<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________________ to ______________________
Commission File Number: 0-15638
MICHAEL FOODS, INC.
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(Exact name of registrant as specified in its charter)
Minnesota 41-0498850
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Suite 324, Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, MN, 55416
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(Address of principal executive offices) (Zip code)
(952) 546-1500
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
The number of shares outstanding of the registrant's Common Stock,
$.01 par value, as of August 4, 2000 was 18,280,457 shares.
1
<PAGE>
PART I - FINANCIAL INFORMATION
MICHAEL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and equivalents $ 1,357,000 $ 4,961,000
Accounts receivable, less allowances 98,531,000 92,493,000
Inventories 83,719,000 71,197,000
Prepaid expenses and other 3,942,000 4,604,000
------------ ------------
Total current assets 187,549,000 173,255,000
PROPERTY, PLANT AND EQUIPMENT-AT COST
Land 4,106,000 4,104,000
Buildings and improvements 133,545,000 133,778,000
Machinery and equipment 366,844,000 357,724,000
------------ ------------
504,495,000 495,606,000
Less accumulated depreciation 223,262,000 208,807,000
------------ ------------
281,233,000 286,799,000
OTHER ASSETS
Goodwill, net 115,007,000 116,729,000
Joint ventures and other assets 19,760,000 21,134,000
------------ ------------
134,767,000 137,863,000
------------ ------------
$603,549,000 $597,917,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,119,000 $ 3,130,000
Accounts payable 52,290,000 47,009,000
Accrued liabilities
Compensation 9,248,000 13,143,000
Insurance 7,780,000 7,229,000
Customer programs 18,530,000 20,999,000
Income taxes 12,719,000 11,805,000
Other 16,440,000 18,176,000
------------ ------------
Total current liabilities 120,126,000 121,491,000
LONG-TERM DEBT, less current maturities 208,036,000 175,404,000
DEFERRED INCOME TAXES 37,163,000 36,423,000
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Common stock 182,000 203,000
Additional paid-in capital 57,937,000 102,777,000
Retained earnings 181,341,000 162,577,000
Accumulated comprehensive income (loss) (1,236,000) (958,000)
------------ ------------
238,224,000 264,599,000
------------ ------------
$603,549,000 $597,917,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
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MICHAEL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended June 30, (Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net sales $266,616,000 $258,031,000
Cost of sales 216,981,000 207,892,000
------------ ------------
Gross profit 49,635,000 50,139,000
Selling, general and administrative expenses 25,706,000 27,432,000
------------ ------------
Operating profit 23,929,000 22,707,000
Interest expense, net 3,304,000 2,801,000
------------ ------------
Earnings before income taxes 20,625,000 19,906,000
Income tax expense 8,350,000 8,160,000
------------ ------------
NET EARNINGS $ 12,275,000 $ 11,746,000
============ ============
Net Earnings Per Share
Basic $ 0.64 $ 0.57
Diluted $ 0.64 $ 0.57
============ ============
Weighted average shares outstanding
Basic 19,083,000 20,463,000
Diluted 19,299,000 20,702,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
MICHAEL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Six Months Ended June 30, (Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net sales $518,542,000 $511,409,000
Cost of sales 422,052,000 419,139,000
------------ ------------
Gross profit 96,490,000 92,270,000
Selling, general and administrative expenses 53,662,000 52,476,000
------------ ------------
Operating profit 42,828,000 39,794,000
Interest expense, net 6,254,000 5,621,000
------------ ------------
Earnings before income taxes 36,574,000 34,173,000
Income tax expense 14,810,000 14,010,000
------------ ------------
NET EARNINGS $ 21,764,000 $ 20,163,000
============ ============
Net Earnings Per Share
Basic $ 1.11 $ 0.97
Diluted $ 1.10 $ 0.96
============ ============
Weighted average shares outstanding
Basic 19,619,000 20,736,000
Diluted 19,834,000 20,966,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
MICHAEL FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, (Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net cash provided by operating activities $ 27,492,000 $ 35,776,000
Cash flows from investing activities:
Capital expenditures (15,182,000) (41,419,000)
Investments in joint ventures and other assets 283,000 (21,017,000)
------------ ------------
Net cash used in investing activities (14,899,000) (62,436,000)
Cash flows from financing activities:
Payments on long-term debt (78,479,000) (85,374,000)
Proceeds from long-term debt 111,100,000 131,800,000
Proceeds from issuance of common stock 307,000 523,000
Repurchase of common stock (46,125,000) (18,927,000)
Dividends (3,000,000) (2,710,000)
------------ ------------
Net cash provided by (used in) financing activities (16,197,000) 25,312,000
------------ ------------
Net decrease in cash and equivalents (3,604,000) (1,348,000)
Cash and equivalents at beginning of year 4,961,000 2,047,000
------------ ------------
Cash and equivalents at end of period $ 1,357,000 $ 699,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
MICHAEL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with Regulation S-X pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to such rules and
regulations, although management believes that the disclosures are adequate
to make the information presented not misleading.
Michael Foods, Inc. (the "Company") utilizes a fiscal year consisting of
either 52 or 53 weeks, ending on the Saturday nearest to December 31 each
year. The quarters ended June 30, 2000 and 1999 each included thirteen weeks
of operations. For clarity of presentation, the Company has described both
periods presented as if the quarters ended on June 30.
In the opinion of management, the unaudited condensed consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of June
30, 2000 and the results of operations for the three and six month periods
ended June 30, 2000 and 1999 and cash flows for the six months ended June 30,
2000 and 1999. The results of operations for the six months ended June 30,
2000 are not necessarily indicative of the results for the full year.
The Company's basic net earnings per share is computed by dividing net
earnings by the weighted average number of outstanding common shares. The
Company's diluted net earnings per share is computed by dividing net earnings
by the weighted average number of outstanding common shares and common share
equivalents relating to stock options, when dilutive. Options to purchase
823,182 and 828,626 shares of Common Stock, with a weighted average exercise
price of $24.70, which were outstanding during the three and six month
periods ended June 30, 2000, were excluded from the computation of common
share equivalents for those periods because they were anti-dilutive. Options to
purchase 852,767 and 826,724 shares of common stock, with a weighted average
exercise price of $24.78, were outstanding during the three and six month
periods ended June 30, 1999, but were excluded from the computation of common
share equivalents for those periods because they were anti-dilutive.
NOTE B - INVENTORIES
Inventories, other than flocks, 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
one to two years, assuming no salvage value.
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
Raw materials and supplies $15,662,000 $15,720,000
Work in process and finished goods 44,427,000 35,447,000
Flocks 23,630,000 20,030,000
----------- -----------
$83,719,000 $71,197,000
=========== ===========
</TABLE>
6
<PAGE>
MICHAEL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE C - COMMITMENTS AND CONTINGENCIES
USE OF ESTIMATES
Preparation of the Company's consolidated financial statements requires
management 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.
LICENSE AGREEMENT
The Company has an exclusive license agreement for a patented process for the
production and sale of extended shelf-life egg products. Under the license
agreement, the Company has the right to defend and prosecute infringement of
the licensed patents. The U.S. Federal Court of Appeals has upheld the
validity of the four patents subject to the license agreement. However,
subsequently a patent examiner at the U.S. Patent and Trademark Office
("PTO") rejected the patents. In August 1999, the examiner's rejections were
largely overturned by the Board of Appeals and Interferences of the PTO.
Counsel advises that reexamination certificates have now been issued
confirming the validity of three of the four patents. It is expected that the
fourth patent will be reissued in the near future. These patents are
scheduled to expire in 2006. In the second quarter of 2000 the Company and
the patent holder completed a new royalty arrangement whereby the Company
pays a reduced amount of royalties and, in turn, is responsible for one-half
of any litigation expense incurred to defend the patents.
LITIGATION
The Company is engaged in routine litigation incidental to its business.
Management believes it will not have a material effect upon its consolidated
financial position, liquidity or results of operations.
NOTE D - SHAREHOLDERS' EQUITY
During the second quarters of 2000 and 1999 the Company repurchased 1,500,000
and 414,800 shares of Common Stock under a share repurchase program which
began in July 1998 and which was expanded in February and May 2000. Such
repurchases for the first six months of 2000 and 1999 were 2,109,400 and
920,100 shares of Common Stock.
NOTE E - COMPREHENSIVE INCOME
Comprehensive income consists of net earnings and foreign currency
translation adjustments. Total comprehensive income was $12,243,000 and
$11,746,000 for the three months ended June 30, 2000 and 1999. The total
comprehensive income was $21,486,000 and $20,163,000 for the six months ended
June 30, 2000 and 1999.
7
<PAGE>
MICHAEL FOODS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE F - BUSINESS SEGMENTS
The Company operates in four reportable segments - Egg Products, Refrigerated
Distribution, Dairy Products and Potato Products. Certain financial
information on the Company's operating segments is as follows (unaudited, in
thousands):
<TABLE>
<CAPTION>
Egg Refrigerated Dairy Potato
Products Distribution Products Products Corporate Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 2000:
External net sales $156,835 $55,189 $39,903 $14,689 N/A $266,616
Intersegment sales 2,942 40 0 613 N/A 3,595
Operating profit (loss) 18,971 3,828 1,128 1,685 (1,683) 23,929
THREE MONTHS ENDED JUNE 30, 1999:
External net sales $150,488 $51,427 $42,091 $14,025 N/A $258,031
Intersegment sales 3,794 24 310 591 N/A 4,719
Operating profit (loss) 19,712 2,534 2,057 1,367 (2,963) 22,707
SIX MONTHS ENDED JUNE 30, 2000:
External net sales $310,388 $111,437 $67,932 $28,785 N/A $518,542
Intersegment sales 5,827 58 485 1,168 N/A 7,538
Operating profit (loss) 34,092 8,133 942 2,986 (3,325) 42,828
SIX MONTHS ENDED JUNE 30, 1999:
External net sales $302,638 $110,549 $70,753 $27,469 N/A $511,409
Intersegment sales 9,488 45 578 1,198 N/A 11,309
Operating profit (loss) 34,694 4,584 2,953 2,559 (4,996) 39,794
</TABLE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 VS THREE MONTHS ENDED JUNE 30, 1999
RESULTS OF OPERATIONS
Readers are directed to Note F - Business Segments for data on the unaudited
financial results of the Company's four business segments for the three
months ended June 30, 2000 and 1999.
Egg Products Division net sales for the 2000 period reflected unit sales
increases, particularly for value-added products, which more than offset
significant deflationary pricing impacts on industrial products. Significant
unit sales increases were recorded for extended shelf-life liquid eggs and
dried egg products. Egg prices increased approximately 6% compared to second
quarter 1999 levels, as
8
<PAGE>
THREE MONTHS ENDED JUNE 30, 2000 VS THREE MONTHS ENDED JUNE 30, 1999, CONT.
RESULTS OF OPERATIONS, CONT.
reported by Urner Barry Publications - a widely quoted industry pricing
service. This increase raised the cost of purchased eggs during a period
where prices for industrial egg products were generally declining.
Approximately two-thirds of the Division's annual egg needs are purchased
under contracts, or in the spot market. While a portion of these eggs are
secured under fixed price contracts, a majority are priced according to the
cost of grain inputs or to egg market prices as reported by Urner Barry.
Approximately one-third of annual egg needs are sourced from internal flocks,
where feed costs typically represent roughly two-thirds of the cost of
producing such eggs. Feed costs were slightly higher in the 2000 period,
compared to the 1999 period, due to higher prices for soybean meal. Increased
egg costs, for both internally and externally procured eggs, in the 2000
period, compared to the 1999 period, were generally not met with comparable
price changes in egg products prices, creating margin pressure for certain
industrial egg products. Divisional operating profit in the 2000 period also
reflected the benefit of reduced royalty expense, a portion of which was a
retroactive adjustment to January 1, 1999. Under an agreement reached during
the 2000 period, royalties related to products produced and sold by the
Company under a license with North Carolina State University ("NCSU") are
limited to a fixed portion of the annual production. In consideration of the
reduced royalty arrangement, the Company is responsible for one-half of any
future litigation expense incurred to defend the patented egg
ultra-pasteurization processing technology.
Refrigerated Distribution Division net sales for the 2000 period reflected
strong unit sales increases, with cheese and butter showing particular
strength. Sales growth resulted from a brand repositioning over the past two
years and a broadening consumer advertising campaign in selected markets,
along with notable new account activity and new product introductions. The
volume growth, along with more normal product costs for items related to the
national butterfat market, resulted in margin expansion in the 2000 period.
The Dairy Products Division net sales decline for the 2000 period reflected
lower unit sales volumes for the core dairy mix business, in part due to the
loss of a major industrial (tanker) customer in late 1999, which offset
increased volumes for cartoned specialty products and creamer products.
Divisional operating profit declined in the 2000 period as a result of the
reduced sales volumes, high overhead expenses and above average operating
expenses.
Potato Products Division net sales for the 2000 period reflected a strong
unit sales increase, particularly for retail grocery items. New account
activity, same-account sales growth and new product introductions all
contributed to the sales gain. The operating profit increase in the 2000
period resulted from the volume growth, an improved sales mix, and efficient
plant operations at the main potato processing facility.
The decrease in gross profit margin of the Company for the period ended June
30, 2000, as compared to the results of the same period in 1999, reflected
the factors discussed above, particularly the Dairy Products weakness and
margin pressures within the industrial egg products category. 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 in most periods.
Selling, general and administrative expenses decreased as a percent of sales
in the period ended June 30, 2000, as compared to the results of the same
period in 1999. Favorable impacts, including the reduced egg products royalty
arrangement and a related one-time retroactive benefit, more than offset
9
<PAGE>
THREE MONTHS ENDED JUNE 30, 2000 VS THREE MONTHS ENDED JUNE 30, 1999, CONT.
RESULTS OF OPERATIONS, CONT.
increased expenses related to amortization of the costs associated with the
Company's information systems upgrade project, increases in bad debt expense
resulting from a foodservice distributor's bankruptcy filing, and additional
sales and marketing efforts.
SIX MONTHS ENDED JUNE 30, 2000 VS SIX MONTHS ENDED JUNE 30, 1999
RESULTS OF OPERATIONS
Readers are directed to Note F - Business Segments for data on the unaudited
financial results of the Company's four business segments for the six months
ended June 30, 2000 and 1999.
Egg Products Division net sales for the 2000 period reflected unit sales
increases, particularly for value-added products, which more than offset
significant deflationary pricing impacts on certain products. Sales were
particularly strong for extended shelf-life liquid eggs, dried egg products
and precooked frozen omelets, patties and curds. Egg prices decreased
approximately 5% compared to first half 1999 levels, as reported by Urner
Barry Publications. This decrease helped reduce the cost of purchased eggs,
while also reducing selling prices for certain egg products and shell eggs.
Approximately two-thirds of the Division's annual egg needs are purchased
under contracts, or in the spot market. While a portion of these eggs are
secured under fixed price contracts, a majority are priced according to the
cost of grain inputs or to egg market prices as reported by Urner Barry.
Approximately one-third of annual egg needs are sourced from internal flocks,
where feed costs typically represent roughly two-thirds of the cost of
producing such eggs. Feed costs were lower in the 2000 period, compared to
the 1999 period, due to lower prices for the primary feed ingredient - corn.
Decreased egg costs, for both internally and externally procured eggs, in the
2000 period, compared to the 1999 period, were more than offset by pricing
weakness for certain egg products, creating margin pressure for industrial
egg products. Divisional operating profit for the 2000 period also reflected
the benefit of reduced royalty expense, a portion of which was a retroactive
adjustment to January 1, 1999. Under an agreement reached during the 2000
period, royalties related to products produced and sold by the Company under
a license with NCSU are limited to a fixed portion of the annual production.
In consideration of the reduced royalty arrangement, the Company is
responsible for one-half of any future litigation expense incurred to defend
the patented egg ultra-pasteurization processing technology. Included in the
1999 period Egg Products results were two non-recurring items. First, a gain
was recorded on the sale of a shell egg production facility. Second, a
Belgium animal feed contamination scare resulted in losses at the Company's
two European egg products joint ventures. The net effect of these items was a
modest addition to earnings.
Refrigerated Distribution Division net sales for the 2000 period reflected
strong unit sales increases, with cheese and butter showing particular
strength. Sales growth resulted from a brand repositioning over the past two
years and a broadening consumer advertising campaign in selected markets,
along with notable new account activity and new product introductions. The
volume growth, along with more normal product costs for items related to the
national butterfat market, resulted in margin expansion in the 2000 period.
The Dairy Products Division net sales decline for the 2000 period reflected
lower unit sales volumes for the core dairy mix business, in part due to the
loss of a major industrial (tanker) customer in late 1999, which offset
increased volumes for cartoned specialty products and creamer products.
Divisional operating profit declined in the 2000 period as a result of the
reduced sales volumes, high overhead expenses and above average operating
expenses.
10
<PAGE>
SIX MONTHS ENDED JUNE 30, 2000 VS SIX MONTHS ENDED JUNE 30, 1999, CONT.
RESULTS OF OPERATIONS, CONT.
Potato Products Division net sales for the 2000 period reflected a strong
unit sales increase, particularly for mashed items and retail shredded
products. New account activity, same-account sales growth and new product
introductions all contributed to the sales gain. The strong operating profit
increase in the 2000 period resulted primarily from the volume growth, as
plant operations at the main potato processing facility benefited from the
increased production throughput.
The increase in gross profit margin of the Company for the period ended June
30, 2000, as compared to the results of the same period in 1999, reflected
the factors discussed above, particularly the strength in the Refrigerated
Distribution and Potato Products segments. 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 in most periods.
Selling, general and administrative expenses increased as a percent of sales
in the period ended June 30, 2000, as compared to the results of the same
period in 1999. Expenses increased due to amortization of the costs
associated with the Company's information systems upgrade project,
amortization of a non-compete agreement related to a May 1999 Dairy Products
acquisition, increases in bad debt expense resulting from a foodservice
distributor's bankruptcy filing, and additional sales and marketing efforts.
However, the increased expenses were partially offset by the favorable impact
of the reduced egg products royalty arrangement, including a one-time
retroactive benefit.
GENERAL
Certain of the Company's products are sensitive to changes in commodity
prices. The Company's Egg Products Division derived less than 3% of the
Division's net sales for the first six months of 2000 from shell eggs, which
are sensitive to commodity price swings. Value-added extended shelf-life
liquid egg products lines and precooked egg products accounted for
approximately 50% of the Egg Products Division's net sales. The remainder of
Egg Products Division sales is derived from the sale of other egg products,
which vary from being commodity-sensitive to value-added. Gross profit from
shell eggs is primarily dependent upon the relationship between shell egg
prices and the cost of feed, both of which can fluctuate significantly. Shell
egg pricing in the 2000 period was approximately 5% below 1999 levels as
measured by Urner Barry Publications. Gross profit margins for extended
shelf-life liquid eggs, egg substitutes, and precooked egg products are less
sensitive to commodity price fluctuations than are other egg products or
shell eggs.
The Company's Refrigerated Distribution Division derives approximately 70% of
its net sales from refrigerated products produced by others, thereby reducing
the effects of commodity price swings. The balance of refrigerated
distribution sales are from shell eggs, some of which are produced by the Egg
Products Division and are sold on a distribution, or non-commodity, basis by
the Refrigerated Distribution Division.
The Dairy Products Division sells its products primarily on a cost-plus basis
and, therefore, the Division's earnings are not typically affected greatly by
raw ingredient price fluctuations, except over short time periods.
The Potato Products Division typically purchases 70%-90% of its raw potatoes
from contract producers under annual contracts. The remainder is purchased at
market prices to satisfy short-term production requirements or to take
advantage of market prices when they are lower than contracted
11
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
prices. Moderate variations in the purchase price of raw materials or the
selling price per pound of finished products can have a significant effect on
Potato Products Division operating results.
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.
Acquisitions and capital expenditures have been, and will likely continue to
be, a significant capital requirement. 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 $15,182,000 in capital expenditures during the six
months ended June 30, 2000. The Company plans to spend approximately
$55,000,000 in total capital expenditures in 2000, the majority of which is
to expand production capacity for value-added products.
The Company has two unsecured lines of credit for $80,000,000 and $20,000,000
with its principal banks. As of June 30, 2000, $77,600,000 was outstanding
under these lines of credit.
In July 1998, the Company's Board of Directors authorized the purchase of up
to 2,000,000 shares of Common Stock on the open market or in privately
negotiated transactions. In February 2000, the Board authorized an additional
purchase of up to 2,000,000 shares of Common Stock on the open market or in
privately negotiated transactions, with an additional 500,000 share
authorization made in May 2000. Through June 30, 2000, the Company had
repurchased 4,012,200 shares of Common Stock for $89,121,000. During the
second quarter of 2000 the Company repurchased 1,500,000 shares of Common
Stock.
SEASONALITY
Consolidated quarterly operating results are affected by the seasonality of
the Company's net sales and operating profits. Specifically, shell egg prices
typically rise seasonally in the first and fourth quarters of the year due to
increased demand during holiday periods. Generally, refrigerated distribution
operations experience higher net sales and operating profits in the fourth
quarter, coinciding with incremental consumer demand during the holiday
season. Net sales and operating profits from dairy operations typically are
significantly higher in the second and third quarters due to increased
consumption of ice milk and ice cream products during the summer months.
Operating profits from potato products are less seasonal, but tend to be
higher in the second half of the year coinciding with the potato harvest.
FORWARD-LOOKING STATEMENTS
Certain items in this Form 10-Q may be forward-looking statements, which are
made in reliance upon the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
numerous risks and uncertainties, including variances in the demand for the
Company's products due to consumer developments and industry developments, as
well as variances in the costs to produce such products, including normal
volatility in egg and feed costs. The Company's actual financial results
could differ materially from the results estimated by, forecasted by, or
implied by the Company in such forward-looking statements.
12
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There were no material changes in the Company's market risk during the six
month period ended June 30, 2000.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2000 Annual Meeting of Shareholders of Michael Foods, Inc. was held on
April 27, 2000. The items voted upon and the results of the vote follow:
1. The election of ten persons to serve as directors until the next annual
election and until their successors are duly elected and qualified:
<TABLE>
<CAPTION>
For Withhold Authority
--- ------------------
<S> <C> <C>
Richard A. Coonrod 13,516,812 44,903
Daniel P. Dillon 13,519,006 42,709
Jerome J. Jenko 13,518,748 42,967
Arvid C. Knudtson 13,517,587 44,128
Joseph D. Marshburn 13,518,487 43,228
Jeffrey J. Michael 13,517,906 43,809
Margaret D. Moore 13,519,899 41,816
Gregg A. Ostrander 11,488,838 2,072,877
Arthur J. Papetti 13,517,738 43,977
Stephen T. Papetti 13,519,438 42,277
</TABLE>
2. Proposal to ratify the appointment of Grant Thornton LLP as independent
auditors for 2000:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
13,518,677 36,414 6,624
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.78 Shareholder Agreement By and Between Michael Foods, Inc. and the Shareholders of
Michael Foods, Inc. as listed, dated as of May 22, 2000
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Company filed a Form 8-K on May 22, 2000 announcing that it had completed
stock repurchases of 1.5 million shares, exhausting repurchase
authorizations, and that its Board of Directors authorized the purchase of up
to an additional 0.5 million shares of the Company's Common Stock in the open
market or in privately negotiated transactions.
13
<PAGE>
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.
----------------------------------------
(Registrant)
Date: August 14, 2000 By: /s/ Gregg A. Ostrander
------------------------------
Gregg A. Ostrander
(Chairman, President and Chief
Executive Officer)
Date: August 14, 2000 By: /s/ John D. Reedy
------------------------------
John D. Reedy
(Executive Vice President,
Treasurer, Chief Financial
Officer and Principal
Accounting Officer)
14
