lake Mills, Wisconsin.
Management believes that the facilities of the Company, together with budgeted
capital improvements in each of its four operating divisions, are adequate to
meet the Company's anticipated requirements for its current lines of business
over the foreseeable future.
NEBRASKA CONSTITUTIONAL PROVISION
A substantial portion of the egg production and processing operations of
Waldbaum is located in the state of Nebraska. With certain exceptions, a
provision of the Nebraska constitution generally prohibits corporations from
engaging in farming or ranching in Nebraska. Although the constitutional
provision contains an exemption for agricultural land operated by a corporation
for the purpose of raising poultry, the Nebraska Attorney General has, in
written opinions, taken the position that facilities devoted primarily to the
production of eggs do not fall within such exemption and therefore are subject
to the restrictions contained in the constitutional provision. The Company
believes that the egg production facilities of Waldbaum are part of Waldbaum's
integrated facilities for the production, processing and distribution of egg
products, and therefore, that any agricultural land presently owned by Waldbaum
is being used for non-farming and non-ranching purposes.
The constitution empowers the Nebraska Attorney General, or if the Attorney
General fails to act, a Nebraska citizen, to obtain a court order to, among
other things, force divestiture of land held in violation of the constitutional
provision. If land subject to such a court order is not divested within a
two-year period, the constitutional provision directs the court to declare the
land escheated to the State of Nebraska. The Company is not aware of any
proceedings under such constitutional provision pending or threatened against
either Waldbaum or the Company. Until the scope of such provision has been
clarified by further judicial, legislative, or executive action, there can be
no assurance as to the effect, if any, that it may have on the business of
Waldbaum or the Company.
ITEM 3 - LEGAL PROCEEDINGS
Four patents for ultrapasteurizing liquid eggs licensed by the Company from
North Carolina State University ("NCSU") (see "Proprietary Technologies") are
presently involved in proceedings before the United States Patent and Trademark
Office ("PTO"). In the first commenced proceeding, a reissue proceeding
initiated by NCSU to obtain product claims in addition to existing process
claims, the objections of an examiner, which had been sustained by the PTO
Board of Appeals and Interferences, were reversed by the Court of Appeals for
the Federal Circuit. All four patents are presently involved in on-going
reexamination proceedings in the PTO as requested by various egg industry
competitors of the Company. In addition, a second reissue proceeding has been
initiated with respect to the patent in which product claims were sought and,
in this reissue proceeding, both process and product claims are being
reexamined for patentability. The Company petitioned the Commissioner of the
PTO to facilitate prosecution of this reissue proceeding so that the Company
and NCSU can receive an expedited determination of the patentability of both
the product and process claims with respect to the patent.
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In early 1996, NCSU received an Official Action issued by the PTO. In this
non-final action, the examiner rejected claims under the fourth process patent
held by NCSU. The rejection was on procedural grounds and on grounds relating
to the patentability of the claimed subject matter. As the claims of the other
three NCSU process patents are reviewed, it is expected that they will be
similarly rejected. The Official Action was not a final action by the
examiner. NCSU will, therefore, either continue to prosecute the claims with
the examiner, or will appeal the rejection to the PTO's Board of Patent Appeals
and Interferences. An unsatisfactory result of such a PTO appeal could be
appealed to the Court of Appeals for the Federal Circuit. Counsel to NCSU and
the Company estimates that a full appeal process could take up to two years to
complete. Pending the outcome of such appeals, the patents will remain valid
and in full force and effect and parties infringing the patents may be liable
for damages based upon their infringement.
The Company and NCSU initiated litigation in 1989 against a processor of liquid
egg products, Papetti's Hygrade Egg Products, Inc. ("Papetti's"), claiming
infringement of the process patents with respect to ultrapasteurized liquid egg
production. The action was brought in the United States District Court for the
District of New Jersey. Papetti's contended that their process did not
infringe the patents and that the patents were invalid. In November 1992, the
Company was granted summary judgment that Papetti's had infringed the claims of
the patents. In July 1993, the Court granted summary judgment upholding the
validity and enforceability of the patents. Papetti's filed an appeal of the
1993 summary judgment with the Court of Appeals for the Federal Circuit and in
July 1994 the Court of Appeals upheld the District Court's summary judgment.
The relief sought by the plaintiffs includes damages and costs and
disbursements, including attorney's fees. Final determination of the damage
award in this case has been stayed pending the outcome of the PTO proceedings
referred to above. See Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's 1995 Annual Report to
Stockholders.
In July 1992, Sunny Fresh Foods, Inc. commenced an action in the United States
District Court for the District of Minnesota against the Company and NCSU
seeking a declaratory judgment that the patents licensed by the Company are
invalid. The Company and NCSU counterclaimed alleging that Sunny Fresh Foods,
Inc. had infringed the patents. The relief sought by the Company included
damages and costs and disbursements, including attorney's fees. In November
1995, the parties agreed to dismiss the litigation without prejudice pending
the outcome of the PTO proceedings referred to above.
In August 1993, Nulaid Foods, Inc. commenced an action in the United States
District Court for the Eastern District of California against the Company and
NCSU seeking declaratory judgment that the patents referred to above are
invalid and not infringed by Nulaid Foods, Inc. The Company and NCSU
counterclaimed alleging that Nulaid Foods, Inc. had infringed the patents. The
relief sought by the Company includes damages and costs and disbursements,
including attorney's fees. At the end of discovery in late 1994, the action
was stayed pending the outcome of the PTO proceedings referred to above.
In May 1995, an action was commenced against the Company's Kohler Mix
subsidiary and certain other parties by Schwan's Sales Enterprises, Inc.
("Schwan's") in the District Court for Lyon County, Minnesota seeking recovery
of damages arising out of alleged salmonella contamination of Schwan's ice
cream that had been distributed to the public in the summer and fall of 1994.
Following an investigation by Schwan's and various governmental agencies, it
was determined that Schwan's ice cream product evidenced the presence of
salmonella bacteria. Schwan's operations were interrupted for a period of time
and Schwan's is making settlements with customers who claimed injury from
consuming Schwan's ice cream. The Company's
10
<PAGE> 11
Kohler Mix subsidiary and others supplied ice cream mix to Schwan's in tanker
trucks operated by the same transporter during the time in question. The
complaint seeks to recover all or a portion of the loss sustained by Schwan's
as a result of the incident. Discovery is on-going. The Company has denied
any liability and believes that it has substantial factual and legal defenses
to the claim. The Company's product liability insurance carrier has undertaken
defense of the litigation without waiving coverage defenses.
The Company is also engaged in routine litigation incidental to its business,
which management believes will not have a material adverse effect upon its
business or consolidated financial position.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Pursuant to General Instruction G(2), information is incorporated by reference
to "Market Price Ranges" on the inside back cover of the Company's Annual
Report to Stockholders for 1995.
ITEM 6 - SELECTED FINANCIAL DATA
Pursuant to General Instruction G(2), information is incorporated by reference
to "Summary Consolidated Financial Data" on page 19 of the Company's Annual
Report to Stockholders for 1995.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pursuant to General Instruction G(2), information is incorporated by reference
to "Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 7 and 8 of the Company's Annual Report to Stockholders for
1995.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pursuant to General Instruction G(2), information is incorporated by reference
to "Report of Independent Certified Public Accountants" and "Consolidated
Financial Statements of Michael Foods, Inc. and Subsidiaries" on pages 9 - 18,
and "Quarterly Financial Data" on page 20, of the Company's Annual Report to
Stockholders for 1995.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3), information is incorporated by reference
to "Election of Michael Directors" in the Proxy Statement of the Company
forming part of the Registration Statement of North Star Universal, Inc. on
Form S-4 to be filed with the Securities and
11
<PAGE> 12
Exchange Commission on or about March 21, 1996 or, in any event, before April
29, 1996. For information with respect to executive officers, reference is
made to Part I, Item 1 of this Form 10-K.
ITEM 11 - EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), information is incorporated by reference
to "Executive Compensation" in the Proxy Statement of the Company forming part
of the Registration Statement of North Star Universal, Inc. on Form S-4 to be
filed with the Securities and Exchange Commission on or about March 21, 1996
or, in any event, before April 29, 1996. In addition, Mark D. Witmer,
Assistant Treasurer, and James D. Clarkson, President of Northern Star Co., are
participants in the Severance Plan for Eligible Employees of Michael Foods,
Inc. and its Subsidiaries (the "Plan"). Under the Plan, certain identified
employees of Michael Foods, Inc. are entitled to severance pay upon termination
of employment if such termination of employment occurs within two years
following a change in control, as defined in the Plan, and such termination is
due to reasons other than death, permanent disability, retirement, cause, or
resignation by the employee other than for Good Reason. Good Reason is a
defined term which includes, among other things, a termination by the employee
due to a significant change in his responsibilities, titles or offices, a
requirement that he or she move outside of his or her geographic location, a
reduction in the employee's base salary or the failure of the employer to
increase compensation proportionate to other similarly situated employees, the
failure of the employer to maintain any benefit plan or a substantial
modification in such plan which would reduce the employee's benefits, and any
purported termination of employment by the Company which is not effected
pursuant to a notice of termination as required under the Plan. The amount of
compensation to which Mr. Clarkson would be entitled to equals two times his
Annual Compensation, as defined, which generally means base compensation
excluding bonuses, benefits and allowances. The Plan automatically terminates
unless it is renewed by action of the Compensation Committee and the Board of
Directors of the Company prior to July 1, 1996 and annually thereafter, except
that the Plan will remain in effect after a change in control for at least 24
months unless otherwise terminated by the Board of Directors of the Company
with the consent of 80% of the Plan participants who were Plan participants
at the time of the change in control.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3), information is incorporated by reference
to "Security Ownership of Michael and New Michael" in the Proxy Statement of
the Company forming part of the Registration Statement of North Star Universal,
Inc. on Form S-4 to be filed with the Securities and Exchange Commission on or
about March 21, 1996 or, in any event, before April 29, 1996.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), information is incorporated by reference
to "The Orderly Disposition Agreement," "Election of Michael Directors" and
"Security Ownership of Michael" in the Proxy Statement of the Company forming
part of the Registration Statement of North Star Universal, Inc. on Form S-4 to
be filed with the Securities and Exchange Commission on or about March 21, 1996
or, in any event, before April 29, 1996.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
EXHIBITS
<TABLE>
<S> <C>
2.1 Agreement and Plan of Reorganization (18)
3.1 Certificate of Incorporation of Michael Foods, Inc. (1)
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C>
3.2 Certificate of Amendment to Certificate of Incorporation, dated
April 29, 1988 (2)
3.3 Certificate of Amendment to Certificate of Incorporation, dated
April 30, 1990 (3)
3.6 Bylaws of Michael Foods, Inc., as Amended through January 31, 1996
4.1 Form of Common Stock Certificate (7)
10.15 *Michael Foods, Inc. 1987 Incentive Stock Option Plan and Incentive
Stock Option Agreement (1)
10.16 *Michael Foods, Inc. 1987 Non-Qualified Stock Option Plan and
Non-Qualified Stock Option Agreement (1)
10.25 *Form of Michael Foods, Inc. Director Stock Option Agreement (1)
10.40 *Retirement Compensation Agreement between Milton G. Waldbaum Company
and Daniel W. Gardner, dated September 24, 1987 (5)
10.43 Loan Agreement and Promissory Note between Metropolitan Life Insurance
Company and Michael Foods, Inc., dated December 1, 1989 (5)
10.46 Revolving Loan Agreement between Continental Bank, N.A., as Agent, and
Michael Foods, Inc., dated March 30, 1990 (8)
10.48 First Amendment to Revolving Loan Agreement between Continental Bank,
N.A., as Agent, and Michael Foods, Inc., dated March 7, 1991 (8)
10.49 Note Purchase Agreement between Michael Foods, Inc. and The Principal
Mutual Life Insurance Company and Washington Square Capital, as Agent,
dated July 15, 1990 (8)
10.50 Note Purchase Agreement between Michael Foods, Inc. and The Principal
Mutual Life Insurance Company and Washington Square Capital, as Agent,
dated September 15, 1990 (8)
10.55 *Amendment to Michael Foods, Inc. Incentive and Non-Qualified Stock
Option Plans, dated November 21, 1989 (6)
10.56 License Agreement between Michael Foods, Inc. and North Carolina State
University, dated November 28, 1989 (8)
10.57 *Severance Plan for Eligible Employees of Michael Foods, Inc. and its
Subsidiaries (4)
10.60 Second Amendment to Revolving Loan Agreement between Continental Bank,
N.A., as Agent, and Michael Foods, Inc., dated February 25, 1992 (9)
10.61 Note Purchase Agreement between Michael Foods, Inc. and The Principal
Mutual Life Insurance Company, dated February 24, 1992 (9)
10.62 Third Amendment to Revolving Loan Agreement between Continental Bank,
N.A., as Agent, and Michael Foods, Inc., dated April 24, 1992 (10)
10.63 Fourth Amendment to Revolving Loan Agreement between Continental Bank,
N.A., as Agent, and Michael Foods, Inc., dated October 16, 1992 (11)
10.64 First Amendment to July 15, 1990 Note Purchase Agreement between Michael
Foods, Inc. and The Principal Mutual Life Insurance Company and
Washington Square Capital, as Agent, dated October 7, 1992 (11)
10.65 First Amendment to September 15, 1990 Note Purchase Agreement between
Michael Foods, Inc. and The Principal Mutual Life Insurance Company and
Washington Square Capital, as Agent, dated October 7, 1992 (11)
10.66 First Amendment to February 24, 1992 Note Purchase Agreement between
Michael Foods, Inc. and The Principal Mutual Life Insurance Company,
dated October 7, 1992 (11)
10.67 First Amendment to December 1, 1989 Loan Agreement and Promissory Note
between Michael Foods, Inc. and Metropolitan Life Insurance Company,
dated October 14, 1992 (11)
10.69 *Amendment to the Non-Qualified Stock Option Plan (12)
10.70 *Stock Option Plan for Non-Employee Directors (13)
10.75 Revolving Note between Michael Foods, Inc. and Toronto Dominion (Texas),
Inc., dated July 14, 1993 (14)
10.76 *Michael Foods, Inc. 1994 Executive Incentive Plan (15)
10.77 *Michael Foods, Inc. 1994 Executive Performance Stock Award Plan (15)
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C>
10.78 Fifth Amendment to Revolving Loan Agreement between Continental Bank,
N.A., as Agent, and Michael Foods, Inc., dated February 4, 1994 (15)
10.79 *Employment Agreement between Michael Foods, Inc. and Gregg A.
Ostrander, dated January 31, 1994 (15)
10.80 *Retirement and Consulting Agreement between Michael Foods, Inc. and
Richard G. Olson, dated December 23, 1993 (15)
10.81 Second Amendment to December 1, 1989 Loan Agreement and Promissory Note
between Michael Foods, Inc. and Metropolitan Life Insurance Company,
dated February 23, 1994 (15)
10.82 Second Amendment to July 15, 1990 Note Purchase Agreement between
Michael Foods, Inc. and The Principal Mutual Life Insurance Company and
Washington Square Capital, as Agent, dated February 15, 1994 (15)
10.83 Second Amendment to September 15, 1990 Note Purchase Agreement between
Michael Foods, Inc. and The Principal Mutual Life Insurance Company and
Washington Square Capital, as Agent, dated February 15, 1994 (15)
10.84 Second Amendment to February 24, 1992 Note Purchase Agreement between
Michael Foods, Inc. and The Principal Mutual Life Insurance Company,
dated February 15, 1994 (15)
10.87 Sixth Amendment to Revolving Loan Agreement between Bank of America
Illinois (formerly known as Continental Bank, N.A.), as Agent, and
Michael Foods, Inc., dated February 24, 1995 (16)
10.88 *Employee Stock Purchase Plan (16)
10.89 *Amendment No. 1 to Employment Agreement between Michael Foods, Inc.
and Gregg A. Ostrander, dated December 31, 1994 (16)
10.90 *Employment Agreement between Michael Foods, Inc. and Jeffrey M.
Shapiro, dated December 31, 1994 (16)
10.91 *Employment Agreement between Michael Foods, Inc. and Kevin S. Murphy,
dated December 31, 1994 (16)
10.92 *Employment Agreement between Michael Foods, Inc. and Norman A.
Rodriguez, dated December 31, 1994 (16)
10.93 *Employment Agreement between Michael Foods, Inc. and James J. Kohler,
dated December 31, 1994 (16)
10.94 *Employment Agreement between Michael Foods, Inc. and Kevin O. Kelly,
dated December 31, 1994 (16)
10.95 *Employment Agreement between Michael Foods, Inc. and John D. Reedy,
dated December 31, 1994 (16)
10.97 *Michael Foods, Inc. 1994 Executive Incentive Plan, as Amended
Effective January 1, 1995 (16)
10.98 *Michael Foods, Inc. 1994 Executive Incentive Plan, as Amended Effective
January 1, 1996
10.99 *Employment Agreement between Michael Foods, Inc. and Bill L. Goucher,
dated December 31, 1995
10.100 *Resolution adopted by the Board of Directors on July 27, 1995 extending
the termination date of the Severance Plan for Eligible Employees of
Michael Foods, Inc. and its Subsidiaries for one additional year (17)
10.101 *Amendment No. 1 to Employment Agreement between Michael Foods, Inc.,
and Jeffrey M. Shapiro, dated December 31, 1995
10.102 *Amendment No. 1 to Employment Agreement between Michael Foods, Inc.
and Norman A. Rodriguez, dated December 31, 1995
10.103 *Amendment No. 1 to Employment Agreement between Michael Foods, Inc.
and James J. Kohler, dated December 31, 1995
10.104 *Amendment No. 1 to Employment Agreement between Michael Foods, Inc. and
Kevin O. Kelly, dated December 31, 1995
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C>
10.105 *Amendment No. 1 to Employment Agreement between Michael Foods, Inc. and
John D. Reedy, dated December 31, 1995
10.106 *Amendment No. 2 to Employment Agreement between Michael Foods, Inc. and
Gregg A. Ostrander, dated December 31, 1995
13.1 1995 Annual Report to Stockholders
21.1 Schedule of Michael Foods, Inc. Subsidiaries
23.1 Auditors' Consent - Grant Thornton LLP
27.1 Financial Data Schedule
* Management Contract or Compensation Plan Arrangement
(1) Incorporated by reference from the Company's Registration Statement on
Form S-1 Registration No. 33-12949.
(2) Incorporated by reference from the Company's Report on Form 10-Q for the
Quarter ended March 31, 1988.
(3) Incorporated by reference from the Company's Report on Form 10-Q for the
Quarter ended June 30, 1990.
(4) Incorporated by reference from the Company's Form 8, Amendment No. 1 to
Report on Form 10-K for the year ended December 31, 1990.
(5) Incorporated by reference from the Company's Report on Form 10-K for the
year ended December 31, 1989.
(6) Incorporated by reference to Exhibit 4.6 of the Company's
Registration Statement on Form S-8 effective November 21, 1989
Registration No. 33-31914.
(7) Incorporated by reference from the Company's Registration Statement on
Form S-3 Registration No. 33-40071.
(8) Incorporated by reference from the Company's Report on Form 10-K for the
year ended December 31, 1990.
(9) Incorporated by reference from the Company's Report on Form 10-K for the
year ended December 31, 1991.
(10) Incorporated by reference from the Company's Report on Form 10-Q for the
quarter ended March 31, 1992.
(11) Incorporated by reference from the Company's Report on Form 10-K for the
year ended December 31, 1992.
(12) Incorporated by reference to Exhibit 4.7 to the Company's Registration
Statement on Form S-8 effective June 9, 1993 Registration No. 33-64078.
(13) Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 effective June 9, 1993 Registration No. 33-64076.
(14) Incorporated by reference from the Company's Report on Form 10-Q for the
quarter ended June 30, 1993.
(15) Incorporated by reference from the Company's Report on Form 10-K for the
year ended December 31, 1993.
(16) Incorporated by reference from the Company's Report on Form 10-K for the
year ended December 31, 1994.
(17) Incorporated by reference from the Company's Report on Form 10-Q for the
quarter ended June 30, 1995.
(18) Incorporated by reference from the Company's Report on Form 8-K dated
December 21, 1995.
</TABLE>
15
<PAGE> 16
FINANCIAL STATEMENTS
The consolidated financial statements of Michael Foods, Inc. and Subsidiaries
as of December 31, 1995 and 1994 and for the three years ended December 31,
1995 are incorporated by reference to the Company's Annual Report to
Stockholders for 1995, which includes the following:
<TABLE>
<CAPTION>
Page Number
(in the Company's
Annual Report to
Stockholders for 1995)
----------------------
<S> <C>
Report of Independent Certified Public Accountants 18
Consolidated Balance Sheets 9
Consolidated Statements of Earnings 10
Consolidated Statements of Stockholders' Equity 11
Consolidated Statements of Cash Flows 12
Notes to Consolidated Financial Statements 13-17
</TABLE>
Financial Statement Schedules
Report of Independent Certified Public Accountants on Schedule
Schedule II - Valuation and Qualifying Accounts
Other Financial Statement Schedules
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
Reports on Form 8-K
There were two reports filed on Form 8-K during the fourth quarter of 1995:
On December 26, 1995 the Company filed a Form 8-K dated December 21, 1995
announcing its acquisition of the institutional refrigerated potato products
line of Interstate Food Processing Corp.
On December 27, 1995 the Company filed a Form 8-K dated December 21, 1995
announcing an agreement to merge with North Star Universal, Inc.
16
<PAGE> 17
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MICHAEL FOODS, INC.
Date: February 29, 1996 By: /s/ Gregg A. Ostrander
----------------------
Gregg A. Ostrander
(President and Chief Executive Officer)
Date: February 29, 1996 By: /s/ John D. Reedy
------------------
John D. Reedy
(Vice-President-Finance, Treasurer,
Chief Financial Officer and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
/s/ James H. Michael February 29, 1996
- ---------------------
James H. Michael
(Chairman of the Board)
/s/ Gregg A. Ostrander February 29, 1996
- -----------------------
Gregg A. Ostrander (Director,
President & Chief Executive Officer)
/s/ Miles E. Efron February 29, 1996
- -------------------
Miles E. Efron (Director)
/s/ Richard A. Coonrod February 29, 1996
- -----------------------
Richard A. Coonrod (Director)
/s/ Orville L. Freeman February 29, 1996
- -----------------------
Orville L. Freeman (Director)
/s/ Arvid C. Knudtson February 29, 1996
- ----------------------
Arvid C. Knudtson (Director)
/s/ Joseph D. Marshburn February 29, 1996
- ------------------------
Joseph D. Marshburn (Director)
/s/ Jeffrey J. Michael February 29, 1996
- -----------------------
Jeffrey J. Michael (Director)
/s/ Richard G. Olson February 29, 1996
- ---------------------
Richard G. Olson (Director)
17
<PAGE> 18
Report of Independent Certified Public Accountants on Schedule
Board of Directors and Stockholders
Michael Foods, Inc.
In connection with our audits of the consolidated financial statements of
Michael Foods, Inc. and Subsidiaries referred to in our report dated February
14, 1996, which is included in the Annual Report to Stockholders and
incorporated by reference in Part II of this form, we have also audited
Schedule II for each of the three years in the period ended December 31, 1995.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/GRANT THORNTON LLP
Minneapolis, Minnesota
February 14, 1996
18
<PAGE> 19
SCHEDULE II
MICHAEL FOODS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- ----------------------------------------------------------------------------------------------------------------------------------
Additions
---------------------------------------
<S> <C> <C> <C> <C> <C>
(1) (2)
Balance at Charged to Costs Charges to Other Deductions-Describe Balance at End of
Description Beginning of Period and Expenses Accounts-Describe (a) Period
For the Year Ended
December 31, 1993:
Allowance for
Doubtful Accounts $446,000 $756,000 $0 $319,000 $883,000
For the Year Ended
December 31, 1994:
Allowance for
Doubtful Accounts $883,000 $314,000 $0 $502,000 $695,000
For the Year Ended
December 31, 1995:
Allowance for
Doubtful Accounts $695,000 $446,000 $0 $358,000 $783,000
</TABLE>
(a) Write-offs of accounts deemed uncollectible
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Page Number
<S> <C> <C>
3.6 Bylaws of Michael Foods, Inc., as Amended through
January 31, 1996
10.98 *Michael Foods, Inc. 1994 Executive Incentive Plan, as
Amended Effective January 1, 1996
10.99 *Employment Agreement between Michael Foods, Inc. and
Bill L. Goucher, dated December 31, 1995
10.101 *Amendment No. 1 to Employment Agreement between Michael
Foods, Inc., and Jeffrey M. Shapiro, dated December 31, 1995
10.102 *Amendment No. 1 to Employment Agreement between Michael
Foods, Inc. and Norman A. Rodriguez, dated December 31, 1995
10.103 *Amendment No. 1 to Employment Agreement between Michael
Foods, Inc. and James J. Kohler, dated December 31, 1995
10.104 *Amendment No. 1 to Employment Agreement between Michael
Foods, Inc. and Kevin O. Kelly, dated December 31, 1995
10.105 *Amendment No. 1 to Employment Agreement between Michael
Foods, Inc. and John D. Reedy, dated December 31, 1995
10.106 *Amendment No. 2 to Employment Agreement between Michael
Foods, Inc. and Gregg A. Ostrander, dated December 31, 1995
13.1 1995 Annual Report to Stockholders
21.1 Schedule of Michael Foods, Inc. Subsidiaries
23.1 Auditors' Consent - Grant Thornton LLP
27.1 Financial Data Schedule
</TABLE>
20
<PAGE> 1
EXHIBIT 3.6
BYLAWS OF MICHAEL FOODS, INC.
(AS AMENDED THROUGH JANUARY 31, 1996)
ARTICLE 1
OFFICES
Section 1.1. Offices. The registered office in the State of Delaware
shall be in the City of Wilmington, County of New Castle. The principal
office of the Company shall be in the City of Minneapolis, State of Minnesota.
The Company shall also have offices or agencies at such other places as the
Board of Directors from time to time may designate or as the business of the
Company may require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
Section 2.1. Place of Meeting. Meetings of the stockholders shall be
held in the City of Minneapolis, Minnesota, or such other place as the Board
of Directors from time to time may designate.
Section 2.2. Annual Meeting. The annual meeting of the stockholders
for the election of directors and for the transaction of such other business
as may be properly brought before the meeting shall be held at such time and
place as shall from time to time be designated by the Board of Directors, on
or before the last day of June in each year.
Section 2.3. Special Meetings. Special meetings of the stockholders
for any purpose or purposes may be called to be held at any time by the
Chairman of the Board, the President, or a majority of the members of the Board
of Directors then in office. Special meetings shall be called upon the written
request, addressed to the Chairman of the Board, the President or the Secretary
of the Company, of holders of record of not less than twenty percent (20%) of
the total number of shares of stock outstanding and entitled to vote. Such
request shall state the purpose or purposes of the proposed meeting.
Section 2.4. Notice of Meetings. Written or printed notice of the
time and place of each annual meeting of stockholders, and of the time, place
and purpose or purposes of each special meeting of stockholders, shall be
given by the Secretary, either personally or by mail, to each stockholder
entitled to vote at such meeting, not less than ten or more than sixty days
before the date of the meeting.
If mailed, the notice of an annual or special meeting of stockholders
shall be deemed to be given when deposited in the United States mail, postage
prepaid, addressed to each stockholder entitled to vote at such meeting at his
address as appears on the stock records of the Company.
<PAGE> 2
If any meeting of the stockholders is adjourned to another time and
place, no notice of such adjourned meeting need be given, other than by
announcement at the meeting at which such adjournment is taken.
Notice of the time, place and purpose or purposes of any meeting of
the stockholders may be waived in writing by any stockholder either before or
after the meeting, and any such waiver shall be filed with the Secretary or
entered upon the records of the meeting. Whenever all of the stockholders
shall consent in writing to the holding of a meeting, such meeting shall be
valid without call or notice.
Section 2.5. Quorum and Adjournment. At any meeting of the
stockholders, the holders of record of a majority of the total number of
outstanding shares of stock of the corporation entitled to vote, present in
person or represented by proxy, shall constitute a quorum for all purposes,
provided that at any meeting at which the holders of any series or class of
stock shall be entitled, voting as a class, to elect directors, the holders of
record of a majority of the total number of outstanding shares of such series
or class, present in person or represented by proxy, shall constitute a quorum
for the purpose of such election.
If a quorum is present at any meeting of stockholders, the vote of the
holders of a majority of the shares present in person or represented by proxy
at the meeting shall be sufficient for the transaction of any business, unless
otherwise provided by law or by the Certificate of Incorporation.
In the absence of a quorum at any meeting, the holders of a majority
of the shares of stock entitled to vote thereat, present in person or
represented by proxy at the meeting, may adjourn the meeting, from time to
time, unless the holders of the number of shares requisite to constitute a
quorum shall be present in person or represented at the meeting. At any
adjourned meeting at which a quorum is present, any business may be transacted
that might have been transacted at the meeting as originally convened.
Section 2.6. Organization. The Chairman of the Board, or in his
absence, the President, or in his absence, the Vice Presidents in the order
determined by the Board of Directors, or, if all of such officers are absent,
a stockholder chosen by the holders of a majority in number of shares of stock
present in person or represented by proxy, shall act as chairman of the
meeting. The Secretary, or in his absence, an Assistant Secretary, or in
the absence of both the Secretary and an Assistant Secretary, any person
designated by the chairman, shall act as secretary of the meeting.
Section 2.7. Voting. At each meeting of the stockholders, each
holder of shares of stock of any series or class entitled to vote at such
meeting shall, as to all matters in respect of which such stock has voting
power, be entitled to vote in person or by proxy appointed by an instrument in
writing signed by such stockholder or by a duly authorized attorney and, except
as otherwise provided by law, shall have one vote for each share of stock
standing in his name on the books of the Company upon each matter submitted to
a vote at the meeting. All proxies
-2-
<PAGE> 3
shall be in writing and shall be filed with the Secretary of the meeting before
being voted. Such proxy shall entitle the holder thereof to vote at any
adjournment of such meeting, but shall not be voted after the final adjournment
thereof. No proxy shall be valid after the expiration of eleven (11) months
from the date of its execution, unless the stockholder executing it shall have
specified therein the length of time it is to continue in force, which shall be
for some limited period.
The vote upon the election of directors and, upon demand of any
stockholder, the vote upon any matter submitted to a vote at a meeting of the
stockholders, shall be by ballot.
Prior to each meeting of stockholders, the Board of Directors shall
appoint two Inspectors who shall receive and determine the validity of proxies
and the qualifications of voters, and receive, inspect, count, and report to
the meeting the votes cast on all matters submitted to a vote at such meeting.
In the case of failure of the Board of Directors to make such appointments or
in the case of failure of any Inspector so appointed to act, the chairman of
the meeting shall make such appointments or fill such vacancies.
ARTICLE 3
BOARD OF DIRECTORS
Section 3.1. General Powers. The business, property, and affairs of
the corporation shall be managed under the direction of its Board of Directors.
Section 3.2. Number, Tenure and Vacancies. The number of directors
shall be as fixed from time to time by resolution adopted by the Board,
but shall in no event be less than three. Each director shall hold office
during the term for which he shall have been elected and until his successor
shall have been elected and qualified or until his earlier death, resignation
or removal.
Section 3.3. Vacancies. If any vacancy shall occur in the Board of
Directors, the remaining directors though less than a quorum by affirmative
vote of a majority thereof shall elect a director to fill such vacancy until
the next annual meeting of the stockholders, and each director so elected shall
hold office until his successor is elected and qualified.
Section 3.4. Resignations. Any director may resign at any time by
giving written notice to the Chairman of the Board, the President or to
the Secretary of the Company. Such resignation shall take effect at the date
of receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation by the Board of
Directors shall not be necessary to make it effective.
Section 3.5. Place of Meetings. The Board of Directors may hold its
meetings at such place or places, within or without the State of Delaware, as
the Board of Directors may from time to time determine.
-3-
<PAGE> 4
Section 3.6. Annual Meeting. A meeting of the Board of Directors, to
be known as the annual meeting, shall be held without notice immediately after,
and at the same place as, the meeting of the stockholders at which such Board
of Directors is elected, for the purpose of electing the officers of the
Company and any committees of the Board of Directors, to be elected under the
provisions of Articles 4 and 5.
Section 3.7. Regular Meetings. Regular meetings of the Board of
Directors shall be held at least once quarterly at such time and place
as may be set forth in the notice calling said meeting. Such meetings shall be
called in the same manner as provided for the calling of a special meeting.
Section 3.8. Special Meetings. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board or by
the President, and shall be called by the Secretary upon the written request of
one-third or more of the directors then in office. Any such special meeting
may be held at such place as shall be specified in the call, but if no place is
specified, then at the principal office of the Company in the City of
Minneapolis, Minnesota.
Section 3.9. Notices. Written or telegraphic notice of each special
meeting shall be given by the Secretary to each director, by personal
delivery or by mail or telegram addressed to him at his usual business address,
at least two days prior to the meeting in case of notice by telegram or by
personal delivery, which notice shall specify the purpose or purposes of such
special meeting. Any director may waive notice of any meeting, and the
attendance of a director at any meeting shall constitute a waiver of notice of
such meeting. No business shall be transacted at any special meeting except
such as shall have been specified in the notice of waiver thereof.
Section 3.10. Organization. Unless the Board of Directors shall by
resolution otherwise provide, the Chairman of the Board, or in his absence, the
President, or in his absence, a Vice President designated by the Board of
Directors, or if all such officers are absent, a director chosen by a majority
of the directors present, shall act as chairman at all meetings of the Board of
Directors; and the Secretary, or in his absence, an Assistant Secretary, or in
the absence of both the Secretary and an Assistant Secretary, such person as
may be designated by the Chairman, shall act as secretary at all such meetings.
A majority of the directors in office at the time shall constitute a
quorum necessary for the transaction of business, and the action of a majority
of the directors present at any meeting at which a quorum is present shall be
the act of the Board of Directors. If at any meeting of the Board of Directors
a quorum is not present, a majority of the Directors present may adjourn the
meeting from time to time.
Section 3.11. Action Without a Meeting. Any action that might be
taken at a meeting of the Board of Directors may be taken without a meeting
upon the signed concurrence in writing of all the directors.
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<PAGE> 5
Section 3.12. Compensation of Directors. Each Director, as such,
shall be entitled to receive reimbursement for his reasonable expenses incurred
in attending meetings or otherwise in connection with his attention to the
affairs of the Company, and to compensation fixed by the Board of Directors
from time to time.
ARTICLE 4
COMMITTEES
Section 4.1. Appointment of Committees. The Board of Directors from
time to time may appoint from among its members such committees as the Board
may determine, which shall in each case consist of not less than two (2)
directors, and which shall have such powers and duties as shall from time to
time be prescribed by the Board. Each member of any such committee shall be
entitled to receive reimbursement for his reasonable expenses incurred in
attending meetings or otherwise in connection with his attention to the affairs
of the Company, and to such compensation as may be fixed from time to time by
the Board of Directors.
A majority of the members of any committee may fix its rules of
procedure. All action by any committee shall be reported to the Board of
Directors at a meeting succeeding such action and shall be subject to revision,
alteration, and approval of the Board of Directors; provided that no rights or
acts of third parties shall be affected by any such revision or alteration.
Section 4.2. Executive Committee. The Board of Directors may, in its
discretion, by majority vote of the whole Board, elect annually from the
directors an Executive Committee, consisting, in addition to the Chairman
of the Board and the President, who shall be members ex officio, of such a
number of directors, not less than three nor more than five, as from time to
time shall be prescribed by the Board of Directors; and may change the
membership of, fill vacancies in, or dissolve such Committee. Unless otherwise
provided by resolution of the Board of Directors, the Executive Committee shall
have and may exercise the powers of the Board of Directors when it is not in
session, except such powers as may not be delegated pursuant to the Delaware
General Corporation Law and except action in respect of dividends to
stockholders, election of officers or the filling of vacancies in the Board of
Directors or the Executive Committee. Among its powers, the Executive
Committee shall have power to authorize the seal of the Company to be affixed
to all papers which may require it.
The Executive Committee shall elect a Chairman to serve for such term
as it may determine, shall determine its own rules of procedure and shall meet
at such times and places and upon such call or notice as shall be provided by
such rules. It shall keep a record of its acts and proceedings, and all action
of the Committee shall be reported to the Board of Directors at the next
meeting of the Board. At each meeting of the Committee, the presence of a
majority of the Committee shall be necessary to constitute a quorum for the
transaction of business, and if a quorum is present the concurrence of a
majority of those present shall be necessary for the taking of any action
thereat.
-5-
<PAGE> 6
Each member of the Executive Committee shall be entitled to receive
reimbursement for his reasonable expenses incurred in attending meetings or
otherwise in connection with his attention to the affairs of the Company, and
to such compensation as may be fixed from time to time by the Board of
Directors.
ARTICLE 5
OFFICERS
Section 5.1. Officers. The officers of the Company shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Secretary,
one or more Assistant Secretaries, a Treasurer, one or more Assistant
Treasurers, all of whom shall be elected by the Board of Directors.
The Board of Directors may elect or appoint such other officers and
agents as it shall deem necessary or as the business of the Company may
require, each of whom shall hold office for such period, have such authority
and perform such duties as the Board of Directors may prescribe from time to
time. The President shall have authority to appoint any officers, agents or
employees other than those elected or appointed by the Board of Directors, and
to prescribe their authority and duties, which may include the authority to
appoint subordinate officers, agents or employees, but, as to major executive
officers, such appointments shall be with the advice and consent of the
Executive Committee.
Any two or more offices, except those of President and Vice President,
and President and Secretary, may be held by the same person, but no officers
shall execute, acknowledge or verify any instrument in more than one capacity.
In case of the election of more than one Vice President, the Board of
Directors may determine the rank of the respective Vice Presidents, by
designating them as First Vice President, Second Vice President, and so on, or
in any other manner authorized by the Board of Directors.
Section 5.2. Term of Office. Each officer elected or appointed by
the Board of Directors shall hold office until the next annual meeting of the
Board of Directors and until his successor is elected. Any officer may be
removed at any time, with or without cause, by the affirmative vote of a
majority of the whole Board of Directors. Any officers, agents or employees
not elected or appointed by the Board of Directors shall hold office at the
discretion of the President or of the officer appointing him.
Section 5.3. Resignation. Any officer may resign at any time by
giving written notice to the Board of Directors, or to the President or
Secretary, or to the officer appointing him. Any such resignation shall take
effect at the date of the receipt of such notice or at any later time specified
therein; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
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<PAGE> 7
Section 5.4. Vacancies. A vacancy in any office caused by the death,
resignation, removal or disqualification of the person elected or appointed
thereto, or by any other cause, shall be filled for the unexpired portion of
the term in the same manner as prescribed in these Bylaws for regular election
or appointment to such office. In case of the absence or disability or
refusal to act of any officer of the Company, or for any other reason that the
Board of Directors shall deem sufficient, the Board may delegate, for the time
being, the powers and duties, or any of them, of such officer to any other
officer or to any director.
Section 5.5. The Chairman of the Board. The Chairman of the Board
shall be elected from among the directors of the Company. He shall, when
present, preside as Chairman of all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall advise with the
President concerning the affairs of the Company, the preparation of the Annual
Budget and on matters of general policy affecting the business and operation of
the Company, and, in addition, shall have such other authority and perform such
other duties as the Board of Directors or the Executive Committee may from time
to time prescribe. He shall be ex officio a member of the Executive Committee
and may call meetings of the Executive Committee when he deems it necessary,
and shall call meetings of the Executive Committee when requested to do so by
two or more of the members thereof.
Section 5.6. The President. The President shall be elected from among
the directors of the Company. He shall have general charge, control, and
supervision over the management and direction of the business, property, and
affairs of the Company, subject to the control and direction of the Board of
Directors. He shall consult with the Chairman of the Board concerning the
affairs of the Company, the preparation of the Annual Budget and on matters of
general policy affecting the business and operation of the Company. He shall
be ex officio member of the Executive Committee.
The President is authorized to sign, execute and acknowledge, in the
name and on behalf of the Company, all deeds, mortgages, bonds, notes,
debentures, stock certificates, contracts, leases, reports, and other documents
and instruments, except where the signing and execution thereof by some other
officer, agent or representative of the Company shall be expressly authorized
and directed by law or by the Board of Directors or by these Bylaws. Unless
otherwise provided by law or the Board of Directors, the President may
authorize any officer, employee or agent of the Company to sign, execute and
acknowledge, in the name and on behalf of the Company and in his place and
stead, all such documents and instruments. The President shall have such other
powers and perform such other duties as are incident to the office of President
and as from time to time may be prescribed by the Chairman or the Board of
Directors.
Section 5.7. The Vice Presidents. In the absence of the President or
during his disability or refusal to act, his powers and duties shall
temporarily devolve upon such one of the Vice Presidents as shall be designated
by the Board of Directors or, if not designated by the Board of Directors, by
the President; provided, however, that no Vice President shall act as a member
of or chairman of any committee of which the President is a member or chairman
by designation or ex officio, except at the direction of the Board of
Directors.
-7-
<PAGE> 8
Each Vice President shall have such powers and perform such other
duties as from time to time may be assigned to him by the Board of Directors or
be delegated to him by the President, including, unless otherwise ordered by
the Board of Directors, the power to sign, execute and acknowledge all
documents and instruments referred to in Section 6 of this Article 5. The
Board of Directors may assign to any Vice President general supervision and
charge over any branch of the business and affairs of the Company, subject to
the control of the Board of Directors and the President.
Section 5.8. The Secretary. The Secretary shall attend and keep the
minutes of meetings of the stockholders, of the Board of Directors and, unless
otherwise directed by such committee, of all committees, in books of the
Company provided for that purpose; shall have custody of the corporate records
of the Company; shall see that notices are given and records and reports
properly kept and filed by the Company as required by these Bylaws or as
required by law; shall be the custodian of the corporate seal of the Company
and see that it is affixed to all documents to be executed on behalf of the
Company under its seal; and, in general, shall have such other powers and
perform such other duties as are incident to the office of Secretary and as may
from time to time be assigned to him by the Board of Directors, the Chairman of
the Board or the President.
Section 5.9. Assistant Secretaries. In the absence of the Secretary,
or during his disability or refusal to act, his powers and duties shall
temporarily devolve upon such one of the Assistant Secretaries as the President
or the Board of Directors may direct, or, if there be but one Assistant
Secretary, then upon such Assistant Secretary. The Assistant Secretaries shall
have such other powers and perform such other duties as from time to time may
be assigned to them, respectively, by the Board of Directors or be delegated to
them by the Chairman of the Board, the President or the Secretary.
Section 5.10. Treasurer. The Treasurer shall have responsibility for
the custody and safekeeping of all funds of the Company and shall have charge
of their collection, receipt and disbursement; shall have responsibility for
the custody and safekeeping of all securities of the Company; shall receive and
have authority to sign receipts for all moneys paid to the Company and shall
deposit the same in the name and to the credit of the Company in such banks or
depositories as the Board of Directors shall approve; shall endorse for
collection on behalf of the Company all checks, drafts, notes and other
obligations payable to the Company; shall disburse the funds of the Company
only in such manner as provided in these Bylaws or as the Board of Directors
may require; shall sign or countersign all notes, endorsements, guaranties and
acceptances made on behalf of the Company when and as directed by the Board of
Directors; shall keep full and accurate accounts of the transactions of his
office in books belonging to the Company and render to the Board of Directors,
whenever it may require, an account of his transactions as Treasurer; and, in
general, shall have such other powers and perform such other duties as are
incident to the office of Treasurer and as from time to time may be prescribed
by the Board of Directors.
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<PAGE> 9
The Treasurer shall give bond for the faithful discharge of his duties
in such sum and with such surety or sureties as the Board of Directors may
require.
Section 5.11. Assistant Treasurers. In the absence of the Treasurer
or during his disability or refusal to act, his powers and duties shall
temporarily devolve upon such one of the Assistant Treasurers as the President
or the Board of Directors may direct, or, if there be but one Assistant
Treasurer, then upon such Assistant Treasurer. The Assistant Treasurers shall
have such other powers and perform such other duties as from time to time may
be assigned to them, respectively, by the Board of Directors or be delegated to
them by the President or the Treasurer. Each Assistant Treasurer shall give
bond for the faithful discharge of his duties in such sum and with such surety
or sureties as the Board of Directors may require.
Section 5.12. Compensation. The salaries or other compensation of
all officers elected or appointed by the Board of Directors shall be fixed from
time to time by the Board of Directors. The salaries or other compensation of
all other officers, agents and employees of the Company shall be fixed from
time to time by the President, but only within such limits as to amount, and in
accordance with such other conditions, if any, as from time to time may be
prescribed by the Board of Directors.
ARTICLE 6
VOTING OF STOCKS
Unless otherwise ordered by the Board of Directors, the President
shall have full power and authority, in the name and on behalf of the Company,
to attend, act and vote at any meeting of stockholders of any corporation in
which the Company may hold shares of stock, and at any such meeting shall
possess and may exercise any and all rights and powers incident to the
ownership of such shares of stock and which, as the holder thereof, the Company
might possess and exercise if personally present, and may exercise such power
and authority through the execution of proxies or may delegate such power and
authority to any other officer, agent or employee of the Company.
ARTICLE 7
CERTIFICATES FOR SHARES OF STOCK AND THEIR TRANSFER
Section 7.1. Certificates of Stock. Certificates representing shares
of the capital stock of the Company shall be in such form, consistent with law
and the Certificate of Incorporation, as shall be approved by the Board of
Directors. They shall be consecutively numbered by series or classes in the
order of their issue and shall be signed by the President or a Vice President
and by the Secretary or an Assistant Secretary, and shall be sealed with the
corporate seal of the Company. Such seal and the signatures of such officers
of the Company, or any of them, may be engraved or printed facsimiles, if such
certificates are signed by a Transfer Agent or Transfer Clerk and registered
by a Registrar appointed by the Board of Directors. In case any officer who
shall have signed any such certificate, or whose facsimile signature shall have
been used thereon, shall cease to be such officer before such certificate shall
have been issued by the
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<PAGE> 10
Company, such certificate may, nevertheless, be used by the Company with the
same effect as if such officer had not ceased to be such at the date of
issuance of such certificate.
The names and addresses of the persons to whom certificates for shares
of capital stock are issued, and the number of series or class of shares
represented by and the date of issue and transfer of each certificate, shall be
entered on books of the Company kept for that purpose. The stock record and
transfer books and the blank stock certificates shall be kept by such Transfer
Agent or Transfer Clerk or by the Secretary or such other officer as shall be
designated by the Board of Directors for that purpose. Every certificate
surrendered to the Company for transfer or exchange shall be canceled and shall
show thereon the date of cancellation.
Section 7.2. Transfer of Stock. Shares of capital stock of the
Company shall be transferred on the books of the Company only upon surrender
of the certificate or certificates therefor to the Secretary of the Company,
or to the Transfer Agent or Transfer Clerk of such Agent or Clerk be appointed,
properly endorsed or accompanied by proper assignments duly executed by the
registered holder thereof in person or by his attorney duly authorized in
writing. Until so transferred on the books of the Company, the Company shall
deem and treat the registered holder of each certificate for shares of capital
stock as the owner of such shares for all purposes.
Section 7.3. Transfer Agent and Registrar; Regulations. The Company
shall, if and whenever the Board of Directors shall so determine, maintain one
or more transfer offices or agencies, each in charge of a Transfer Agent
designated by the Board of Directors, where the shares of the capital stock of
the Company may be transferable, and also one or more registry offices, each
in charge of a Registrar designated by the Board of Directors, where such
shares of capital stock may be registered, and no certificates for shares of
the capital stock of the Company in respect of which a Transfer Agent and
Registrar shall have been designated shall be valid unless countersigned by
such Transfer Agent and registered by such Registrar. The Board of Directors
may also make such additional rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
the capital stock of the Company.
Section 7.4. Lost, Destroyed and Mutilated Certificates. The holder
of any shares of capital stock of the Company shall immediately notify the
Company of any loss, destruction or mutilation of the certificate therefor,
and the Board of Directors may, in its discretion, cause a new certificate or
certificates to be issued to him, upon the surrender of the mutilated
certificate, or, in case of loss or destruction of the certificate, upon
satisfactory proof of such loss or destruction and upon such terms and
indemnity as the Board of Directors may prescribe.
Section 7.5. Closing of Stock Transfer Books. When and as from time
to time ordered by the Board of Directors, the stock transfer books of the
Company shall be closed for a period not exceeding sixty days preceding the
date for payment of any dividend or the date for the allotment of any rights or
the date when any change or conversion or exchange of stock of the
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<PAGE> 11
Company shall become effective, or for a period not exceeding sixty days in
connection with obtaining the consent of stockholders for any purpose.
In lieu of closing the stock transfer books as aforesaid, the Board of
Directors may from time to time fix in advance a date, not exceeding sixty days
preceding the date of any meeting of stockholders, or the date for the payment
of any dividend, or the date for the allotment of any rights, or the date when
any change or conversion or exchange of capital stock shall become effective,
or a date in connection with obtaining any such consent, as a record date for
the determination of the stockholders entitled to notice of, and to vote at,
any such meeting and any adjournment thereof, or entitled to receive payment of
any such dividend, or to any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of capital stock
or to give such consent, and only such stockholders as shall be stockholders of
record on the date so fixed shall be entitled to such notice of, and to vote
at, such meeting and any adjournment thereof, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such rights,
or to give such consent, as the case may be, notwithstanding any transfer of
any shares of capital stock on the books of the Company after any such record
date so fixed.
ARTICLE 8
SEAL
The Board of Directors shall provide a suitable corporate seal
containing the name of the corporation, the year of its organization, and the
words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile to be impressed or affixed or reproduced or otherwise. The Secretary
shall have custody of such seal, but when so directed by the Board of
Directors, a duplicate of the seal may be kept and used by any Assistant
Secretary.
ARTICLE 9
AMENDMENTS
These Bylaws may be altered, amended, or repealed, and new bylaws may
be adopted, at any meeting of the Board of Directors called for the purpose, by
the affirmative vote of a majority of the whole Board of Directors.
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<PAGE> 1
EXHIBIT 10.98
MICHAEL FOODS, INC.
1994 EXECUTIVE INCENTIVE PLAN
(AS AMENDED EFFECTIVE JANUARY 1, 1996)
I.
PURPOSE
A. The purpose of the Michael Foods, Inc. Executive Incentive Plan (the
"Plan") is to incent and reward the senior management of Michael
Foods, Inc. (the "Company") for delivering or exceeding their annual
operating plan and to motivate those executives to be planning and
focusing on year-over-year trendline earnings growth. Corporate
executives will be rewarded based upon attainment of the Company's EPS
growth targets. Operating company executives will be rewarded based
upon individual operating company growth in profit before taxes
("PBT"), as well as overall corporate EPS performance.
B. The Plan will be effective January 1, 1994, will remain in effect
until amended or terminated, and supersedes the Michael Foods, Inc.
Amended and Restated Annual Incentive Compensation Plan, which has
been terminated.
II.
ADMINISTRATION
A. The Plan will be administered by the Chief Executive Officer ("CEO")
and the Chief Financial Officer of the Company under the direction of
the Compensation Committee of the Board of Directors.
B. The Board of Directors will have sole authority to establish the
Plan's terms and conditions.
III.
ELIGIBILITY
A. Participation in the Plan will be restricted to those positions which
have a clear impact on the Company's financial and operating
performance.
B. Eligible participants will include principal officers and select key
employees of the Company and the Company's operating companies.
C. Generally, key employees will be defined as those executive positions
which report to the President of an operating subsidiary or, in the
case of corporate level employees, to the CEO of the Company.
D. Key employees will be recommended by the CEO of the Company and will
be approved by the Compensation Committee of the Board of Directors.
E. Participation will also be limited to executives who are not covered
under another approved incentive plan.
<PAGE> 2
IV.
INCENTIVE OPPORTUNITY
The size of the maximum incentive award opportunity level will vary by the
position's responsibility level, as outlined below:
<TABLE>
<CAPTION>
MAXIMUM INCENTIVE OPPORTUNITY AS
A PERCENT OF BASE SALARY
LEVEL POSITION(S)
<S> <C> <C>
I Corporate CEO, President, Chief Operating 100%
Officer, Executive Vice President, Chief
Financial Officer and Operating Company
Presidents
II Other Officers 75%
III Non-Officer Key Employees 50%
</TABLE>
V.
PLAN COMPONENTS
COMPONENT A: CASH AWARD
3/4 of the incentive opportunity for both corporate and operating company
participants will be paid based upon PBT or EPS achievement against target
objectives.
1. OPERATING COMPANY PARTICIPANTS - CASH AWARD OPPORTUNITY RE: COMPANY EPS
TARGET
A portion of the operating company participants' cash awards will be paid based
upon Michael Foods' EPS achievement against the target objective, in accordance
with the following table:
<TABLE>
<CAPTION>
INCENTIVE AWARD OPPORTUNITY AS A PERCENT OF BASE SALARY:
LEVEL I LEVEL II LEVEL III
- -----------------------------------------------------------------------------------------------
ACHIEVEMENT OF TARGET
- ---------------------
<S> <C> <C> <C>
Below 94% 0.0% 0.0% 0.0%
94% -94.99% 2.9% 2.2% 1.5%
95% -95.99% 5.7% 4.3% 2.9%
96% -96.99% 8.6% 6.5% 4.3%
97% -97.99% 11.4% 8.6% 5.7%
98% -98.99% 14.3% 10.7% 7.2%
99% -99.99% 17.1% 12.8% 8.6%
100% -100.99% 20.0% 15.0% 10.0%
101% -101.99% 24.0% 18.0% 12.0%
102% -102.99% 28.0% 21.0% 14.0%
103% -103.99% 32.0% 24.0% 16.0%
104% -104.99% 36.0% 27.0% 18.0%
105% or greater 40.0% 30.0% 20.0%
</TABLE>
<PAGE> 3
2. OPERATING COMPANY PARTICIPANTS - CASH AWARD OPPORTUNITY RE: OPERATING
COMPANY TARGETS
A portion of the operating company participants' cash awards will be
paid based upon their individual operating company PBT achievement against the
target objective, in accordance with the following table:
<TABLE>
<CAPTION>
INCENTIVE AWARD OPPORTUNITY AS A PERCENT OF BASE SALARY:
LEVEL I LEVEL II LEVEL III
- -----------------------------------------------------------------------------------------------
ACHIEVEMENT OF TARGET
- ---------------------
<S> <C> <C> <C>
Below 94% 0.0% 0.0% 0.0%
94% -94.99% 2.5% 1.9% 1.3%
95% -95.99% 5.0% 3.8% 2.5%
96% -96.99% 7.5% 5.6% 3.8%
97% -97.99% 10.0% 7.5% 5.0%
98% -98.99% 12.5% 9.4% 6.3%
99% -99.99% 15.0% 11.3% 7.5%
100% -100.99% 17.5% 13.1% 8.8%
101% -101.99% 19.3% 14.4% 9.6%
102% -102.99% 21.0% 15.8% 10.5%
103% -103.99% 22.8% 17.1% 11.4%
104% -104.99% 24.5% 18.4% 12.3%
105% -105.99% 26.3% 19.7% 13.1%
106% -106.99% 28.0% 21.0% 14.0%
107% -107.99% 29.8% 22.3% 14.9%
108% -108.99% 31.5% 23.6% 15.8%
109% -109.99% 33.3% 24.9% 16.6%
110% or greater 35.0% 26.3% 17.5%
</TABLE>
3. CORPORATE, SALES & DISTRIBUTION PARTICIPANTS CASH AWARD OPPORTUNITY
The corporate, sales and distribution participants' cash awards will be paid
based upon Michael Foods' EPS achievement against the target objective, in
accordance with the following table:
<TABLE>
<CAPTION>
INCENTIVE AWARD OPPORTUNITY AS A PERCENT OF BASE SALARY:
- -----------------------------------------------------------------------------------------------
LEVEL I LEVEL II LEVEL III
ACHIEVEMENT OF TARGET
- ---------------------
<S> <C> <C> <C>
Below 94% 0.0% 0.0% 0.0%
94% -94.99% 6.0% 4.5% 3.0%
95% -95.99% 11.3% 8.5% 5.7%
96% -96.99% 16.5% 12.4% 8.3%
97% -97.99% 21.8% 16.4% 10.9%
98% -98.99% 27.0% 20.3% 13.5%
99% -99.99% 32.3% 24.2% 16.2%
100% -100.99% 37.5% 28.1% 18.8%
101% -101.99% 45.0% 33.8% 22.5%
102% -102.99% 52.5% 39.4% 26.3%
103% -103.99% 60.0% 45.0% 30.0%
104% -104.99% 67.5% 50.6% 33.8%
105% or greater 75.0% 56.3% 37.5%
</TABLE>
<PAGE> 4
COMPONENT B: STOCK AWARD
1/4 of the incentive opportunity for both corporate and operating company
participants will be paid based upon year-over-year trendline earnings growth.
For each Plan year, trendline EPS must increase 15% over the prior year level
to trigger participation in this component of the Plan. This segment of the
Plan is earned over a period of three years and is paid in the Company's common
stock.
- - Year I earns 50%, Year II earns 30% assuming EPS growth of at least 15% in
Year II, and Year III earns the balance (20%) assuming EPS growth of at
least 15% in Year III. (If at least 15% year-over-year EPS growth is not
achieved, that yearly portion of the stock award incentive is forfeited.)
The number of shares of common stock that would be awarded to an individual
participant is determined by multiplying the appropriate earned percentage
by the 25% of the maximum incentive opportunity for each individual at the
appropriate level covered by Component B. That amount is then divided by
the closing price of the Company's common stock on the third business day
following the announcement of year-end financial results to determine the
number of shares of common stock to be issued to each participant.
Certificates will be issued as soon as practical following the March Board
of Directors meeting. Further aspects of Component B are covered in the
Michael Foods, Inc. 1994 Executive Performance Stock Award Plan.
COMPONENT C: OPTION AWARD
Stock options will be awarded to the operating company presidents and executive
corporate officers for achieving EPS growth in excess of 15% annually.
- - Qualified individuals for 1996 and later years:
Gregg Ostrander Norman Rodriguez
Jeffrey Shapiro JD Clarkson
John Reedy James Kohler
William Goucher Kevin Kelly
- - Stock option awards will be for a specific number of shares of common stock
based upon a rising scale which is triggered with a year-over-year increase
in EPS of at least 15% as follows:
<TABLE>
<CAPTION>
PRESIDENT /CEO OF
MICHAEL FOODS, ALL OTHER
INC. PARTICIPANTS
MAXIMUM STOCK OPTION OPPORTUNITY
(COMMON STOCK SHARES)............... 36,000/YR. 24,000/YR.
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Below 15% Earnings Per Share Growth................ 0 0
15% - 19.99%....................................... 4,500 3,000
20% - 24.99%....................................... 9,000 6,000
25% - 29.99%....................................... 13,500 9,000
30% - 34.99%....................................... 18,000 12,000
35% - 39.99%....................................... 22,500 15,000
40% - 44.99%....................................... 27,000 18,000
45% - 49.99%....................................... 31,500 21,000
50% or Greater..................................... 36,000 24,000
</TABLE>
<PAGE> 5
Options will be priced based upon the closing price of the Company's common
stock on the third business day following the announcement of year-end
financial results each year and will be issued following the March Board of
Directors meeting. The fully diluted earnings per share for each year will be
computed in accordance with Generally Accepted Accounting Principles ("GAAP"),
but before accrual of bonuses and stock option awards under this plan.
VI.
ORGANIZATION AND INDIVIDUAL PERFORMANCE MEASURES
The following measures of organization performance will be used to determine
actual incentive awards:
Michael Foods, Inc. Fully diluted net earnings per share. Measured by
actual fully diluted earnings per share for the current year as compared to
the target level. Calculated in accordance with GAAP, but before accrual
of bonuses and stock option awards under this Plan.
Operating Companies. A portion of cash award based upon profit before
taxes (PBT). Measured by actual pre-tax profits for the Plan year as
compared to the target level. For the purposes of the Plan, PBT will be
defined as operating profits, calculated in accordance with GAAP, before
federal and state taxes, any interest charges associated with acquisition
debt, and before accrual of bonuses and stock option awards under this
Plan. The remaining portion of the cash award to Operating Company
participants will be based upon the relative achievement of the Michael
Foods, Inc. fully diluted net earnings per share target, as defined above.
VII.
ADMINISTRATIVE PROCEDURES
A. Additions of Individuals. All eligible participants must be designated by
the CEO of the Company as of the beginning of the Plan year.
B. Establishment of "Target or Maximum" Goals. The CEO retains the right to
set or adjust the operating company and corporate "target or maximum"
incentive goals based upon an assessment of overall business conditions at
the beginning of the Plan year.
C. Adjustments to Targets and/or Goals. The CEO retains the right to adjust
the targets and/or goals of the Plan based upon his/her assessment of
business conditions at the end of the second quarter of the Plan year.
D. Down Earnings Year. No cash incentive shall be paid to a participant if
their operating company or, in the case of corporate level participants,
the Company has a decline in earnings for the Plan year, except at the
discretion of the CEO with the approval of the Compensation Committee.
However, this provision would not preclude an individual from participating
in a Component B Stock Incentive Award.
E. Termination/Death/Disability. Plan participants must be in the employ of
the Company on the day the incentive award is actually paid in order
to be eligible for incentive award payments. However, should a
participant die or become disabled, the incentive award for the year
in which such death or disability occurs shall be prorated by the
number of months of service during the applicable Plan year and shall
be paid to the participant or the participant's estate, as the case may be.
<PAGE> 6
F. Change in Position. Eligible employees under the Plan who have a change in
position during a Plan year will have their incentive award calculated
under the Plan award levels for both positions, prorating the incentive
award by the months of service at each level.
G. Interpolation. When the actual performance figure does not result in a
whole number, the individual calculating the formula should interpolate to
the closest percent.
H. Exceptions. In each instance, exceptions must be approved in advance by
the appropriate officer and the CEO of the Company, and must be submitted
to the Compensation Committee of the Board of Directors for their
concurrence.
VIII.
AMENDMENT AND TERMINATION
The Board of Directors may at any time amend the Plan for the purposes of
satisfying the requirements of any changes in applicable laws or for any
purpose that may be permitted by law. The Board of Directors may also
terminate the Plan at any time. No such amendment or termination shall,
however, adversely affect the rights of any participant (without his/her prior
consent) with regard to any award previously made.
IX.
RIGHT TO CONTINUED EMPLOYMENT
No participant shall have any claim or right to be granted an incentive (bonus)
award under this Plan and the granting of an incentive (bonus) award shall not
be construed as giving the participant the right of continued employment with
the Company. The Company further reserves the right to dismiss a participant
at any time, with or without cause, free from any claim or liability other than
provided under this Plan document.
X.
CHANGE IN CONTROL
If the Company is merged into, acquired by or consolidated with another
corporation, or if all or substantially all of the assets of the Company are
sold or transferred to another party or if more than fifty percent (50%) of the
outstanding Common Stock is transferred to one or more parties so as to affect
a change in the control of the Company, the Common Stock granted under
Component B of the Plan and the options granted under Component C of the Plan
shall become immediately exercisable. Accordingly, said immediate vesting
shall not apply to any transaction where the Company stockholders, directly or
indirectly, retain in excess of fifty percent (50%) of the voting control over
the Company.
<PAGE> 1
EXHIBIT 10.99
EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of this 31st day of December,
1995, by and between MICHAEL FOODS, INC., a Delaware corporation (hereinafter
referred to as "Michael Foods") and BILL L. GOUCHER (hereinafter referred to
as "Goucher").
WHEREAS, Goucher has served as President of M. G. Waldbaum Company
since March 1993; and
WHEREAS, Michael Foods and Goucher have agreed to enter into this
Agreement effective as of January 1, 1996.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties agree that this Agreement is effective as of January 1,
1996 as follows:
1. EMPLOYEMENT AND DUTIES. Michael Foods shall employ Goucher to
serve as President of M. G. Waldbaum Company and in such capacity
Goucher shall perform such duties as the Bylaws provide and as the CEO
of Michael Foods may from time to time determine.
2. TERM. This Agreement shall be effective as of January 1, 1996 and
shall continue through December 31, 1997, unless earlier terminated as
provided herein. This Agreement may be extended thereafter upon the
written agreement of the parties hereto.
3. BASE SALARY. For all services rendered by Goucher, Michael Foods
agrees to pay to Goucher an annual Base Salary for each of the calendar
years of this Agreement from January 1, 1996 through December 31, 1997
of at least $188,000 payable in substantially equal semi-monthly
installments.
4. ADDITIONAL BENEFITS AND WORKING FACILITIES.
a. For each calendar year during the term of this Agreement,
Goucher shall be entitled to participate in the Executive Incentive
Compensation Plan of Michael Foods. Any Incentive Compensation or
Options earned under said Plan shall be determined and paid or
granted in accordance with the Plan.
b. Michael Foods shall provide Goucher with medical insurance and
shall permit Goucher to participate in other fringe benefit plans
as Michael Foods may from time to time establish for its executive
officers. The terms of said benefits shall be no less generous
than those offered to other executive officers of Michael
Foods.
c. Goucher is entitled to take vacations at reasonable times and
for customary and reasonable lengths of time consistent with his
overall responsibilities as President of M. G. Waldbaum Company.
d. Michael Foods shall reimburse Goucher for all reasonable
expenses incurred by Goucher in connection with Michael Foods'
business, including but not limited to,
1
<PAGE> 2
expenses of travel and entertainment, upon presentation of itemized
statements therefor.
5. EVENTS OF TERMINATION. The employment of Goucher hereunder shall
terminate as follows.
a. Upon the Incapacity or death of Goucher;
b. Upon thirty (30) days' written notice by either party, other
than as provided in sub-paragraphs c. and d., below;
c. Without notice by Michael Foods for Cause; or
d. By Michael Foods without Cause if there is a Change in Control
of Michael Foods and thereafter Goucher's Duties are
Substantially Reduced or Negatively Altered without his prior
written consent.
"Cause" for purposes hereof shall mean a determination by Michael Foods
that Goucher has (i) committed an illegal or dishonest act that
directly reflects upon his fitness to act as President of M. G.
Waldbaum Company; (ii) intentionally breached his fiduciary obligations
to Michael Foods; or (iii) refused or is unable to perform his duties
hereunder, other than as a result of illness or disability, for a
period of thirty (30) days.
"Incapacity" for purposes hereof shall mean a determination by Michael
Foods in its sole discretion that Goucher is unable to perform his job
responsibilities as President of M. G. Waldbaum Company as a result of
chronic illness, physical, mental or any other disability for a period
of six (6) months or more.
If Goucher's employment is terminated under subsection (a) or by
Michael Foods under subsection (b), Goucher shall receive as a
termination payment an amount equal to one year's Base Salary, plus
any Incentive Compensation earned for any year prior to the year of
termination which is unpaid at the date of termination. Such
termination payment shall be made in substantially equal monthly
installments beginning on the first day of the month following
termination of employment for twelve (12) months. If Goucher's
employment is terminated by Goucher under subsection (b), Goucher shall
receive no termination payment; however, Goucher will be entitled to
receive any Incentive Compensation earned for any year prior to the
year of termination which is unpaid at the date of termination. Any
Incentive Compensation earned for any year prior to the year of
termination which is unpaid at the date of termination shall be due and
payable in full within 15 days of the determination by the Board of
Directors of the amount of Incentive Compensation to which Goucher is
entitled to receive, but in no event shall the date of payment be more
than 90 days following termination of employment. If Michael Foods
terminates Goucher under subsection (c) above, no amount shall be paid
beyond the last day of service by Goucher and Goucher shall not be
deemed to have earned any Incentive Compensation or Options for the
year of termination. In the case of Incapacity or death, or
termination by Michael Foods without Cause in accordance
2
<PAGE> 3
with sub-paragraphs a., b. and d. above, all options to purchase common
stock previously granted to Goucher shall become fully vested and not
subject to Goucher's forfeiture.
If Goucher's employment is terminated by Michael Foods under subsection
(d), Goucher shall receive as a termination payment an amount equal to
two year's Base Salary, plus any Incentive Compensation earned for any
year prior to the year of termination which is unpaid at the date of
termination. Such termination payment shall be made in a lump sum
within 15 days following termination of employment.
"Change in Control" means a Change in Control of Michael Foods of a
nature that would be required to be reported in response to Item 1(a)
of Michael Food's Current Report on Form 8-K, as in effect on the
effective date of this agreement, pursuant to Section 13 of the
Securities Exchange Act of 1934 (the "Exchange Act"); provided that,
without limitation, such a Change in Control shall be deemed to have
occurred at such time as any "person" within the meaning of Section
14(d) of the Exchange Act, other than Michael Foods, a subsidiary of
Michael Foods or any employee benefit plan sponsored by Michael Foods
or a subsidiary of Michael Foods, acquires (1) the power to elect,
appoint or cause the election or appointment of at least a majority of
the members of the Board of Directors of Michael Foods through the
acquisition of beneficial ownership of capital stock of Michael Foods
or otherwise, or (2) all, or substantially all, of the properties and
assets of Michael Foods; provided, however, that a Change in Control
shall not be deemed to have occurred if (x) the acquisition of such
power or properties and assets is pursuant to a merger, consolidation,
or sale of properties and assets and (y) by reason of such transaction
no person, or related persons constituting a "group" for purposes of
Section 13(d) of the Exchange Act shall acquire the power to elect,
appoint or cause the election or appointment of a majority of the
members of the Board of Directors of such successor or transferee.
"Duties and Substantially Reduced or Negatively Altered" means, after
any Change in Control and without Goucher's express written consent:
(i) the assignment to Goucher of any duties inconsistent with Goucher's
position, duties, responsibilities and status with Michael Foods
immediately prior to a Change in Control, or a change in Goucher's
reporting responsibilities, titles or offices as in effect immediately
prior to a Change in Control, or any removal of Goucher from, or any
failure to re-elect Goucher to, any of such positions, except in
connection with the termination of Goucher's employment for Cause, upon
the Incapacity or death of Goucher, or upon the voluntary termination
by Goucher,
(ii) a reduction in Goucher's base salary in effect immediately prior
to any Change in Control; or the failure by Michael Foods to increase
such base salary each year after a Change in Control by an amount which
at least equals, on a percentage basis, the mean average percentage
increase in base salary for all employees similarly situated during the
two (2) full calendar years immediately preceding a Change in Control;
(iii) Michael Foods requiring Goucher to be based anywhere other than
the geographic location at which Goucher was based immediately
preceding the Change
3
<PAGE> 4
in Control except for required travel on business to an extent
substantially consistent with the business travel obligations Goucher
experienced immediately preceding a Change in Control;
(iv) the failure by Michael Foods to continue in effect benefit and
compensation plans substantially equivalent to the benefit or
compensation plans or arrangements in which Goucher was participating
immediately preceding any Change in Control; the taking of any action
by Michael Foods not required by law which would adversely affect
Goucher's participation in or materially reduce Goucher's benefits
under any of such plans or deprive Goucher of any material fringe
benefit enjoyed by Goucher at the time of the Change of Control, but
this provision shall not apply to any stock option plan maintained by
Michael Foods prior to the Change in Control; or the failure by Michael
Foods to provide Goucher with the number of paid vacation days,
holidays and personal days to which Goucher was then entitled in
accordance with Michael Foods' normal leave policy in effect
immediately preceding a Change in Control.
6. ADDITIONAL DOCUMENTS. The parties shall each, without further
consideration, execute such additional documents as may be reasonably
required in order to carry out the purposes and intent of this Agreement
and to fulfill the obligations of the respective parties hereunder.
7. WAIVER. Any waiver of any term of condition of this Agreement shall
not operate as a waiver of any other breach of such term or condition, or
of any other term or condition, nor shall any failure to enforce a
provision hereof operate as a waiver of such provisions or of any other
provision hereof.
8. NOTICES. All communications with respect to this Agreement shall be
considered given if delivered or sent as follows:
a. To Goucher by first class, certified mail, postage prepaid, return
receipt requested, addressed as follows:
BILL L. GOUCHER
3060 Quinwood Ln.
Plymouth, MN 55441
b. To Michael Foods by first class, certified mail, postage prepaid,
return receipt requested, addressed, as follows:
Michael Foods, Inc.
5353 Wayzata Boulevard
324 Park National Bank Building
Minneapolis, MN 55416
4
<PAGE> 5
or mailed to such other addresses as the parties hereto may designate by
notice given in like manner. Notice shall be effective three (3) days
after mailing or upon personal delivery.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement of
the parties hereto with respect to the subject matter hereof and no party
shall be liable or bound to another in any manner by any warranties,
representations or guarantees, except as specifically set forth herein.
10. MODIFICATIONS, AMENDMENTS AND WAIVERS. The parties hereto at any
time may by written agreement extend or modify this Agreement. This
agreement shall not be altered or otherwise amended except pursuant to an
instrument in writing executed by the parties hereto.
11. SEVERABILITY. No finding or adjudication that any provision of this
Agreement is invalid or unenforceable shall affect the validity or
enforceability of the remaining provisions herein, and this Agreement
shall be construed as though such invalid or unenforceable provisions were
omitted.
12. MISCELLANEOUS.
a. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective legal representatives,
successors and assigns of the party thereto.
b. This Agreement is made pursuant to and shall be construed under
the laws of the State of Minnesota.
c. This Agreement may be executed in one or more counterparts and
each of such counterparts shall for all purposes be deemed to be an
original, but all such counterparts shall together constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement the date and
year above written.
MICHAEL FOODS, INC.
By: /s/ Gregg A. Ostrander
------------------------
Its PRESIDENT/CEO
------------------------
/s/ Bill L. Goucher
------------------------
BILL L. GOUCHER
<PAGE> 1
EXHIBIT 10.101
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of this 31st day of December,
1995, by and between MICHAEL FOODS, INC., a Delaware corporation (hereinafter
referred to as "Michael Foods"), and JEFFREY M. SHAPIRO (hereinafter referred to
as "Shapiro").
WHEREAS, Michael Foods and Shapiro have heretofore entered into an
employment agreement dated as of December 31, 1994; and
WHEREAS, Michael Foods and Shapiro desire to amend Sections 2 and 3 of
said agreement to amend and clarify certain terms thereof.
NOW, THEREFORE, in consideration of the premises and of the terms and
conditions set forth, the parties agree as follows:
1. Section 2 of the employment agreement between Michael Foods and
Shapiro dated December 31, 1994 is hereby amended by substituting the following
for the phrase "shall continue through December 31, 1996":
shall continue through December 31, 1997
2. Section 3 of the employment agreement between Michael Foods and
Shapiro dated December 31, 1994 is hereby amended by substituting the following
for the phrase "for each of the calendar years of this Agreement from January 1,
1995 through December 31, 1996 of at least $238,000":
for each of the calendar years of this Agreement from January 1,
1996 through December 31, 1997 of at least $250,000
Except as otherwise provided herein, the employment agreement between Michael
Foods and Shapiro dated December 31, 1994 shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
and year above written.
MICHAEL FOODS, INC.
BY: /s/ Gregg A. Ostrander
----------------------------------
Its PRESIDENT/CEO
------------------------------
/s/ Jeffrey M. Shapiro
----------------------------------
JEFFREY M. SHAPIRO
<PAGE> 1
EXHIBIT 10.102
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of this 31st day of December,
1995, by and between MICHAEL FOODS, INC., a Delaware corporation (hereinafter
referred to as "Michael Foods"), and NORMAN A. RODRIGUEZ (herein after
referred to as Rodriguez").
WHEREAS, Michael Foods and Rodriguez have heretofore entered into an
employment agreement dated as of December 31, 1994; and
WHEREAS, Michael Foods and Rodriguez desire to amend Section 2 and 3
of said agreement to amend and clarify certain terms thereof.
NOW, THEREFORE, in consideration of the premises and of the terms and
conditions set forth the parties agree as follows:
1. Section 2 of the employment agreement between Michael Foods and
Rodriguez dated December 31, 1994 is hereby amended by substituting the
following for the phrase "shall continue through Decemer 31, 1996":
shall continue through December 31, 1997
2. Section 3 of the employment agreement between Michael Foods and
Rodriguez dated December 31, 1994 is hereby amended by substituting the
following for the phrase "for each of the calendar years of this Agreement from
January 1, 1995 through December 31, 1996 of at least $176,000":
for each of the calendar years of this Agreement from January 1,
1996 through December 31, 1997 of at least $183,000
Except as otherwise provided herein, the employment agreement between Michael
Foods and Rodriguez dated December 31, 1994 shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
and year above written.
MICHAEL FOODS, INC.
BY: /s/ Gregg A. Ostrander
----------------------------------
Its PRESIDENT/CEO
------------------------------
/s/ Norman A. Rodriguez
----------------------------------
NORMAN A. RODRIGUEZ
<PAGE> 1
EXHIBIT 10.103
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of this 31st day of December,
1995, by and between MICHAEL FOODS, INC., a Delaware corporation (hereinafter
referred to as "Michael Foods"), and JAMES J. KOHLER (hereinafter referred to
as "Kohler").
WHEREAS, Michael Foods and Kohler have heretofore entered into an
employment agreement dated as of December 31, 1994; and
WHEREAS, Michael Foods and Kohler desire to amend Sections 2 and 3 of
said agreement to amend and clarify certain terms thereof.
NOW, THEREFORE, in consideration of the premises and of the terms and
conditions set forth, the parties agree as follows:
1. Section 2 of the employment agreement between Michael Foods and
Kohler dated December 31, 1994 is hereby amended by substituting the following
for the phrase "shall continue through December 31, 1996";
shall continue through December 31, 1997
2. Section 3 of the employment agreement between Michael Foods and
Kohler dated December 31, 1994 is hereby amended by substituting the following
for the phrase "for each of the calendar years of this Agreement from January
1, 1995 through December 31, 1996 of at least $176,000":
for each of the calendar years of this Agreement from
January 1, 1996 through December 31, 1997 of at least
$185,000
Except as otherwise provided herein, the employment agreement between Michael
Foods and Kohler dated December 31, 1994 shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
and year above written.
MICHAEL FOODS, INC.
By /s/ Gregg A. Ostrander
----------------------------------
Its PRESIDENT/CEO
----------------------------
/s/ James J. Kohler
----------------------------------
JAMES J. KOHLER
1
<PAGE> 1
EXHIBIT 10.104
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of this 31st day of December,
1995, by and between MICHAEL FOODS, INC., a Delaware corporation (hereinafter
referred to as "Michael Foods"), and KEVIN O. KELLY (hereinafter referred to as
"Kelly").
WHEREAS, Michael Foods and Kelly have heretofore entered into an
employment agreement dated as of December 31, 1994; and
WHEREAS, Michael Foods and Kelly desire to amend Section 2 and 3 of
said agreement to amend and clarify certain terms thereof.
NOW, THEREFORE, in consideration of the premises and of the terms and
conditions set forth, the parties agree as follows:
1. Section 2 of the employment agreement between Michael Foods and
Kelly dated December 31, 1994 is hereby amended by substituting the following
for the phrase "shall continue through Decemer 31, 1996":
shall continue through December 31, 1997
2. Section 3 of the employment agreement between Michael Foods and
Kelly dated December 31, 1994 is hereby amended by substituting the following
for the phrase "for each of the calendar years of this Agreement from January 1,
1995 through December 31, 1996 of at least $165,000":
for each of the calendar years of this Agreement from
January 1, 1996 through December 31, 1997 of at least
$165,000
Except as otherwise provided herein, the employment agreement between Michael
Foods and Kelly dated December 31, 1994 shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
and year above written.
MICHAEL FOODS, INC.
BY: /s/ Gregg A. Ostrander
----------------------------------
Its PRESIDENT/CEO
------------------------------
/s/ Kevin O. Kelly
----------------------------------
KEVIN O. KELLY
<PAGE> 1
EXHIBIT 10.105
AMENDMENT NO.1 TO EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of this 31st day of December,
1995, by and between MICHAEL FOODS, INC., a Delaware corporation (hereinafter
referred to as "Michael Foods"), and JOHN D. REEDY (hereinafter referred
to as "Reedy").
WHEREAS, Michael Foods and Reedy have heretofore entered into an
employment agreement dated as December 31, 1994; and
WHEREAS, Michael Foods and Reedy desire to amend Sections 2 and 3
of said agreement to amend and clarify certain terms thereof.
NOW, THEREFORE, in consideration of the premises and of the terms and
conditions set forth, the parties agree as follows:
1. Section 2 of the employment agreement between Michael Foods and
Reedy dated December 31, 1994 is hereby amended by substituting the
following for the phrase "shall continue through December 31, 1996":
shall continue through December 31, 1997
2. Section 3 of the employment agreement between Michael Foods and
Reedy dated December 31, 1994 is hereby amended by substituting the following
for the phrase "for each of the calendar years of this Agreement from January 1,
1995 through December 31, 1996 of at least $185,000":
for each of the calendar years of this Agreement from January 1,
1996 through December 31, 1997 of at least $195,000
Except as otherwise provided herein, the employment agreement between Michael
Foods and Reedy dated December 31, 1994 shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
and year above written.
MICHAEL FOODS, INC.
By /s/ Gregg Ostrander
------------------------
Its PRESIDENT/CEO
----------------------
/s/ John Reedy
------------------------
JOHN D. REEDY
1
<PAGE> 1
EXHIBIT 10.106
AMENDMENT NO.2 TO EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of this 31st day of December,
1995, by and between MICHAEL FOODS, INC., a Delaware corporation (hereinafter
referred to as "Michael Foods"), and GREGG A. OSTRANDER (hereinafter referred
to as "Ostrander").
WHEREAS, Michael Foods and Ostrander have heretofore entered into an
employment agreement dated as of January 31, 1994; and
WHEREAS, said employment agreement was amended (Amendment No. 1) as of
December 31, 1994; and
WHEREAS, Michael Foods and Ostrander desire to amend Sections 2 and 3
of said agreement to amend and clarify certain terms thereof.
NOW, THEREFORE, in consideration of the premises and of the terms and
conditions set forth, the parties agree as follows:
1. Section 2 of the employment agreement between Michael Foods and
Ostrander dated January 31, 1994 is hereby amended by substituting the
following for the phrase "shall continue through December 31, 1996":
shall continue through December 31, 1997
2. Section 3 of the employment agreement between Michael Foods and
Ostrander dated January 31, 1994 is hereby amended by substituting the
following for the phrase "for each of the calendar years of this Agreement from
January 1, 1994 through December 31, 1996 of at least $280,000":
for each of the calendar years of this Agreement from January 1,
1996 through December 31, 1997 of at least $309,000
Except as otherwise provided herein, the employment agreement between Michael
Foods and Ostrander dated January 31, 1994 shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
and year above written.
MICHAEL FOODS, INC.
By /s/ Mark D. Witmer
------------------------
Its ASSISTANT TREASURER
---------------------
/s/ Gregg A. Ostrander
------------------------
GREGG A. OSTRANDER
1
<PAGE> 1
MICHAEL FOODS, INC. EXHIBIT 13.1
1995 ANNUAL REPORT
The Company
Michael Foods, Inc. and Subsidiaries
Michael Foods, Inc. is a diversified food processor and distributor with
businesses in egg products, refrigerated grocery products, frozen and
refrigerated potato products and specialty dairy products. Our strategic thrust
is to continue to transition Michael Foods into a value-added food products
company by being a leader in the food industry in introducing innovative food
technology and customer solutions. The key to this strategy is "value-added",
whether that is in the product, the distribution channel or in the service we
provide to our customers. Principal subsidiaries include M.G. Waldbaum Company,
Crystal Farms Refrigerated Distribution Company, Northern Star Co. and its
related potato businesses and Kohler Mix Specialties, Inc.
Financial Highlights
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 1994 1993
------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales................................ $536,627 $505,965 $474,783
Net earnings (loss)...................... 17,591 15,189 (16,320)
-------- ------- --------
Net earnings (loss) per share............ $ .91 $ .79 $ (.84)
Cash dividends per share................. $ .20 $ .20 $ .20
Weighted average common shares
outstanding............................. 19,328 19,315 19,416
-------- ------- --------
AT DECEMBER 31,
Working capital.......................... $ 42,095 $ 33,589 $ 22,267
Total assets............................. 359,227 336,645 329,087
Long-term debt........................... 89,690 88,795 94,194
Stockholders' equity..................... 180,095 166,029 155,003
</TABLE> -------- -------- --------
<PAGE> 2
To Our Stockholders
Your company had a strong year. The benefits of being well down the path
toward value-added product sales, and away from commodity-sensitive products,
were quite evident. For the year, sales from the operations of the company rose
8% and net earnings increased 16%.
The two biggest operating challenges we faced in 1995 related to raw
material sourcing. In the third quarter, the cost of grain, which impacts our
feed costs in the egg production area, started to rise sharply and open market
potatoes increased in value as it became apparent that the size of the national
corn, soybean and potato crops would come in below expectations. Also, there
were quality problems with the fall potato crop. These issues were even more
prevalent in the fourth quarter and will be with us well into 1996. We have
seen, however, some off-sets to these production cost factors in the form of
increased pricing for certain egg and potato products. However, this price
relief probably will not be enough to overcome the raw material cost pressures
expected to be evident until this fall's harvest. During this period of
unusually strong cost pressure, we will steadfastly maintain our primary focus
of growing the value-added portion of our sales mix by providing innovative
solutions for our customers.
Considerable effort went into developing a long-range strategic plan for
Michael Foods this past year. We now have a formal "blue print" of what we want
the company to look like in the year 2000. The core focus of "MFI 2000" is on
providing foodservice and retail solutions for our customers. Through this
effort we see Michael Foods increasingly becoming a partner with our customers
by establishing strong strategic alliances. With this focus, aggressive new
product development and acquisitions, we believe we can drive our sales to much
higher levels and grow our earnings at a greater, and more consistent, rate
than we have in the past.
Our management team has established six "strategic imperatives" that
should enable the company to successfully execute the MFI 2000 long-range plan.
They are:
1) TO COMMUNICATE THE VISION OF MFI 2000 TO ALL 2,600 MICHAEL FOODS EMPLOYEES.
This was accomplished in the fourth quarter of 1995.
2) TO REFOCUS AND STREAMLINE OUR SALES EFFORTS WITH OUR FOODSERVICE AND
RETAIL CUSTOMERS.
This effort was started last year with the integration of the Kohler Mix
sales team into the Michael Foods Sales group. At the same time we
integrated the retail sales team into the Crystal Farms sales group. The
result is a separate, dedicated sales focus for both foodservice and
retail customers.
3) TO RE-ENERGIZE INNOVATION AT MICHAEL FOODS.
This will be a priority, as much of our growth in the coming years will
come from businesses and products we are not in today. In December
1995 a group of R&D experts and other managers from across the operating
companies began work on several new product/business initiatives.
4) TO INTEGRATE OUR MANAGEMENT INFORMATION SYSTEMS (MIS) ACROSS THE COMPANY.
A major MIS upgrade was started in late 1994 and significant progress was
made in this area in 1995. The goal is to have all of our operating
companies on the new integrated system by the end of 1997. When completed,
this system will enable us to be a faster and smarter competitor in our
markets.
5) TO SYNERGIZE COSTS OUT OF MICHAEL FOODS.
We have initiatives underway to leverage the purchasing power of the
company to procure lower cost packaging, supplies, labels and other
key materials for each of our operating companies. We expect meaningful
cost savings from these efforts and others that are underway across the
company.
6) TO DEVELOP THE PARAMETERS OF, AND THEN EXECUTE, AN AGGRESSIVE
ACQUISITION STRATEGY.
Acquisition guidelines were refined in late 1995 which will drive our
efforts in this area. In order to achieve the aggressive sales goal that
we have set for the year 2000, over half of our sales growth will have to
come from acquisitions.
We are excited about the vision that MFI 2000 sets for the company and, as
described above, we have already started executing this long-range plan. We
will report on the progress made toward our MFI 2000 goals and objectives in
the months and years ahead.
As many of you will recall, in late 1994 we began a test under which we
marketed, sold and distributed refrigerated pastas and related sauces in the
foodservice market under an agreement with Romance Foods Co.
1
<PAGE> 3
concluded late last year that the opportunity in pasta was not large enough to
warrant using significant corporate resources to develop the line further and
the test was ended.
In other corporate news, in December we completed the first acquisition we
have made in over four years. We purchased the institutional refrigerated
potato products line of Interstate Food Processing Corp. Interstate is the
second largest producer in the U.S. foodservice refrigerated potato products
market after our Northern Star subsidiary. The purchase included all of the
foodservice potato products volume and related processing equipment and a
long-term license for the use of Interstate's brand in this market. Taking over
our primary competitor's volume should allow for increased growth and improved
efficiencies in our value-added potato products business.
On the patent litigation front, 1995 was largely a year of waiting. We
received mixed messages regarding the status of the patents we license for the
production of long shelf-life liquid whole eggs. In early July, North Carolina
State University ("NCSU"), the patent-holder, prevailed at the United States
Court of Appeals. The Court reversed a decision by the United States Patent and
Trademark Office ("PTO"), which had rejected NCSU's arguments that one of its
process patents should be reissued as a product patent. Later that month, the
PTO issued a First Office Action in a separate, but related,
Reissue/Reexamination, which preliminarily rejected claims under the fourth
NCSU process patent being reexamined as a result of challenges filed by egg
industry competitors. In early 1996, a Second Office Action in that
Reissue/Reexamination was received which continued the rejections and it is
expected that claims under the other three NCSU patents will also be rejected.
Pending the ultimate outcome of this Reissue/Reexamination process, patent
infringement lawsuits with two egg products competitors have been stayed and
another has been dismissed without prejudice. An appeal of the rejections has
been started within the PTO and an appeal will also be made, if necessary, to
the Court of Appeals. Counsel estimates that the appeal process, in total,
could take as long as two years. In the meantime, the four patents remain valid
and fully in force.
Late in the year, we announced an agreement with North Star Universal,
Inc. ("NSU") to enter into a tax-free business combination of our companies, in
which Michael Foods will be the surviving company. As a result of the
transactions, we will in effect repurchase and retire a portion of NSU's
Michael Foods stock holdings, at a discount to the market price of Michael
Foods' stock prior to closing, by assuming NSU's debt. NSU presently owns
7,354,950 shares, or approximately 38%, of Michael Foods' common stock. NSU's
remaining Michael Foods stock holdings will then be allocated pro rata to NSU's
stockholders in a tax-free distribution. The debt to be assumed by Michael
Foods will be $25-$38 million and the price per share discount will be
8%-10% depending upon the level of debt assumed. All of NSU's other assets and
liabilities will be transferred to a new company and distributed to its
stockholders.
Assuming a favorable tax ruling from the IRS, satisfaction of certain
other conditions, and approval by the stockholders of both companies, we expect
to close the NSU transaction this summer. This should be good news for you as a
Michael Foods stockholder, as your percentage ownership in Michael Foods will
increase, earnings per share will improve as a result of the stock retirement,
the stock's publicly-held float will increase and we will enjoy increased
flexibility as a corporation. As I write this, the necessary governmental
filings are being prepared. You will receive additional information on the
proposed transaction in the months ahead. We tentatively expect to hold the
Annual Meeting of Stockholders in June and will consider a vote on this matter
at that meeting.
The opportunities and challenges ahead will demand the best from all of
the employees of Michael Foods. We have made plans for the future and we are
executing those plans. All of us are excited about moving your company ahead to
new heights. Thank you for your support of our efforts.
Sincerely,
/s/ Gregg A. Ostrander
Gregg A. Ostrander
President and Chief Executive Officer
2
<PAGE> 4
EGG PRODUCTS DIVISION
The M. G. Waldbaum Company had a strong 1995. Sales rose moderately and
earnings increased an even greater amount. There were three areas that were
responsible for the majority of the earnings growth.
First, Easy Eggs(R) unit sales again increased. This product had a solid
showing in its seventh year of commercial sales. Sales continued to benefit
from the growth key Easy Eggs(R) customers are seeing in their businesses,
primarily from opening new restaurant locations, and from the focus the Michael
Foods Sales group has brought to this product. This rising volume, in turn,
provided notable efficiencies in the operation of the Gaylord, Minnesota egg
products plant.
Second, the MicroFresh(TM) frozen egg patty and omelet line had excellent
sales. Waldbaum has devoted a considerable amount of attention to this business
over the past two years and 1995 was the first full year that MicroFresh(TM)
had a full-time sales resource devoted to the line. There is growing interest
in this microwaveable egg product line as consumers and foodservice operations
move increasingly to convenient, but high quality, foods.
Third, losses were reduced in the shell egg area. Though grain prices
began to rise sharply at mid-year, which raised feed costs for all of
Waldbaum's egg production, egg selling prices also increased as the year
unfolded. The latter was a response to both the grain situation and the
reduction in the national laying flock last summer as a result of extensive hot
weather. Grain prices will likely hold relatively high levels, at least through
the first half of 1996. Therefore, significantly higher egg production costs
are expected through much of 1996 versus those which prevailed in 1995. Egg and
egg product pricing in 1996 will depend, in part, upon how egg producers
respond to this high cost environment and the speed at which hens are replaced
in the national flock.
In other egg news, Simply Eggs(TM) Brand Scrambled Egg Mix was
discontinued in the retail market in late 1995. The product had a niche in the
egg substitute category, but management concluded that the consumer support
costs to grow the sales meaningfully would be too high relative to the
product's longer-term profit margin potential. The product remains available in
the foodservice market, where it has experienced good sales results.
[ARTWORK]
MICROFRESH(TM) EGG PATTIES ARE USED IN A VARIETY OF PREPARED BREAKFAST ITEMS,
INCLUDING MICROWAVEABLE SANDWICHES.
3
<PAGE> 5
POTATO PRODUCTS DIVISION
Northern Star Co. had mixed results in 1995. While the division's sales
increase was the largest recorded within Michael Foods, earnings were down for
the year. Sales benefited from strong growth in the refrigerated potato
products line-both at retail and foodservice. On the retail side, the Simply
Potatoes(TM) consumer advertising and promotion program was expanded from three
to 16 markets early in the year and there has been a good response to this
campaign. A further expansion of this program to 26 markets is planned for
early 1996. With the help of increased consumer awareness, the newest item
in the Simply Potatoes(TM) family-Sliced Home Fries-became the second largest
selling item in the line late in the year. On the foodservice side, the Michael
Foods Sales group was successful in growing the refrigerated potato products
volume. Increasingly, foodservice customers are finding these products to be
high quality, and convenient, alternatives to frozen, dehydrated or hand-made
potato products. During 1995 the Potato Products Division also added a major
new foodservice account which is using refrigerated, sliced potatoes to make
high quality mashed potatoes in its rapidly expanding operations.
Frozen potato products had a difficult year. Soft volumes and weak pricing
were experienced through most of the year. Additionally, raw material issues
hurt production yields. Potatoes held in storage from the fall 1994 harvest
offered less-than-desired production yields when they were processed in the
spring and summer of 1995. Then new crop potatoes, many of which are grown for
Northern Star under contract, were smaller than expected and were available in
lesser quantities than anticipated. This has kept processing yields below
normal and has also raised raw material sourcing costs. Fortunately, there are
industry-wide potato sourcing issues this year, which have resulted in pricing
for all potato products to be in an uptrend since the fall, as foodservice
demand has not noticeably slackened.
The management team at Northern Star was realigned last summer when a new
president of the division was named. He had previously been an officer at the
Crystal Farms Refrigerated Distribution Division and brings a wealth of
experience and managerial expertise to his new position.
[ARTWORK]
SIMPLY POTATOES(TM) SLICED HOME FRIES ARE AN INCREASINGLY POPULAR PRODUCT IN
THE RETAIL GROCERY MARKET.
4
<PAGE> 6
REFRIGERATED DISTRIBUTION DIVISION
Crystal Farms had an excellent 1995. Sales rose at a rate greater than
that of the company in total and strong expense management resulted in an even
stronger increase in divisional profitability.
The division continued to strengthen alliances with key customers and
build new relationships with several large warehouse customers. While sales
volumes last year from these new accounts were relatively modest, it is
expected that 1996 will see these customers contribute significant volume
gains.
Twenty-six new products and product line extensions were introduced in
1995 to ensure Crystal's broad refrigerated product line remains responsive to
changing consumer tastes. Among the new products introduced last year were a
line of bagel spreads to complement Crystal's bagel offerings, "cracker
toppers" spreadable cheese, and two new flavor extensions to the It's So Cheesy
brand of cheese sauce.
In the fourth quarter of 1995, the Michael Foods retail sales and broker
network was combined with the sales group of the Crystal Farms Division. This
combination provides two distinct opportunities for the company. First, it
enables Michael Foods to have a unified sales presence in the retail grocery
market. Second, it provides Crystal Farms, which presently distributes to a 23
state area, access to a national sales force to present its products to the
U. S. grocery trade.
[ARTWORK]
CRYSTAL FARMS' BAGEL TOPPER LINE COMPLIMENTS THIS DIVISION'S LARGE RETAIL
BAGEL BUSINESS.
5
<PAGE> 7
DAIRY PRODUCTS DIVISION
1995 was a solid year for the Dairy Products Division. Sales and earnings
rose, though modestly in comparison to a very strong 1994.
Late in the year the corporate sales efforts in the foodservice and
industrial markets were further consolidated. The stand-alone sales staff of
Kohler Mix Specialties was melded into the Michael Foods Sales Group, adding
roughly 90 people to the list of sales personnel who are talking about Kohler's
specialty dairy products with their customers every work day.
The increased sales emphasis on dairy products, coupled with an increased
capacity at the second Kohler plant in Texas, has resulted in significant new
national account activity. It is expected that other national chain account
business will arise as Kohler looks to expand its business to a truly national
level in the coming years. While the feasibility of additional dairy plant
locations is explored, the capacity at the Texas facility is being expanded.
This new processing capacity should be operational by the second quarter of
1996.
Kohler's product offerings were broadened last year with the addition of
shelf-stable, or "no chill", creamers last summer. This product, available in
Half & Half or non-dairy formulations, is sold in 3/8th ounce cups in the
foodservice market, is ultra-high temperature ("UHT") pasteurized and is
aseptically packaged for an unrefrigerated shelf life in excess of 90 days.
Sales are targeted to the foodservice market. The product is gaining acceptance
with new accounts that previously have not been Kohler creamer customers and
also with existing clients looking to upgrade to a creamer line which provides
enhanced food safety and convenience.
Kohler is a leader in dairy mix formulations and manufacturing of
specialty dairy products. This expertise is focused on providing customers
with cost effective solutions to their dairy products problems. During 1995
Kohler continued to build on this expertise by making investments in: a pilot
plant, research and development, and manufacturing capabilities, including the
aseptic creamer packaging line and a bar-code scanning system. The latter
allows for more comprehensive tracking of products through the customer order
and manufacturing cycle than has been available in the past.
"NO CHILL" ASEPTIC COFFEE CREAMERS WERE INTRODUCED IN THE FOODSERVICE MARKET
BY KOHLER MIX LAST SUMMER.
6
<PAGE> 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Michael Foods, Inc. and Subsidiaries
GENERAL
The following table sets forth the percentage of net sales accounted for by
each of the Company's operating divisions for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 1994 1993
- --------------------------------------------------------
<S> <C> <C> <C>
Egg Products........................ 42% 42% 42%
Refrigerated Distribution........... 34 33 34
Potato Products..................... 16 15 15
Dairy Products...................... 14 14 14
Prepared Foods*..................... - 2 2
Intercompany Sales.................. (6) (6) (7)
-----------------
Total............................... 100% 100% 100%
=================
</TABLE>
The following table sets forth the percentage of operating earnings (before
corporate, interest and income tax expenses) accounted for by each of the
Company's operating divisions for the periods indicated:
<TABLE>
YEAR ENDED DECEMBER 31, 1995 1994 1993**
- --------------------------------------------------------
<S> <C> <C> <C>
Egg Products........................ 59% 51% 46%
Refrigerated Distribution........... 15 13 17
Potato Products..................... 12 23 20
Dairy Products...................... 14 14 19
Prepared Foods*..................... - (1) (2)
-----------------
Total 100% 100% 100%
=================
</TABLE>
* The assets of the subsidiary comprising the Prepared Foods Division were sold
in late 1994.
** Before disposal of product line and restructuring charges.
RESULTS OF OPERATIONS
The Egg Products Division had higher dollar sales and higher dollar
earnings in 1995, as compared to the results for 1994. Sales increased for
certain value-added egg products, notably Easy Eggs(R) and MicroFresh(TM),
which helped produce a divisional operating profit improvement. Profitability
increased for certain other egg products. Egg prices increased approximately 9%
in 1995, as compared to 1994, as reported by Urner Barry Publications - a
widely quoted industry pricing service. Feed costs, which typically represent
roughly two-thirds of the cost of producing an egg, were slightly lower in 1995
than in 1994.
The Refrigerated Distribution Division had higher dollar sales and higher
dollar earnings in 1995, as compared to the results for 1994. Unit sales
increased compared to 1994 levels. The combination of volume growth, pricing
improvements in certain product lines and effective expense control allowed for
divisional profit improvement.
The Potato Products Division had higher dollar sales and lower dollar
earnings in 1995, as compared to the results for 1994. A competitive
environment in the french fry processing industry depressed unit sales and
selling prices for frozen potato products. Additionally, certain varieties of
potatoes held in storage since the fall 1994 harvest offered below normal
processing yields and potatoes from the fall 1995 harvest were generally
available in lesser quantities, and were smaller, than expected. These factors
depressed french fry margins. Strong demand for value-added refrigerated potato
products in both foodservice and retail markets resulted in sharply higher
sales for these products. Margins for these products were also affected by the
raw material/processing yield issues.
The Dairy Products Division had higher dollar sales and higher dollar
earnings in 1995, as compared to the results for 1994. Unit sales rose
slightly, with an increase in core UHT ("ultra-high temperature"
pasteurization) dairy mixes more than offsetting declines in certain other
non-UHT product lines. Pricing and operating costs were relatively stable
year-over-year.
The gross profit margin of the Company was 15.3 percent in 1995, as
compared to 14.8 percent in 1994 and 12.6 percent in 1993. This improvement
reflected the factors discussed above, particularly the increased unit sales in
value-added product lines. Additionally, in 1993 a gross loss from a
discontinued product line of $5,881,000 was recorded, or 1.2 percent of net
sales. It is management's strategy to increase value-added product sales as a
percent of total sales over time, while decreasing commodity-sensitive
products' contribution to consolidated sales. These efforts historically have
been beneficial to gross profit margins.
Selling, general and administrative expenses were 8.5 percent of net sales
in 1995, as compared to 8.3 percent in 1994 and 8.2 percent in 1993. This
increase was due to factors such as increased staffing, inflation and increased
marketing support for certain product lines, particularly the Company's retail
refrigerated potato products. Selling, general and administrative expenses in
1993 included $2,505,000 directly attributable to a discontinued product line.
Disposal of product line costs in 1993 relate to the elimination of an egg
product. The Company had invested in a joint venture with an unrelated company
for the purpose of producing reduced cholesterol liquid whole eggs. Due to
significant continuing losses and lack of adequate market acceptance, the
Company decided in December 1993 to acquire the interest of its joint venture
partner and cause the early termination of the partnership. Consequently, the
Company recorded a one-time charge of approximately $22,769,000, and a related
income tax benefit of $8,485,000, in 1993 related to the disposal of the
product line. The Company recorded pre-tax losses directly attributable to the
discontinued product line in 1993 of approximately $7,689,000. Certain of the
net assets held for sale by the Company from the joint venture were sold or
transferred to operating divisions during 1994 and 1995.
Restructuring charges in 1993 relate to a number of items, the largest
being costs from a significant reorganization of a former subsidiary of the
Company. This portion of the restructuring charges included $5,129,000 for the
elimination of unamortized goodwill and $2,108,000 for site abandonment,
relocation and other costs. In late 1994, the Company ceased its efforts to
restructure the subsidiary's operations and completed a sale of its remaining
assets. During the fourth quarter of 1993, in conjunction with restructuring
its egg operations, the Company recorded additional restructuring charges of
$3,927,000, primarily related to certain egg production facilities held for
sale to reflect their then current net realizable value. One facility was sold
during 1994 and another remained for sale as of December 31, 1995.
7
<PAGE> 9
Interest expense was lower in 1995 than in 1994. The decrease resulted
from continued principal payments on long-term debt and lower average
borrowings under the Company's unsecured revolving line of credit. Generally,
interest rates on the Company's bank borrowings were lower, on average, in 1995
than in 1994, but they were higher in 1994 than in 1993.
Interest income in 1993 consisted, in part, of $697,000 related to
interest received on notes receivable from the joint venture that produced the
discontinued reduced cholesterol liquid whole eggs product line.
Certain of the Company's products are sensitive to changes in commodity
prices. Currently, the Company's egg products operations derive approximately
16 percent of net sales from shell eggs which are sensitive to commodity price
changes. The remainder of egg products division sales are derived from the sale
of egg products that are value-added to varying degrees. Gross profit from
shell eggs is primarily dependent upon the relationship between shell egg
prices and feed costs, both of which can fluctuate significantly. While certain
egg products exhibit commodity price sensitivity, gross margins from egg
products are generally less sensitive to commodity price fluctuations than are
shell eggs. The Company's refrigerated distribution operations derive
approximately 70 percent of net sales from refrigerated products, with the
balance coming from shell egg sales. As a majority of these eggs are supplied
by the egg products division and are, in-turn, sold on a distribution or
non-commodity basis by the refrigerated distribution division, this division's
sales are generally not sensitive to commodity price fluctuations. The potato
products division typically purchases approximately 80 to 90 percent of its
estimated annual potato needs under annual grower contracts. The remainder is
purchased at market prices to satisfy short-term production requirements or to
take advantage of spot prices when they are lower than contract prices. French
fry pricing for both the industry and the Company is significantly influenced
by the size and quality of the annual U.S. potato crop, as well as consumer
demand. While small variations in potato prices or selling prices of end
products can have a significant effect on the earnings of the potato products
division, such impacts have been lessened in recent years through significant
increases in higher value-added refrigerated potato product sales. The dairy
products division sells its products primarily on a cost-plus basis. Therefore,
the earnings of this division are not typically affected by raw ingredient
price fluctuations.
Inflation is not expected to have a significant impact on the Company's
business. The Company generally has been able to offset the impact of inflation
through a combination of productivity gains and price increases.
Competitors have infringed the Company's exclusive license for a patented
technology to safely extend the shelf-life of liquid eggs and the Company is
pursuing its legal rights. The Company has prevailed in U. S. District Court
cases in Florida and New Jersey. The judgment in the New Jersey case was
appealed in 1994 and the Court of Appeals for the Federal Circuit upheld the
summary judgment of the U. S. District Court, which found the patents valid and
enforceable. Since then, present and potential extended shelf-life liquid egg
competitors have filed protests with the U. S. Patent and Trademark Office
("PTO") challenging the validity of one or more of the claims under the
patents. As a result, litigation in two patent infringement lawsuits where the
Company is a plaintiff have been stayed and another lawsuit has been dismissed
without prejudice. During 1995 and early 1996 the PTO issued two actions in
which an examiner rejected claims under one of the four patents licensed by the
Company. Counsel advises the patent holder and the Company that the claims
under the three related patents could be similarly rejected. The Company will
either continue to prosecute the claims with the examiner, or will appeal the
rejection to the PTO's Board of Patent Appeals and Interferences and may, if
necessary, appeal further to the Court of Appeals for the Federal Circuit. The
patents will remain valid and in full force and effect during this appeal
process.
While management is resolved to protect the Company's proprietary rights
and expects those rights to continue to be upheld, the number of present and
potential competitors in this egg product category continues to increase. As a
result of such competition, pricing pressure in the category may increase
beyond that which has already been experienced. Sales of extended shelf-life
liquid eggs represent the largest contributor to operating profits within the
Company's Egg Products Division.
CAPITAL RESOURCES AND LIQUIDITY
The Company's investments in acquisitions and capital expenditures have
been a significant use of capital. The Company plans to continue to invest in
state-of-the-art production facilities to enhance its competitive position.
Historically, the Company has financed its growth principally from internally
generated funds, bank borrowings, issuance of senior debt and the sale of
common stock. The Company believes that these financing alternatives will
continue to meet its anticipated needs.
The Company invested $23,782,000 in capital expenditures in 1995,
$22,839,000 in 1994 and $8,669,000 in 1993. In late 1995, the Company acquired
the institutional refrigerated potato products line of Interstate Food
Processing Corp. There were no acquisitions in 1994 or 1993.
As more fully described in Note B to the consolidated financial
statements, the Company expects to complete a merger with North Star Universal,
Inc. ("NSU"). Through the merger the Company will effectively repurchase shares
of its common stock with a discounted value of $25 million to $38 million
through the assumption of NSU debt of the same amount. The merger is subject to
approval by stockholders of both companies and other conditions. The
transaction is expected to close in mid-1996. If this transaction is completed,
the Company expects to refinance and extinguish the debt assumed in the
transaction during 1996 or 1997. The Company has an unsecured line of credit
for $55,000,000 from its principal banks. As of December 31, 1995, $42,500,000
was borrowed under this line of credit.
8
<PAGE> 10
Consolidated Balance Sheets
Michael Foods, Inc. and Subsidiaries
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . $ 1,921,000 $ 1,641,000
Accounts receivable, less allowances. . . . . . . . . . 40,583,000 36,622,000
Inventories . . . . . . . . . . . . . . . . . . . . . . 58,845,000 54,631,000
Prepaid expenses and other. . . . . . . . . . . . . . . 1,622,000 1,091,000
------------------------------
Total current assets . . . . . . . . . . . . . . . . 102,971,000 93,985,000
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land . . . . . . . . . . . . . . . . . . . . . . . . . 4,117,000 4,149,000
Buildings and improvements. . . . . . . . . . . . . . . 95,109,000 93,807,000
Machinery and equipment . . . . . . . . . . . . . . . . 203,557,000 182,805,000
------------------------------
302,783,000 280,761,000
Less accumulated depreciation . . . . . . . . . . . . . 118,642,000 99,702,000
------------------------------
184,141,000 181,059,000
OTHER ASSETS
Goodwill, net . . . . . . . . . . . . . . . . . . . . . 57,829,000 47,439,000
Net assets held for sale. . . . . . . . . . . . . . . . 4,431,000 7,761,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . 9,855,000 6,401,000
------------------------------
72,115,000 61,601,000
------------------------------
$359,227,000 $336,645,000
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt . . . . . . . . . . $ 11,731,000 $ 11,809,000
Accounts payable . . . . . . . . . . . . . . . . . . . . 27,362,000 26,360,000
Accrued compensation . . . . . . . . . . . . . . . . . . 6,543,000 5,168,000
Accrued insurance. . . . . . . . . . . . . . . . . . . . 6,945,000 6,326,000
Other accrued expenses . . . . . . . . . . . . . . . . . 7,095,000 7,633,000
Deferred income taxes . . . . . . . . . . . . . . . . . 1,200,000 3,100,000
------------------------------
Total current liabilities. . . . . . . . . . . . . . . 60,876,000 60,396,000
LONG-TERM DEBT, less current maturities . . . . . . . . . 89,690,000 88,795,000
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . 28,566,000 21,425,000
CONTINGENCIES . . . . . . . . . . . . . . . . . . . . . . - -
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 3,000,000 shares
authorized, none issued . . . . . . . . . . . . . . . - -
Common stock, $.01 par value, 25,000,000
shares authorized, shares issued 19,332,001
in 1995 and 19,915,489 in 1994 . . . . . . . . . . . . 193,000 199,000
Additional paid-in capital . . . . . . . . . . . . . . . 112,374,000 117,640,000
Retained earnings . . . . . . . . . . . . . . . . . . . 67,528,000 53,801,000
Treasury stock, 613,912 shares held in 1994 - at cost . - (5,611,000)
------------------------------
Total stockholders' equity . . . . . . . . . . . . . . . 180,095,000 166,029,000
------------------------------
$359,227,000 $336,645,000
==============================
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE> 11
Consolidated Statements of Earnings
Michael Foods, Inc. and Subsidiaries
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . $536,627,000 $505,965,000 $474,783,000
Cost of sales . . . . . . . . . . . . . . . . . 454,652,000 430,917,000 414,965,000
--------------------------------------------------------
Gross profit . . . . . . . . . . . . . . 81,975,000 75,048,000 59,818,000
Selling, general and administrative expenses . 45,729,000 41,851,000 39,122,000
Disposal of product line . . . . . . . . . . . - - 22,769,000
Restructuring charges . . . . . . . . . . . . . - - 11,164,000
--------------------------------------------------------
45,729,000 41,851,000 73,055,000
--------------------------------------------------------
Operating profit (loss) . . . . . . . . 36,246,000 33,197,000 (13,237,000)
Interest (income) expense
Interest expense . . . . . . . . . . . . . . 7,917,000 8,842,000 9,210,000
Interest capitalized . . . . . . . . . . . . (172,000) (304,000) (116,000)
--------------------------------------------------------
7,745,000 8,538,000 9,094,000
Interest income . . . . . . . . . . . . . . . . (110,000) (40,000) (731,000)
--------------------------------------------------------
7,635,000 8,498,000 8,363,000
--------------------------------------------------------
Earnings (loss) before income taxes . . 28,611,000 24,699,000 (21,600,000)
Income tax expense (benefit) . . . . . . . . . 11,020,000 9,510,000 (5,280,000)
--------------------------------------------------------
NET EARNINGS (LOSS) . . . . . . . . . . $17,591,000 $15,189,000 $(16,320,000)
========================================================
NET EARNINGS (LOSS) PER SHARE . . . . . $ .91 $ .79 $ (.84)
========================================================
Weighted average shares outstanding . . . . . . 19,328,000 19,315,000 19,416,000
========================================================
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE> 12
Consolidated Statements of Stockholders' Equity
Michael Foods, Inc. and Subsidiaries
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL TOTAL
------------------------- PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES ISSUED AMOUNT CAPITAL EARNINGS STOCK EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1993 . . . . . 19,915,489 $199,000 $117,640,000 $62,681,000 $(3,483,000) $177,037,000
Purchase of shares. . . .
for treasury. . . . . . - - - - (1,828,000) (1,828,000)
Net loss. . . . . . . . . - - - (16,320,000) - (16,320,000)
Cash dividends. . . . . . - - - (3,886,000) - (3,886,000)
-------------------------------------------------------------------------------------------------
Balance at. . . . . . . . .
December 31, 1993 . . . . 19,915,489 199,000 117,640,000 42,475,000 (5,311,000) 155,003,000
Purchase of shares
for treasury. . . . . . - - - - (300,000) (300,000)
Net earnings . . . . . . - - - 15,189,000 - 15,189,000
Cash dividends . . . . . . - - - (3,863,000) - (3,863,000)
-------------------------------------------------------------------------------------------------
Balance at
December 31, 1994 . . . . . 19,915,489 199,000 117,640,000 53,801,000 (5,611,000) 166,029,000
Treasury stock retired . . (613,912) (6,000) (5,605,000) - 5,611,000 -
Incentive plan stock
compensation . . . . . . . 30,424 - 339,000 - - 339,000
Net earnings . . . . . . . . - - - 17,591,000 - 17,591,000
Cash dividends . . . . . . . - - - (3,864,000) - (3,864,000)
-------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 . . . . . 19,332,001 $193,000 $112,374,000 $67,528,000 $ - $180,095,000
=================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
11
<PAGE> 13
Consolidated Statements of Cash Flows
Michael Foods, Inc. and Subsidiaries
<TABLE>
YEARS ENDED DECEMBER 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $17,591,000 $15,189,000 $(16,320,000)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation 22,461,000 21,616,000 22,446,000
Amortization 1,575,000 1,633,000 1,741,000
Deferred income taxes 5,241,000 6,095,000 (7,660,000)
Disposal of product line - (10,820,000) 22,769,000
Restructuring charges - (525,000) 11,164,000
Incentive plan stock compensation 339,000 - -
Cash provided from changes in
working capital employed, net of effect
of disposal of product line and
restructuring charges:
Accounts receivable (3,961,000) (3,535,000) 392,000
Inventories (4,214,000) (5,493,000) 2,968,000
Prepaid expenses and other (531,000) 188,000 (122,000)
Accounts payable 1,002,000 5,824,000 3,440,000
Accrued expenses 1,456,000 1,706,000 2,708,000
----------- ----------- ------------
Total adjustments 23,368,000 16,689,000 59,846,000
----------- ----------- ------------
Net cash provided by operating activities 40,959,000 31,878,000 43,526,000
Cash flows from investing activities:
Capital expenditures (23,782,000) (22,839,000) (8,669,000)
Sale of net assets held for sale 889,000 1,786,000 -
Business acquisition and other assets (15,419,000) (1,840,000) (3,194,000)
----------- ----------- ------------
Net cash used in investing activities (38,312,000) (22,893,000) (11,863,000)
Cash flows from financing activities:
Payments on long-term debt (100,806,000) (100,604,000) (109,713,000)
Proceeds from long-term debt 102,303,000 97,200,000 77,923,000
Purchase of shares for treasury - (300,000) (1,828,000)
Cash dividends (3,864,000) (3,863,000) (3,886,000)
----------- ----------- ------------
Net cash used in financing activities (2,367,000) (7,567,000) (37,504,000)
----------- ----------- ------------
Net increase (decrease) in cash
and cash equivalents 280,000 1,418,000 (5,841,000)
Cash and cash equivalents at
beginning of year 1,641,000 223,000 6,064,000
----------- ----------- ------------
Cash and cash equivalents at end of year $ 1,921,000 $ 1,641,000 $ 223,000
=========== =========== ============
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest $ 8,183,000 $ 8,853,000 $ 9,445,000
Income taxes 6,363,000 4,432,000 3,858,000
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE> 14
Notes To Consolidated Financial Statements
Michael Foods, Inc. and Subsidiaries
NOTE A
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Michael Foods, Inc. (the "Company") is a holding company which, through its
operating subsidiaries, is engaged in the food processing and distribution
business primarily throughout the United States. Principal products, as a
percent of 1995 sales, before the effect of intercompany sales of 6%, are egg
products 42%, refrigerated distribution 34%, fresh and frozen potato products
16%, ice milk mix, ice cream mix and milk 14%.
At December 31, 1995, North Star Universal, Inc. ("NSU") held 7,354,950
shares of the issued and outstanding common stock of the Company or 38.0%.
Certain directors of the Company are also officers and directors of NSU.
1. PRINCIPLES OF CONSOLIDATION AND FISCAL YEAR
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. All significant intercompany
accounts and transactions have been eliminated. In 1994, the Company began
utilizing a fifty-two, fifty-three week fiscal year ending on the Saturday
nearest to December 31. For clarity of presentation, the Company has described
all periods as if the year end is December 31.
2. CASH AND CASH EQUIVALENTS
The Company considers highly liquid temporary investments with original
maturities of three months or less to be cash equivalents.
3. INVENTORIES
Inventories other than flocks, raw potatoes, and potato products are stated at
the lower of cost (determined on a first-in, first-out basis) or market. Flock
inventory represents the cost of purchasing and raising flocks to laying
maturity, at which time their cost is amortized to operations over their
expected useful life of generally 1 to 2 years assuming no salvage value. Raw
potatoes and potato products are stated at the lower of average cost for the
year in which produced or at market.
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
- -----------------------------------------------------------
<S> <C> <C>
Raw materials and supplies... $16,597,000 $15,327,000
Work in process and
finished goods............ 19,848,000 16,233,000
Flocks....................... 22,400,000 23,071,000
----------------------------
$58,845,000 $54,631,000
============================
</TABLE>
4. DEPRECIATION
Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives,
principally on the straight-line basis. Estimated service lives range from
10-40 years for buildings and improvements and 3-10 years for machinery and
equipment.
5. GOODWILL AND AMORTIZATION
Goodwill has resulted from various acquisitions made by the Company. All
acquisitions were accounted for as purchases and the excess of the total
acquisition cost over the fair value of the net assets acquired was recorded as
goodwill. Currently, goodwill is amortized on the straight-line basis over 40
years. Accumulated amortization was $9,415,000 and $7,330,000 at December 31,
1995 and 1994, respectively. The Company maintains separate financial records
for each of its acquired entities and performs periodic strategic and
long-range planning for each entity. The Company evaluates its goodwill
annually to determine potential impairment by comparing the carrying value to
the undiscounted future cash flows of the related assets. The Company modifies
the life or adjusts the value of a subsidiary's goodwill if an impairment is
identified. See note D for an impairment identified during 1993.
6. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued two accounting standards
which the Company is required to adopt January 1, 1996. The first standard
establishes guidance on when and how to measure impairment of long-lived
assets, certain identifiable intangibles, and how to value long-lived assets to
be disposed of. The second standard establishes accounting and reporting for
stock-based compensation plans. This standard permits the Company to select the
new fair value based method of
13
<PAGE> 15
Notes to Consolidated Financial Statements
Michael Foods, Inc. and Subsidiaries
accounting for employee stock options or the existing intrinsic value method
which the Company currently follows. The Company intends to continue to use the
intrinsic value method which will require additional footnote disclosures
concerning its stock-based compensation plans. Management believes the adoption
of these new accounting standards will not have a material effect on the
Company's financial statements.
NOTE B
MERGER AND SHARE REPURCHASE
On December 21, 1995, the Company entered into a merger agreement with NSU, a
38.0% stockholder of the Company. The resulting publicly-held company will
operate the present businesses of the Company. Under the terms of the
agreement, NSU will distribute to its stockholders through a new corporation
all of its operating companies and its investment in CorVel Corporation. The
primary asset and liability remaining in NSU at the time of the merger will be
its investment in the Company's common stock and debt in an amount ranging from
$25 million to $38 million. Through the merger, the Company will effectively
repurchase shares of its common stock from NSU based on the amount of debt
assumed. The number of shares reacquired will be based on the actual amount of
debt assumed divided by the average trading price for a period of time prior to
the merger, reduced by a discount ranging from 8-10%. The remaining Company
shares, which are not reacquired by the Company, will be effectively
distributed tax-free to the NSU stockholders.
The transaction is subject to approval by the stockholders of both
companies and the receipt of a favorable ruling from the Internal Revenue
Service that the transaction is tax-free to both stockholder groups. The
agreement can be terminated by either party under various circumstances. The
transaction is expected to close in mid-1996. The effective share repurchase
will decrease the Company's stockholders' equity and increase indebtedness by
an amount ranging from $25 million to $38 million.
NOTE C
DISPOSAL OF PRODUCT LINE
The Company invested in a joint venture with an unrelated company for the
purpose of producing reduced cholesterol liquid whole eggs. Due to significant
continuing losses and lack of adequate market acceptance, the Company decided
in December 1993 to acquire the interest of its joint venture partner and cause
early termination of this joint venture. Consequently, the Company recorded a
one-time charge of approximately $22,769,000 and a related income tax benefit
of $8,485,000 in 1993. The Company recorded the acquired partnership assets at
their appraised value and included them in net assets held for sale.
Certain of the net assets held for sale were sold during 1995 and 1994.
Certain of the net assets held for sale were transferred to the Company's
operating subsidiaries in 1995.
In 1993, the revenues and expenses directly attributable to the
discontinued product line were net sales of $4,664,000, cost of sales of
$10,545,000, selling, general and administrative expenses of $2,505,000 and
interest income of $697,000. The Company recorded a pre-tax loss directly
attributable to the discontinued product line in 1993 of approximately
$7,689,000.
NOTE D
RESTRUCTURING CHARGES
During the fourth quarter of 1993, the Company recorded a restructuring charge
of $7,237,000 to provide for the elimination of goodwill and the significant
reorganization of the operations of Sunnyside Vegetable Packing, Inc.
("Sunnyside"). In the fourth quarter of 1994, the Company ceased its efforts to
restructure these operations and completed a sale of Sunnyside's remaining
assets.
During the fourth quarter of 1993, in conjunction with restructuring its
egg operations, the Company recorded restructuring charges of $3,927,000,
primarily related to certain egg production facilities held for sale to reflect
their current net realizable value. At December 31, 1995, one of these
production facilities remained held for sale.
14
<PAGE> 16
Notes to Consolidated Financial Statements
Michael Foods, Inc. and Subsidiaries
NOTE E
LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
- -------------------------------------------------------
<S> <C> <C>
Revolving line of
credit (a)................ $ 42,500,000 $ 29,400,000
9.5% senior promissory
note (b)............... 32,000,000 38,000,000
9.85% senior promissory
notes (c).............. 14,400,000 17,200,000
10.4% senior promissory
notes (d).............. 10,000,000 12,500,000
Other 2,521,000 3,504,000
----------------------------
101,421,000 100,604,000
Less current maturities... 11,731,000 11,809,000
----------------------------
$ 89,690,000 $ 88,795,000
============================
</TABLE>
Under the discounted cash flow method, the fair value of total long-term
debt approximates $100,508,000 and $99,325,000 at December 31, 1995 and 1994,
respectively.
Aggregate minimum annual principal payments of long-term debt maturing in
years subsequent to December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- --------------------------------------------
<S> <C>
1996 $ 11,731,000
1997 56,225,000
1998 13,588,000
1999 15,609,000
2000 3,513,000
Thereafter 755,000
------------
$101,421,000
============
</TABLE>
(a) The Company has an unsecured revolving line of credit with its principal
banks for $55,000,000 with interest at the principal banks' reference rate,
or alternative variable rates, at the Company's option. At December 31,
1995, the Company had $5,500,000 outstanding at the reference rate of 8.5%
and $37,000,000 outstanding at an average variable rate of 6.1%. This
revolving line of credit, which matures on March 31, 1997, contains certain
restrictive covenants similar to the covenants contained in the senior
promissory notes. At December 31, 1995, $12,500,000 of this line was unused.
(b) The 9.5% senior promissory note is due in varying semi-annual installments
of $3,000,000 to $5,000,000 from June, 1996 through December, 1999.
Interest is payable semi-annually. The note is unsecured and contains
certain restrictive covenants. The most significant covenants are: minimum
net worth requirements, limitations on additional indebtedness and liens,
minimum interest coverage and limitations on a change in control of the
Company.
(c) The 9.85% senior promissory notes are due in annual installments of
$2,800,000 from October, 1996 through October, 1999, with the remaining
principal of $3,200,000 due in October, 2000. Interest is payable
quarterly. The notes are unsecured and contain certain restrictive
covenants similar to the covenants contained in the 9.5% senior promissory
note.
(d) The 10.4% senior promissory notes are due in annual installments of
$2,500,000 from December, 1996 through December, 1999, with interest
payable semi-annually. The notes are unsecured and contain certain
restrictive covenants similar to the 9.5% senior promissory note.
NOTE F
INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 1995 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal.......... $ 4,893,000 $2,888,000 $ 1,968,000
State............ 886,000 527,000 412,000
---------------------------------------------
5,779,000 3,415,000 2,380,000
Deferred
Federal.......... 4,804,000 5,510,000 (6,746,000)
State............ 437,000 585,000 (914,000)
---------------------------------------------
5,241,000 6,095,000 (7,660,000)
---------------------------------------------
$11,020,000 $9,510,000 $(5,280,000)
=============================================
</TABLE>
Included in the 1993 provision for deferred income taxes is a $1,200,000
expense resulting from the increase in enacted Federal income tax rates.
Deferred income taxes arise from temporary differences between financial
and tax reporting. The tax effects of the
15
<PAGE> 17
Notes to Consolidated Financial Statements
Michael Foods, Inc. and Subsidiaries
cumulative temporary differences resulting in the deferred tax liability are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Depreciation.......... $32,831,000 $33,941,000
Farm inventory
accounting.......... 4,516,000 5,726,000
AMT credit............ (754,000) (3,975,000)
Disposal of
product line........ (1,938,000) (6,948,000)
Other................. (4,889,000) (4,219,000)
----------- -----------
$29,766,000 $24,525,000
=========== ===========
</TABLE>
The following is a reconciliation of the Federal statutory income tax rate to
the consolidated effective tax rate:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% (35.0)%
State tax effect 3.0 2.9 (1.5)
Goodwill 1.7 2.0 10.8
Tax rate change - - 5.6
Other (1.2) (1.4) (4.3)
----- ----- ------
38.5% 38.5% (24.4)%
===== ===== ======
</TABLE>
NOTE G
EMPLOYEE RETIREMENT PLANS
Full-time employees of the Company who meet service requirements are eligible
to participate in the Michael Foods, Inc. Retirement Savings Plan. The Company
will match up to 4% of each participant's eligible compensation. Contributions
of $1,312,000, $1,256,000 and $1,088,000 were charged to operations for the
years ended December 31, 1995, 1994 and 1993.
NOTE H
CONTINGENCIES
Use of Estimates
In the preparation of the Company's consolidated financial statements,
management is required to make estimates and assumptions that affect reported
amounts of assets and liabilities and related revenues and expenses. Actual
results could differ from the estimates used by management.
Patent Litigation
At December 31, 1995 and 1994, the Company had prepaid royalty payments of
approximately $8,300,000 and $5,200,000 included in other assets related to an
exclusive license agreement for the production and sale of extended shelf-life
liquid egg products. These amounts have arisen as a result of the Company
making payments to prosecute and defend the patents related to the exclusive
license agreement. In January, 1996, the Company was informed by the U.S.
Patent and Trademark Office that a patent examiner rejected the claims under
one of the four process patents which are the subject of the license agreement.
As the claims of the other three related process patents are reviewed, it is
possible that they will be similarly rejected. Management intends to appeal the
decision of the examiner and believes the validity of the patents will
ultimately be upheld. During the appeal process, the patents remain valid and
in full force and effect. There can be no assurance that the Company will be
able to fully recover its prepaid royalty payments. If the patents are
ultimately denied, the Company would continue to produce and market the
products currently subject to the license agreement without incurring royalty
cost.
Product Litigation
In the fall of 1994, a customer of the Company recalled product which was
potentially contaminated and is settling claims with consumers who became ill
after eating the product before the recall. The customer has filed a suit,
whereby the Company is a co-defendant with other companies alleged to have
supplied contaminated product to the customer's plant. The customer is seeking
damages for losses incurred, as well as alleged loss of past and future
profits. Management and its counsel believe the Company has substantial
defenses to the allegations and believe it is unlikely the Company will incur a
loss from this claim materially in excess of its insurance coverage.
Other Litigation
The Company is also engaged in routine litigation incidental to its business,
which management believes will not have a material effect upon its business or
consolidated financial position.
16
<PAGE> 18
Notes to Consolidated Financial Statements
Michael Foods, Inc. and Subsidiaries
NOTE I
STOCKHOLDERS' EQUITY
In December, 1995, the Company's Board of Directors authorized the retirement
of all 613,912 shares of treasury stock.
During 1994, the Company purchased 14,562 shares of its common stock for
$300,000 under the terms of a put agreement that was part of a business
acquisition completed in 1989. In 1993, the Company purchased 220,600 shares of
its common stock for $1,828,000 on the open market under a stock repurchase
plan.
The Company's Non-Qualified Stock Option Plan (the "Plan") was adopted by
the Board of Directors in 1987. The Plan provides for the grant of options to
officers and other key employees of the Company and its subsidiaries. The
exercise price of the options granted is typically the fair market value at the
date of grant. The ten-year options are generally not exercisable in the first
year and vest ratably over the first five years.
Option transactions under the Plan during each of the three years ended
December 31, are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
------------------------------------------
<S> <C> <C>
Outstanding at
January 1, 1993...... 1,499,614 $7.11-$18.88
Granted................ 226,847 8.00- 10.13
Cancelled.............. (50,231) 9.33- 18.88
---------- -------------
Outstanding at
December 31, 1993.... 1,676,230 7.11- 18.88
Granted................ 59,000 8.13- 12.25
Cancelled.............. (5,253) 10.13- 17.83
---------- -------------
Outstanding at
December 31, 1994.... 1,729,977 7.11- 18.88
Granted................ 176,000 9.13- 13.00
Cancelled.............. (17,461) 9.38- 17.83
---------- -------------
Outstanding at
December 31, 1995.... 1,888,516 $7.11-$18.88
========== =============
</TABLE>
Options to purchase 1,556,726 shares were exercisable at December 31,
1995.
The Company also has an Incentive Stock Option Plan (the "ISO Plan");
however, no shares have been granted under its provisions. The Company has
reserved 2,142,500 shares for the Plan and the ISO Plan.
The Company has adopted a Non-Qualified Stock Option Plan for Non-Employee
Directors (the "Director Plan"). The Director Plan provides for 150,000 shares
reserved for grant. The exercise price of the options granted is the fair
market value at the date of grant. All options are exercisable one year from
the date of grant and have a term of ten years.
Option transactions under the Director Plan during each of the three years
ended December 31, are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------------------------------------
<S> <C> <C>
Outstanding at
January 1, 1993....... 45,000 $9.67-$14.67
Granted................. 20,000 7.63- 10.13
Cancelled............... (16,250) 9.67- 11.25
---------- -------------
Outstanding at
December 31, 1993..... 48,750 7.63- 14.67
Granted................. 5,000 13.00
Cancelled............... (11,250) 12.42
---------- -------------
Outstanding at
December 31,
1994 and 1995......... 42,500 $7.63-$14.67
========== =============
</TABLE>
No options were granted or cancelled under the Director Plan in 1995.
The Company has an incentive compensation plan for officers. Under this
plan the Company issued $339,000 of common stock to its officers in 1995.
NOTE J
MAJOR CUSTOMER
Sales to one customer accounted for 11% and 10% of consolidated net sales in
1995 and 1994.
17
<PAGE> 19
Report of Independent
Certified Public Accountants
[GRANT THORNTON LETTERHEAD]
BOARD OF DIRECTORS AND STOCKHOLDERS
MICHAEL FOODS, INC.
We have audited the accompanying consolidated balance sheets of Michael Foods,
Inc. and Subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Michael Foods,
Inc. and Subsidiaries as of December 31, 1995 and 1994 and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ Grant Thornton LLP
Minneapolis, Minnesota
February 14, 1996
18
<PAGE> 20
Summary Consolidated Financial Data
Michael Foods, Inc. and Subsidiaries
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA
Net sales $536,627 $505,965 $474,783 $442,734 $454,735
Cost of sales 454,652 430,917 414,965 390,185 380,270
----------------------------------------------------------------
Gross profit 81,975 75,048 59,818 52,549 74,465
Selling, general and
administrative expenses 45,729 41,851 39,122 36,936 34,217
Disposal of product line - - 22,769 - -
Restructuring charges - - 11,164 - -
----------------------------------------------------------------
45,729 41,851 73,055 36,936 34,217
----------------------------------------------------------------
Operating profit (loss) 36,246 33,197 (13,237) 15,613 40,248
Interest expense, net 7,635 8,498 8,363 9,588 9,511
----------------------------------------------------------------
Earnings (loss) before income
taxes 28,611 24,699 (21,600) 6,025 30,737
Income tax expense (benefit) 11,020 9,510 (5,280) 2,175 11,070
----------------------------------------------------------------
Net earnings (loss) $ 17,591 $ 15,189 $(16,320) $ 3,850 $ 19,667
================================================================
Net earnings (loss) per share $ .91 $ .79 (.84) $ .20 $ 1.07
================================================================
Weighted average shares
outstanding 19,328 19,315 19,416 19,516 18,400
Dividends per common share $ .20 $ .20 $ .20 $ .20 $ .20
BALANCE SHEET DATA
(end of period)
Working capital $ 42,095 $ 33,589 $ 22,267 $ 54,826 $ 58,988
Total assets 359,227 336,645 329,087 370,218 357,171
Long-term debt, including
current maturities 101,421 100,604 104,008 135,798 120,645
Stockholders' equity 180,095 166,029 155,003 177,037 176,321
================================================================
</TABLE>
19
<PAGE> 21
Quarterly Financial Data (Unaudited)
Michael Foods, Inc. and Subsidiaries
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER
-------------------------------------------------------------
FIRST SECOND THIRD FOURTH
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Net sales................... $126,692 $130,872 $136,257 $142,806
Gross profit................ 19,943 19,951 20,014 22,067
Net earnings................ 3,692 4,223 4,229 5,447
Net earnings per share...... $ .19 $ .22 $ .22 $ .28
Weighted average
shares outstanding.......... 19,314 19,332 19,332 19,332
1994
Net sales................... $121,641 $125,530 $127,878 $130,916
Gross profit................ 17,168 18,331 18,323 21,226
Net earnings................ 3,211 3,693 3,640 4,645
Net earnings per share...... $ .17 $ .19 $ .19 $ .24
Weighted average
shares outstanding.......... 19,316 19,316 19,316 19,311
</TABLE>
Board of Directors
JAMES H. MICHAEL
Chairman of the Board of Directors
of the Company
Chairman of the Executive Committee
of the Board of Directors
North Star Universal, Inc.
RICHARD A. COONROD
President
Coonrod Agriproduction Corp.
MILES E. EFRON
(Chair, Compensation Committee)
Chairman of the Board of Directors
North Star Universal, Inc.
ORVILLE L. FREEMAN
Visiting Scholar
Humphrey Institute
University of Minnesota
ARVID C. KNUDTSON
(Chair, Audit Committee)
Consultant
JOSEPH D. MARSHBURN
Senior Vice President
Citrus World, Inc.
JEFFREY J. MICHAEL
President and Chief Executive Officer
North Star Universal, Inc.
RICHARD G. OLSON
Retired President and Chief Executive Officer of the Company
GREGG A. OSTRANDER
President and Chief Executive Officer of the Company
20
<PAGE> 22
Corporate Information
ANNUAL MEETING:
Stockholders and members of the investment community are cordially invited to
attend the Annual Meeting, which is scheduled to be held at
4:00 p.m., local time, on Tuesday, June 4, 1996, in the auditorium of the
Lutheran Brotherhood Building,
625 Fourth Avenue South in Minneapolis, Minnesota.
INVESTOR INQUIRIES:
Requests for financial publications, including Form 10-K filed with the
Securities and Exchange Commission, should be addressed to:
MICHAEL FOODS, INC.
Attention: Mark D. Witmer
Assistant Treasurer
324 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
CERTIFIED PUBLIC ACCOUNTANTS:
Grant Thornton LLP
500 Pillsbury Center
Minneapolis, Minnesota 55402
CORPORATE COUNSEL:
Maun & Simon
2000 Midwest Plaza
801 Nicollet Mall
Minneapolis, Minnesota 55402
TRANSFER AGENT
AND REGISTRAR:
The First National Bank of Boston
Investor Relations
Mail Stop 45-02-09
P.O. Box 644
Boston, Massachusetts 02102-0644
Stockholder Inquiries:
800-442-2001
LISTING:
The Company's common stock
trades on The Nasdaq National Market under the symbol: MIKL.
MARKET PRICE RANGES:
The following table sets forth the high and low daily sale prices for the
common stock for each quarter of 1995 and 1994.
<TABLE>
<CAPTION>
1995 Low High
- -----------------------------------------------------------------------------------
<S> <C> <C>
First Quarter 9 1/4 12 3/8
Second Quarter 10 1/4 13 1/4
Third Quarter 10 5/8 14 1/2
Fourth Quarter 10 3/4 13 3/4
<CAPTION>
1994 Low High
- -----------------------------------------------------------------------------------
<S> <C> <C>
First Quarter 7 7/8 11 1/4
Second Quarter 9 12 3/8
Third Quarter 10 1/8 13 1/4
Fourth Quarter 9 1/4 13
</TABLE>
The following table sets forth the regular quarterly cash dividends
paid per share in 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
First Quarter $.05 $.05
Second Quarter .05 .05
Third Quarter .05 .05
Fourth Quarter .05 .05
</TABLE>
At year end 1995 the Company had 547 common stockholders of record and an
estimated 5,500 beneficial owners whose shares were held by nominees or broker
dealers.
Other Information
CORPORATE HEADQUARTERS:
MICHAEL FOODS, INC.
324 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
612-546-1500
CORPORATE EXECUTIVE OFFICERS:
GREGG A. OSTRANDER
President and Chief Executive Officer
JEFFREY M. SHAPIRO
Executive Vice President and Secretary
JOHN D. REEDY
Vice President-Finance,
Chief Financial Officer and Treasurer
MARK D. WITMER
Assistant Treasurer
SUBSIDIARY OFFICES:
CRYSTAL FARMS REFRIGERATED
DISTRIBUTION COMPANY
Park Place West, Suite 200
6465 Wayzata Boulevard
Minneapolis, Minnesota 55426
DRALLOS POTATO CO., INC.
6500 East Warren
Detroit, Michigan 48207
FARM FRESH FOODS, INC.
6602 Clara Street
Bell Gardens, California 90201
KOHLER MIX SPECIALTIES, INC.
4041 Highway 61
White Bear Lake, Minnesota 55110
M.G. WALDBAUM COMPANY
500 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
NORTHERN STAR CO.
3171 Fifth Street Southeast
Minneapolis, Minnesota 55414
WISCO FARM COOPERATIVE
450 North CP Avenue
Lake Mills, Wisconsin 53551
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF MICHAEL FOODS, INC.
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
<S> <C>
Crystal Farms Refrigerated Distribution Company Minnesota
Northern Star Co. Minnesota
Kohler Mix Specialties, Inc. Minnesota
M. G. Waldbaum Company Nebraska
Wisco Farm Cooperative Wisconsin
WFC, Inc. Wisconsin
Farm Fresh Foods, Inc. California
Drallos Potato Co., Inc. Michigan
Midwest Mix, Inc. Minnesota
B.C.K. Company Minnesota
Minnesota Products, Inc. Minnesota
Super Critical Venturers (a general partnership) 50% Interest Minnesota
</TABLE>
<PAGE> 1
EXHIBIT 23.1
Auditors' Consent
We have issued our reports dated February 14, 1996 accompanying the
consolidated financial statements and schedule of Michael Foods, Inc. and
Subsidiaries which are included in the Annual Report on Form 10-K of Michael
Foods, Inc. for the year ended December 31, 1995. We hereby consent to the
incorporation by reference of said reports in the Registration Statements of
Michael Foods, Inc. on Form S-8 (File No. 33-31914, effective November 21,
1989; File Nos. 33-64076 and 33-64078, effective June 9, 1993; and File No.
33-57969, effective March 7, 1995).
/s/GRANT THORNTON LLP
Minneapolis, Minnesota
February 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheets and condensed consolidated statements of
earnings on pages 9 & 10 of the company's Annual Report for the year ended
December 31, 1995, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,921
<SECURITIES> 0
<RECEIVABLES> 40,583
<ALLOWANCES> 0
<INVENTORY> 58,845
<CURRENT-ASSETS> 102,971
<PP&E> 302,783
<DEPRECIATION> 118,642
<TOTAL-ASSETS> 359,227
<CURRENT-LIABILITIES> 60,876
<BONDS> 89,690
0
0
<COMMON> 193
<OTHER-SE> 179,902
<TOTAL-LIABILITY-AND-EQUITY> 359,227
<SALES> 536,627
<TOTAL-REVENUES> 536,627
<CGS> 454,652
<TOTAL-COSTS> 454,652
<OTHER-EXPENSES> 45,729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,635
<INCOME-PRETAX> 28,611
<INCOME-TAX> 11,020
<INCOME-CONTINUING> 17,591
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,591
<EPS-PRIMARY> .91
<EPS-DILUTED> .91
</TABLE>
