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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2005



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: 333-112714



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MICHAEL FOODS, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 13-4151741                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                             |  |           
|-------------------------------------------- |  | ----------
|301 Carlson Parkway Suite 400 Minnetonka, MN |  | 55305     
|(Address of principal executive offices)     |  | (Zip code)



(952) 258-4000

(Registrants telephone number, including area code)



None

(Former name, former address and former fiscal year, if changed since last report)



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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 (Exchange Act) 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). ̈Yes    x  No



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): ̈Yes    x  No



The registrants Common Stock is not publicly traded. The Registrant had 3,000 shares of $0.01 par value common stock
outstanding as of November 4, 2005.



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PART IFINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



MICHAEL FOODS, INC.

(A wholly owned subsidiary of M-Foods Holdings, Inc.)



CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share information)



|                                                                                                                           |  |                    |           |                   |   |           |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | --------- | ----------------- | - | --------- | -
|                                                                                                                           |  | September 30, 2005 |           | December 31, 2004 |  
|                                                                                                                           |  | (Unaudited)        |           |                   |  
|ASSETS                                                                                                                     |  |                    |           |                   |   |           |  
|CURRENT ASSETS                                                                                                             |  |                    |           |                   |   |           |  
|Cash and equivalents                                                                                                       |  | $                  | 64,460    |                   | $ | 31,816    |  
|Accounts receivable, less allowances                                                                                       |  |                    | 103,903   |                   |   | 101,552   |  
|Inventories                                                                                                                |  |                    | 96,202    |                   |   | 91,044    |  
|Prepaid expenses and other                                                                                                 |  |                    | 16,580    |                   |   | 7,492     |  
|                                                                                                                           |  |                    |           |                   |   |           |  
|Total current assets                                                                                                       |  |                    | 281,145   |                   |   | 231,904   |  
|                                                                                                                           |  |                   
|PROPERTY, PLANT AND EQUIPMENT                                                                                              |  |                    |           |                   |   |           |  
|Land                                                                                                                       |  |                    | 4,044     |                   |   | 4,044     |  
|Buildings and improvements                                                                                                 |  |                    | 114,081   |                   |   | 112,856   |  
|Machinery and equipment                                                                                                    |  |                    | 268,562   |                   |   | 238,888   |  
|                                                                                                                           |  |                    |           |                   |   |           |  
|                                                                                                                           |  |                    | 386,687   |                   |   | 355,788   |  
|Less accumulated depreciation                                                                                              |  |                    | 96,379    |                   |   | 55,227    |  
|                                                                                                                           |  |                    |           |                   |   |           |  
|                                                                                                                           |  |                    | 290,308   |                   |   | 300,561   |  
|                                                                                                                           |  |                   
|OTHER ASSETS                                                                                                               |  |                    |           |                   |   |           |  
|Goodwill                                                                                                                   |  |                    | 521,435   |                   |   | 525,035   |  
|Intangible assets, net                                                                                                     |  |                    | 236,124   |                   |   | 246,794   |  
|Other assets                                                                                                               |  |                    | 44,810    |                   |   | 37,261    |  
|                                                                                                                           |  |                    |           |                   |   |           |  
|                                                                                                                           |  |                    | 802,369   |                   |   | 809,090   |  
|                                                                                                                           |  |                    |           |                   |   |           |  
|                                                                                                                           |  | $                  | 1,373,822 |                   | $ | 1,341,555 |  
|                                                                                                                           |  |                    |           |                   |   |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                       |  |                    |           |                   |   |           |  
|CURRENT LIABILITIES                                                                                                        |  |                    |           |                   |   |           |  
|Current maturities of long-term debt                                                                                       |  | $                  | 762       |                   | $ | 651       |  
|Accounts payable                                                                                                           |  |                    | 65,777    |                   |   | 65,725    |  
|Accrued liabilities                                                                                                        |  |                    |           |                   |   |           |  
|Compensation                                                                                                               |  |                    | 16,269    |                   |   | 21,761    |  
|Customer programs                                                                                                          |  |                    | 44,450    |                   |   | 40,062    |  
|Interest                                                                                                                   |  |                    | 8,008     |                   |   | 5,144     |  
|Income taxes                                                                                                               |  |                    | 12,943    |                   |   | 13,910    |  
|Other                                                                                                                      |  |                    | 24,475    |                   |   | 24,107    |  
|                                                                                                                           |  |                    |           |                   |   |           |  
|Total current liabilities                                                                                                  |  |                    | 172,684   |                   |   | 171,360   |  
|LONG-TERM DEBT, less current maturities                                                                                    |  |                    | 756,186   |                   |   | 750,132   |  
|DEFERRED INCOME TAXES                                                                                                      |  |                    | 142,400   |                   |   | 148,590   |  
|DEFERRED COMPENSATION                                                                                                      |  |                    | 14,806    |                   |   | 14,080    |  
|COMMITMENTS AND CONTINGENCIES                                                                                              |  |                    |          |                   |   |          |  
|                                                                                                                           |  |                   
|SHAREHOLDERS EQUITY                                                                                                       |  |                    |           |                   |   |           |  
|Common stock, $0.01 par value, 3,000 shares authorized, issued and outstanding at September 30, 2005 and December 31,
2004 |  |                    |          |                   |   |          |  
|Additional paid-in capital                                                                                                 |  |                    | 254,618   |                   |   | 254,618   |  
|Retained earnings                                                                                                          |  |                    | 31,114    |                   |   | 6,751     |  
|Accumulated other comprehensive income (loss)                                                                              |  |                    | 2,014     |                   |   | (3,976    | )
|                                                                                                                           |  |                    |           |                   |   |           |  
|                                                                                                                           |  |                    | 287,746   |                   |   | 257,393   |  
|                                                                                                                           |  |                    |           |                   |   |           |  
|                                                                                                                           |  | $                  | 1,373,822 |                   | $ | 1,341,555 |  
|                                                                                                                           |  |                    |           |                   |   |           |  



The accompanying notes
are an integral part of the unaudited condensed consolidated financial statements.



2



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MICHAEL FOODS, INC.

(A wholly owned subsidiary of M-Foods Holdings, Inc.)



CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

For the three months ended September 30

(Unaudited, in thousands)



|                                             |  |      |         |      |   |         |  
|-------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                             |  | 2005 |         | 2004 |  
|Net sales                                    |  | $    | 309,154 |      | $ | 323,871 |  
|Cost of sales                                |  |      | 249,923 |      |   | 267,140 |  
|                                             |  |      |         |      |   |         |  
|Gross profit                                 |  |      | 59,231  |      |   | 56,731  |  
|Selling, general and administrative expenses |  |      | 32,816  |      |   | 33,117  |  
|                                             |  |      |         |      |   |         |  
|Operating profit                             |  |      | 26,415  |      |   | 23,614  |  
|Interest expense, net                        |  |      | 11,535  |      |   | 10,576  |  
|Other expense (income)                       |  |      | 23      |      |   | (149    | )
|                                             |  |      |         |      |   |         |  
|Earnings before income taxes                 |  |      | 14,857  |      |   | 13,187  |  
|Income tax expense                           |  |      | 5,569   |      |   | 5,082   |  
|                                             |  |      |         |      |   |         |  
|Net earnings                                 |  | $    | 9,288   |      | $ | 8,105   |  
|                                             |  |      |         |      |   |         |  



The accompanying notes
are an integral part of the unaudited condensed consolidated financial statements.



3



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MICHAEL FOODS, INC.

(A wholly owned subsidiary of M-Foods Holdings, Inc.)



CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

For the nine months ended September 30

(Unaudited, in thousands)



|                                             |  |      |         |      |   |        
|-------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                             |  | 2005 |         | 2004
|Net sales                                    |  | $    | 915,243 |      | $ | 989,167
|Cost of sales                                |  |      | 739,981 |      |   | 819,614
|                                             |  |      |         |      |   |        
|Gross profit                                 |  |      | 175,262 |      |   | 169,553
|Selling, general and administrative expenses |  |      | 100,428 |      |   | 97,986 
|                                             |  |      |         |      |   |        
|Operating profit                             |  |      | 74,834  |      |   | 71,567 
|Interest expense, net                        |  |      | 35,150  |      |   | 32,137 
|Other expense                                |  |      | 711     |      |   | 923    
|                                             |  |      |         |      |   |        
|Earnings before income taxes                 |  |      | 38,973  |      |   | 38,507 
|Income tax expense                           |  |      | 14,610  |      |   | 14,832 
|                                             |  |      |         |      |   |        
|Net earnings                                 |  | $    | 24,363  |      | $ | 23,675 
|                                             |  |      |         |      |   |        



The accompanying notes
are an integral part of the unaudited condensed consolidated financial statements.



4



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MICHAEL FOODS, INC.

(A wholly owned subsidiary of M-Foods Holdings, Inc.)



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30

(Unaudited, in thousands)



|                                                    |  |      |         |   |      |   |         |  
|--------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                    |  | 2005 |         |   | 2004 |  
|Net cash provided by operating activities           |  | $    | 67,668  |   |      | $ | 75,489  |  
|Cash flows from investing activities:               |  |      |         |   |      |   |         |  
|Capital expenditures                                |  |      | (30,140 | ) |      |   | (29,368 | )
|Other assets                                        |  |      | 131     |   |      |   | 796     |  
|                                                    |  |      |         |   |      |   |         |  
|Net cash used in investing activities               |  |      | (30,009 | ) |      |   | (28,572 | )
|Cash flows from financing activities:               |  |      |         |   |      |   |         |  
|Payments on long-term debt                          |  |      | (5,042  | ) |      |   | (4,192  | )
|Proceeds from long-term debt                        |  |      |        |   |      |   | 151     |  
|Additional capital invested by parent               |  |      |        |   |      |   | 7,696   |  
|                                                    |  |      |         |   |      |   |         |  
|Net cash provided by (used in) financing activities |  |      | (5,042  | ) |      |   | 3,655   |  
|Effect of exchange rate changes on cash             |  |      | 27      |   |      |   | 86      |  
|                                                    |  |      |         |   |      |   |         |  
|Net increase in cash and equivalents                |  |      | 32,644  |   |      |   | 50,658  |  
|Cash and equivalents at beginning of period         |  |      | 31,816  |   |      |   | 45,594  |  
|                                                    |  |      |         |   |      |   |         |  
|Cash and equivalents at end of period               |  | $    | 64,460  |   |      | $ | 96,252  |  
|                                                    |  |      |         |   |      |   |         |  



The accompanying notes
are an integral part of the unaudited condensed consolidated financial statements.



5



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MICHAEL FOODS, INC.

(A wholly owned subsidiary of M-Foods Holdings, Inc.)

(Unaudited)



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE ABASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS



The accompanying condensed consolidated financial statements have been
prepared in accordance with Regulation S-X of the Securities and Exchange Commission. Certain information and 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.



We utilize a fifty-two/fifty-three week fiscal year ending on the Saturday
nearest to December 31 each year. The quarter ended September 30, 2005 was a 13 week period ended October 1, 2005 and the quarter ended September 30, 2004 was a 13 week period ended October 2, 2004. For clarity of
presentation, we describe both periods as if the quarters ended on September 30th.



In the opinion of management, the unaudited financial statements contain all
adjustments (consisting of only normal recurring adjustments) necessary to present fairly the results of operations for the periods indicated. Our results of operations and cash flows for the period ended September 30, 2005 are not necessarily
indicative of the results expected for the full year.



In
November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 151, Inventory CostsAn amendment of Accounting Research Bulletin (ARB)
No. 43, Chapter 4. SFAS 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and spoilage should be expensed as incurred and not included in overhead. Further, SFAS 151 requires that allocation of fixed
production overheads to conversion costs should be based on normal capacity of the production facilities. The provisions in SFAS 151 are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of
this statement, required effective January 1, 2006, will not have a significant effect on our financial condition or results of operations.



In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary AssetsAn Amendment of Accounting Principals Board
(APB) Opinion No. 29. This statement amends APB Opinion No.29 and is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. SFAS 153 is effective for
nonmonetary exchanges occurring in fiscal periods beginning June 15, 2005. The adoption of this statement, required effective July 1, 2005, had no effect on our financial condition or results of operations.



On December 16, 2004, the FASB issued SFAS 123(R), Share Based
Payment, which is a revision of SFAS No. 123 and supersedes APB Opinion No. 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be valued at fair value on the date of grant,
and to be expensed over the applicable vesting period. Pro forma disclosure of the income statement effects of share-based payments is no longer an alternative. SFAS No. 123(R) is effective for private entities, as defined, on or after
January 1, 2006. In addition, companies must also recognize compensation expense related to any awards that are not fully vested as of the effective date. Compensation expense for the unvested awards will be measured based on the fair value of
the awards previously calculated in developing the pro forma disclosures in accordance with the provisions of SFAS No. 123(R). We are currently assessing the impact to our consolidated results of operations of adopting SFAS No. 123(R).



The FASB has clarified the adoption of SFAS 123(R) with FSP
SFAS 123(R)-1 Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R) and FSP SFAS 123(R)-2 Practical Accommodation to the
Application of Grant Date as Defined in FASB Statement No. 123(R). These staff positions clarify the implementation of SFAS 123(R). We do not believe they will have a material impact on the Company.



The FASB has proposed FSP SFAS 123(R)-c Transition Election Related to
Accounting for the Tax Effects of Share-Based Payment Awards. This proposed staff position provides for an alternate method for the implementation of SFAS 123(R). We do not believe it will have a material impact on the Company.



In May 2005, the FASB issued SFAS 154, Accounting Changes and Error
Corrections (SFAS 154) which replaces APB Opinion No. 20 Accounting Changes and SFAS 3, Reporting Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion No. 28. SFAS 154 provides
guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the
reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We are currently evaluating the effect that the adoption of SFAS 154 will have
on our consolidated results of operations and financial condition but do not expect that adoption will have a material impact.



6



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Goodwill and Intangible Assets with Indefinite Lives



We recognize the excess cost of an acquired entity over the net amount
assigned to assets acquired, including intangible assets with indefinite lives, and liabilities assumed, as goodwill. Goodwill and intangible assets with indefinite lives (i.e., trademarks) are tested for impairment on an annual basis during the
fourth quarter and between annual tests whenever there is an impairment indicated. Fair values are estimated based on our best estimate of the future cash flows compared with the corresponding carrying value of the reporting unit, including
goodwill. Impairment losses will be recognized whenever the implied fair value is less than the carrying value of the related asset.



Other Intangibles



We recognize an acquired intangible asset apart from goodwill whenever the asset arises from contractual or other legal rights, or whenever it is capable
of being separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged, either individually or in combination with a related contract, asset or liability. An intangible asset other than goodwill is amortized
over its estimated useful life unless that life is determined to be indefinite. Impairment losses are recognized if the carrying amount of an intangible asset subject to amortization is not recoverable from expected future cash flows and its
carrying amount exceeds its fair value.



Each segments
share of goodwill was as follows (in thousands):



|                          |  |                    |         |                   |   |        
|------------------------- |  | ------------------ | ------- | ----------------- | - | -------
|                          |  | September 30, 2005 |         | December 31, 2004
|Egg Products              |  | $                  | 428,939 |                   | $ | 431,891
|Refrigerated Distribution |  |                    | 32,291  |                   |   | 32,507 
|Potato Products           |  |                    | 60,205  |                   |   | 60,637 
|                          |  |                    |         |                   |   |        
|                          |  | $                  | 521,435 |                   | $ | 525,035
|                          |  |                    |         |                   |   |        



The change in the
carrying amount of goodwill for the period ended September 30, 2005 was as follows:



|                                                             |  |   |         |  
|------------------------------------------------------------ |  | - | ------- | -
|Balance at December 31, 2004                                 |  | $ | 525,035 |  
|Reduction related to resolution of certain tax contingencies |  |   | (3,600  | )
|                                                             |  |   |         |  
|Balance at September 30, 2005                                |  | $ | 521,435 |  
|                                                             |  |   |         |  



Our intangible assets
were as follows (in thousands):



|                                                                  |  |                    |         |   |                   |   |         |  
|----------------------------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | -
|                                                                  |  | September 30, 2005 |         |   | December 31, 2004 |  
|Amortizable intangible assets, principally customer relationships |  | $                  | 230,615 |   |                   | $ | 230,615 |  
|Accumulated amortization                                          |  |                    | (28,516 | ) |                   |   | (16,846 | )
|                                                                  |  |                    |         |   |                   |   |         |  
|                                                                  |  |                    | 202,099 |   |                   |   | 213,769 |  
|Indefinite lived intangible assets-trademarks                     |  |                    | 34,025  |   |                   |   | 33,025  |  
|                                                                  |  |                    |         |   |                   |   |         |  
|                                                                  |  | $                  | 236,124 |   |                   | $ | 246,794 |  
|                                                                  |  |                    |         |   |                   |   |         |  



The aggregate
amortization expense for the nine months ended September 30, 2005 and 2004 was $11,670,000 and $11,655,000, respectively. The estimated amortization expense for the years ending December 31, 2005 through December 31, 2009 is as
follows (in thousands):



|     |  |   |       
|---- |  | - | ------
|2005 |  | $ | 15,561
|2006 |  |   | 15,554
|2007 |  |   | 15,328
|2008 |  |   | 15,328
|2009 |  |   | 15,328



The above amortization
expense forecast is an estimate. Actual amounts may change from such estimated amounts due to additional intangible asset acquisitions, potential impairment, accelerated amortization, or other events.



7



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Deferred Financing Costs



Deferred financing costs are included in other assets and are being amortized using the interest method over the lives of the respective debt
agreements. Our deferred financing costs were as follows (in thousands)



|                         |  |                    |        |   |                   |   |        |  
|------------------------ |  | ------------------ | ------ | - | ----------------- | - | ------ | -
|                         |  | September 30, 2005 |        |   | December 31, 2004 |  
|Deferred financing costs |  | $                  | 35,036 |   |                   | $ | 35,030 |  
|Accumulated amortization |  |                    | (3,764 | ) |                   |   | (2,216 | )
|                         |  |                    |        |   |                   |   |        |  
|                         |  | $                  | 31,272 |   |                   | $ | 32,814 |  
|                         |  |                    |        |   |                   |   |        |  



NOTE BOTHER FINANCIAL
STATEMENT DATA



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 lives of generally one to two years,
assuming no salvage value.



Inventories consisted of the
following (in thousands):



|                                   |  |                    |        |                   |   |       
|---------------------------------- |  | ------------------ | ------ | ----------------- | - | ------
|                                   |  | September 30, 2005 |        | December 31, 2004
|Raw materials and supplies         |  | $                  | 16,446 |                   | $ | 13,661
|Work in process and finished goods |  |                    | 58,174 |                   |   | 54,222
|Flocks                             |  |                    | 21,582 |                   |   | 23,161
|                                   |  |                    |        |                   |   |       
|                                   |  | $                  | 96,202 |                   | $ | 91,044
|                                   |  |                    |        |                   |   |       



NOTE CCOMMITMENTS AND
CONTINGENCIES



Litigation



We are engaged in routine litigation incidental to our business. We believe
the ultimate outcome of this litigation will not have a material effect on our consolidated financial position, liquidity or results of operations.



Other Matters



In March 2003, Belovo S.A., our egg products joint venture company in Belgium, of which we own 35.63%, notified the Belgian governmental health
authorities of a potential processed egg powder contamination issue. Following the notification, production ceased for a month and the egg powders were recalled. The Belgian health authority placed the egg powder in quarantine. As of
September 30, 2005, nearly all of the inventory that had been quarantined has been released and has been sold. Belovo is pursuing a settlement with its insurance company regarding claims from customers for returned product. The final loss
related to this matter has not been determined. Belovos sales decreased for the six months ended June 30, 2005 by $2.6 million, or 13%, to $17.5 million, compared to $20.1 million in the same period of 2004. Our investment in Belovo was
approximately $2.7 million as of September 30, 2005.



NOTE
DCOMPREHENSIVE INCOME



The components of and changes
in accumulated other comprehensive income (loss), net of taxes, during the nine months ended September 30, 2005 were as follows (in thousands):



|                                        |  |                  |        |   |                              |   |       |                    |  |   |       |   |  |   |        |  
|--------------------------------------- |  | ---------------- | ------ | - | ---------------------------- | - | ----- | ------------------ |  | - | ----- | - |  | - | ------ | -
|                                        |  | Cash Flow Hedges |        |   | Foreign Currency Translation |   |       | InterestRateCaplet |  |   | Total |  
|Balance at December 31, 2004            |  | $                | (6,166 | ) |                              | $ | 2,814 |                    |  | $ | (624  | ) |  | $ | (3,976 | )
|Foreign currency translation adjustment |  |                  |       |   |                              |   | (94   | )                  |  |   |      |   |  |   | (94    | )
|Interest rate caplet                    |  |                  |       |   |                              |   |      |                    |  |   | (38   | ) |  |   | (38    | )
|Change due to cash flow hedges          |  |                  | 6,122  |   |                              |   |      |                    |  |   |      |   |  |   | 6,122  |  
|                                        |  |                  |        |   |                              |   |       |                    |  |   |       |   |  |   |        |  
|Balance at September 30, 2005           |  | $                | (44    | ) |                              | $ | 2,720 |                    |  | $ | (662  | ) |  | $ | 2,014  |  
|                                        |  |                  |        |   |                              |   |       |                    |  |   |       |   |  |   |        |  



8



---

Comprehensive income, net of taxes, for the nine months ended September 30, 2005 and 2004 was as follows (in
thousands):



|                                                                  |  |         |   |  |   |        |  
|----------------------------------------------------------------- |  | ------- | - |  | - | ------ | -
|Net earnings for the nine months ended September 30, 2005         |  |         |   |  | $ | 24,363 |  
|Net gains (losses) arising during the period:                     |  |         |   |  |   |        |  
|Change due to cash flow hedges                                    |  | 6,122   |   |  |   |        |  
|Interest rate caplet                                              |  | (38     | ) |  |   |        |  
|Foreign currency translation adjustment                           |  | (94     | ) |  |   |        |  
|                                                                  |  |         |   |  |   |        |  
|Other comprehensive income                                        |  |         |   |  |   | 5,990  |  
|                                                                  |  |         |   |  |   |        |  
|Comprehensive income for the nine months ended September 30, 2005 |  |         |   |  | $ | 30,353 |  
|                                                                  |  |         |   |  |   |        |  
|Net earnings for the nine months ended September 30, 2004         |  |         |   |  | $ | 23,675 |  
|Net losses arising during the period:                             |  |         |   |  |   |        |  
|Change due to cash flow hedges                                    |  | (10,743 | ) |  |   |        |  
|Foreign currency translation adjustment                           |  | 981     |   |  |   |        |  
|                                                                  |  |         |   |  |   |        |  
|Other comprehensive loss                                          |  |         |   |  |   | (9,762 | )
|                                                                  |  |         |   |  |   |        |  
|Comprehensive income for the nine months ended September 30, 2004 |  |         |   |  | $ | 13,913 |  
|                                                                  |  |         |   |  |   |        |  



NOTE EBUSINESS SEGMENTS



We operate in three reportable segmentsEgg
Products, Refrigerated Distribution and Potato Products. Certain financial information on our operating segments is as follows (unaudited, in thousands):



|                                       |  |             |         |                          |   |                |  |           |        |  |       |        |   |  |   |        
|-------------------------------------- |  | ----------- | ------- | ------------------------ | - | -------------- |  | --------- | ------ |  | ----- | ------ | - |  | - | -------
|                                       |  | EGGPRODUCTS |         | REFRIGERATEDDISTRIBUTION |   | POTATOPRODUCTS |  | CORPORATE |        |  | TOTAL
|Three months ended September 30, 2005: |  |             |         |                          |   |                |  |           |        |  |       |        |   |  |   |        
|External net sales                     |  | $           | 218,524 |                          | $ | 66,078         |  | $         | 24,552 |  | $     |       |   |  | $ | 309,154
|Intersegment sales                     |  |             | 2,562   |                          |   |               |  |           | 1,074  |  |       |       |   |  |   | 3,636  
|Operating profit (loss)                |  |             | 21,093  |                          |   | 3,442          |  |           | 3,704  |  |       | (1,824 | ) |  |   | 26,415 
|Depreciation and amortization          |  |             | 14,854  |                          |   | 1,166          |  |           | 1,595  |  |       | 1      |   |  |   | 17,616 
|                                       |  |             |         |                          |  
|Three months ended September 30, 2004: |  |             |         |                          |   |                |  |           |        |  |       |        |   |  |   |        
|External net sales                     |  | $           | 234,945 |                          | $ | 68,713         |  | $         | 20,213 |  | $     |       |   |  | $ | 323,871
|Intersegment sales                     |  |             | 2,301   |                          |   |               |  |           | 809    |  |       |       |   |  |   | 3,110  
|Operating profit (loss)                |  |             | 22,416  |                          |   | 2,518          |  |           | 1,570  |  |       | (2,890 | ) |  |   | 23,614 
|Depreciation and amortization          |  |             | 14,049  |                          |   | 1,122          |  |           | 1,832  |  |       | 3      |   |  |   | 17,006 
|                                       |  |             |         |                          |  
|Nine months ended September 30, 2005:  |  |             |         |                          |   |                |  |           |        |  |       |        |   |  |   |        
|External net sales                     |  | $           | 645,609 |                          | $ | 196,986        |  | $         | 72,648 |  | $     |       |   |  | $ | 915,243
|Intersegment sales                     |  |             | 6,406   |                          |   |               |  |           | 3,164  |  |       |       |   |  |   | 9,570  
|Operating profit (loss)                |  |             | 60,123  |                          |   | 10,547         |  |           | 11,033 |  |       | (6,869 | ) |  |   | 74,834 
|Depreciation and amortization          |  |             | 44,483  |                          |   | 3,442          |  |           | 4,783  |  |       | 3      |   |  |   | 52,711 
|                                       |  |             |         |                          |  
|Nine months ended September 30, 2004:  |  |             |         |                          |   |                |  |           |        |  |       |        |   |  |   |        
|External net sales                     |  | $           | 719,658 |                          | $ | 210,652        |  | $         | 58,857 |  | $     |       |   |  | $ | 989,167
|Intersegment sales                     |  |             | 11,719  |                          |   |               |  |           | 2,387  |  |       |       |   |  |   | 14,106 
|Operating profit (loss)                |  |             | 66,725  |                          |   | 8,900          |  |           | 3,625  |  |       | (7,683 | ) |  |   | 71,567 
|Depreciation and amortization          |  |             | 42,104  |                          |   | 3,382          |  |           | 5,476  |  |       | 7      |   |  |   | 50,969 



NOTE FSUPPLEMENTAL GUARANTOR
FINANCIAL INFORMATION



Our senior credit agreement, senior
unsecured term loan and senior subordinated notes have been guaranteed, on a joint and several basis, by us and our 100% owned domestic subsidiaries. The senior credit agreement is also guaranteed by our parent, M-Foods Holdings, Inc.



The following condensed consolidating
financial information presents our condensed consolidating balance sheets at September 30, 2005 and December 31, 2004, together with our condensed consolidating statements of earnings for the three and nine month periods ended
September 30, 2005 and 2004 and the cash flows for the nine month periods ended September 30, 2005 and 2004. These financial statements reflect Michael Foods, Inc. (the parent), the wholly-owned guarantor subsidiaries (on a combined
basis), the non-guarantor subsidiary (MFI Food Canada Ltd.), and elimination entries necessary to combine such entities on a consolidated basis.



9



---

Condensed Consolidating Balance Sheets

September 30, 2005

(Unaudited, in thousands)



|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|------------------------------------------ |  | ------ | --------- | - | ---------------------- | - | ------------------------ |  | - | ------------ | - |  | ------------ | -------- | - |  | - | ---------
|                                           |  | Parent |           |   | Guarantor Subsidiaries |   | Non-Guarantor Subsidiary |  |   | Eliminations |   |  | Consolidated
|Assets                                     |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Current assets                             |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Cash and equivalents                       |  | $      | 63,333    |   |                        | $ |                         |  | $ | 1,127        |   |  | $            |         |   |  | $ | 64,460   
|Accounts receivable, less allowances       |  |        | 2,480     |   |                        |   | 97,898                   |  |   | 8,065        |   |  |              | (4,540   | ) |  |   | 103,903  
|Inventories                                |  |        |          |   |                        |   | 89,561                   |  |   | 6,641        |   |  |              |         |   |  |   | 96,202   
|Prepaid expenses and other                 |  |        | 991       |   |                        |   | 13,317                   |  |   | 2,272        |   |  |              |         |   |  |   | 16,580   
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Total current assets                       |  |        | 66,804    |   |                        |   | 200,776                  |  |   | 18,105       |   |  |              | (4,540   | ) |  |   | 281,145  
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Property, plant and equipment, net         |  |        | 24        |   |                        |   | 269,543                  |  |   | 20,741       |   |  |              |         |   |  |   | 290,308  
|Other assets                               |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Goodwill                                   |  |        |          |   |                        |   | 518,409                  |  |   | 3,026        |   |  |              |         |   |  |   | 521,435  
|Other assets                               |  |        | 44,566    |   |                        |   | 254,809                  |  |   |             |   |  |              | (18,441  | ) |  |   | 280,934  
|Investment in subsidiaries                 |  |        | 928,290   |   |                        |   | 2,322                    |  |   |             |   |  |              | (930,612 | ) |  |   |         
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|                                           |  |        | 972,856   |   |                        |   | 775,540                  |  |   | 3,026        |   |  |              | (949,053 | ) |  |   | 802,369  
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Total assets                               |  | $      | 1,039,684 |   |                        | $ | 1,245,859                |  | $ | 41,872       |   |  | $            | (953,593 | ) |  | $ | 1,373,822
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Liabilities and Shareholders Equity       |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Current liabilities                        |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Current maturities of long-term debt       |  | $      |          |   |                        | $ |                         |  | $ | 762          |   |  | $            |         |   |  | $ | 762      
|Accounts payable                           |  |        | 454       |   |                        |   | 62,302                   |  |   | 6,976        |   |  |              | (3,955   | ) |  |   | 65,777   
|Accrued liabilities                        |  |        | 27,704    |   |                        |   | 76,820                   |  |   | 1,621        |   |  |              |         |   |  |   | 106,145  
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Total current liabilities                  |  |        | 28,158    |   |                        |   | 139,122                  |  |   | 9,359        |   |  |              | (3,955   | ) |  |   | 172,684  
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Long-term debt, less current maturities    |  |        | 747,112   |   |                        |   | 184                      |  |   | 30,875       |   |  |              | (21,985  | ) |  |   | 756,186  
|Deferred income taxes                      |  |        | (38,138   | ) |                        |   | 180,725                  |  |   | (187         | ) |  |              |         |   |  |   | 142,400  
|Deferred compensation                      |  |        | 14,806    |   |                        |   |                         |  |   |             |   |  |              |         |   |  |   | 14,806   
|Shareholders equity                       |  |        | 287,746   |   |                        |   | 925,828                  |  |   | 1,825        |   |  |              | (927,653 | ) |  |   | 287,746  
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Total liabilities and shareholders equity |  | $      | 1,039,684 |   |                        | $ | 1,245,859                |  | $ | 41,872       |   |  | $            | (953,593 | ) |  | $ | 1,373,822
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          



10



---

Condensed Consolidating Balance Sheets

December 31, 2004

(in thousands)



|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|------------------------------------------ |  | ------ | --------- | - | ---------------------- | - | ------------------------ |  | - | ------------ | - |  | ------------ | -------- | - |  | - | ---------
|                                           |  | Parent |           |   | Guarantor Subsidiaries |   | Non-Guarantor Subsidiary |  |   | Eliminations |   |  | Consolidated
|Assets                                     |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Current assets                             |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Cash and equivalents                       |  | $      | 29,954    |   |                        | $ |                         |  | $ | 1,862        |   |  | $            |         |   |  | $ | 31,816   
|Accounts receivable, less allowances       |  |        | 1,704     |   |                        |   | 95,632                   |  |   | 9,086        |   |  |              | (4,870   | ) |  |   | 101,552  
|Inventories                                |  |        |          |   |                        |   | 84,228                   |  |   | 6,816        |   |  |              |         |   |  |   | 91,044   
|Prepaid expenses and other                 |  |        | 800       |   |                        |   | 6,584                    |  |   | 108          |   |  |              |         |   |  |   | 7,492    
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Total current assets                       |  |        | 32,458    |   |                        |   | 186,444                  |  |   | 17,872       |   |  |              | (4,870   | ) |  |   | 231,904  
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Property, plant and equipment, net         |  |        | 27        |   |                        |   | 279,692                  |  |   | 20,842       |   |  |              |         |   |  |   | 300,561  
|Other assets                               |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Goodwill                                   |  |        |          |   |                        |   | 522,009                  |  |   | 3,026        |   |  |              |         |   |  |   | 525,035  
|Other assets                               |  |        | 35,865    |   |                        |   | 264,363                  |  |   |             |   |  |              | (16,173  | ) |  |   | 284,055  
|Investment in subsidiaries                 |  |        | 941,962   |   |                        |   | 4,438                    |  |   |             |   |  |              | (946,400 | ) |  |   |         
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|                                           |  |        | 977,827   |   |                        |   | 790,810                  |  |   | 3,026        |   |  |              | (962,573 | ) |  |   | 809,090  
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Total assets                               |  | $      | 1,010,312 |   |                        | $ | 1,256,946                |  | $ | 41,740       |   |  | $            | (967,443 | ) |  | $ | 1,341,555
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Liabilities and Shareholders Equity       |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Current liabilities                        |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Current maturities of long-term debt       |  | $      |          |   |                        | $ | 17                       |  | $ | 634          |   |  | $            |         |   |  | $ | 651      
|Accounts payable                           |  |        | 321       |   |                        |   | 65,051                   |  |   | 5,132        |   |  |              | (4,779   | ) |  |   | 65,725   
|Accrued liabilities                        |  |        | 25,963    |   |                        |   | 77,438                   |  |   | 1,583        |   |  |              |         |   |  |   | 104,984  
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Total current liabilities                  |  |        | 26,284    |   |                        |   | 142,506                  |  |   | 7,349        |   |  |              | (4,779   | ) |  |   | 171,360  
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Long-term debt, less current maturities    |  |        | 740,100   |   |                        |   | 184                      |  |   | 30,773       |   |  |              | (20,925  | ) |  |   | 750,132  
|Deferred income taxes                      |  |        | (27,545   | ) |                        |   | 176,197                  |  |   | (62          | ) |  |              |         |   |  |   | 148,590  
|Deferred compensation                      |  |        | 14,080    |   |                        |   |                         |  |   |             |   |  |              |         |   |  |   | 14,080   
|Shareholders equity                       |  |        | 257,393   |   |                        |   | 938,059                  |  |   | 3,680        |   |  |              | (941,739 | ) |  |   | 257,393  
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          
|Total liabilities and shareholders equity |  | $      | 1,010,312 |   |                        | $ | 1,256,946                |  | $ | 41,740       |   |  | $            | (967,443 | ) |  | $ | 1,341,555
|                                           |  |        |           |   |                        |   |                          |  |   |              |   |  |              |          |   |  |   |          



11



---

Condensed Consolidating Statements of Earnings

Three months ended September 30, 2005

(Unaudited, in thousands)



|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|--------------------------------------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------ |  | - | ------------ | - |  | ------------ | ------- | - |  | - | -------
|                                                                                  |  | Parent |         |   | GuarantorSubsidiaries |   |         | Non-Guarantor Subsidiary |  |   | Eliminations |   |  | Consolidated
|Net sales                                                                         |  | $      |        |   |                       | $ | 300,211 |                          |  | $ | 14,004       |   |  | $            | (5,061  | ) |  | $ | 309,154
|Cost of sales                                                                     |  |        |        |   |                       |   | 240,996 |                          |  |   | 13,988       |   |  |              | (5,061  | ) |  |   | 249,923
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|Gross profit                                                                      |  |        |        |   |                       |   | 59,215  |                          |  |   | 16           |   |  |              |        |   |  |   | 59,231 
|Selling, general and administrative expenses                                      |  |        | 1,824   |   |                       |   | 31,312  |                          |  |   | 1,107        |   |  |              | (1,427  | ) |  |   | 32,816 
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|Operating profit (loss)                                                           |  |        | (1,824  | ) |                       |   | 27,903  |                          |  |   | (1,091       | ) |  |              | 1,427   |   |  |   | 26,415 
|Interest expense, net                                                             |  |        | 11,025  |   |                       |   | 73      |                          |  |   | 437          |   |  |              |        |   |  |   | 11,535 
|Other expense (income)                                                            |  |        | (1,427  | ) |                       |   | 23      |                          |  |   |             |   |  |              | 1,427   |   |  |   | 23     
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before equity in earnings (loss) of subsidiaries and income taxes |  |        | (11,422 | ) |                       |   | 27,807  |                          |  |   | (1,528       | ) |  |              |        |   |  |   | 14,857 
|Equity in earnings (loss) of subsidiaries                                         |  |        | 16,908  |   |                       |   | (836    | )                        |  |   |             |   |  |              | (16,072 | ) |  |   |       
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before income taxes                                               |  |        | 5,486   |   |                       |   | 26,971  |                          |  |   | (1,528       | ) |  |              | (16,072 | ) |  |   | 14,857 
|Income tax expense (benefit)                                                      |  |        | (3,802  | ) |                       |   | 10,063  |                          |  |   | (692         | ) |  |              |        |   |  |   | 5,569  
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|Net earnings (loss)                                                               |  | $      | 9,288   |   |                       | $ | 16,908  |                          |  | $ | (836         | ) |  | $            | (16,072 | ) |  | $ | 9,288  
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |        



12



---

Condensed Consolidating Statements of Earnings

Nine months ended September 30, 2005

(Unaudited, in thousands)



|                                                                                  |  |        |         |   |                        |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|--------------------------------------------------------------------------------- |  | ------ | ------- | - | ---------------------- | - | ------- | ------------------------ |  | - | ------------ | - |  | ------------ | ------- | - |  | - | -------
|                                                                                  |  | Parent |         |   | Guarantor Subsidiaries |   |         | Non-Guarantor Subsidiary |  |   | Eliminations |   |  | Consolidated
|Net sales                                                                         |  | $      |        |   |                        | $ | 886,032 |                          |  | $ | 43,299       |   |  | $            | (14,088 | ) |  | $ | 915,243
|Cost of sales                                                                     |  |        |        |   |                        |   | 712,130 |                          |  |   | 41,939       |   |  |              | (14,088 | ) |  |   | 739,981
|                                                                                  |  |        |         |   |                        |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|Gross profit                                                                      |  |        |        |   |                        |   | 173,902 |                          |  |   | 1,360        |   |  |              |        |   |  |   | 175,262
|Selling, general and administrative expenses                                      |  |        | 6,869   |   |                        |   | 94,021  |                          |  |   | 3,788        |   |  |              | (4,250  | ) |  |   | 100,428
|                                                                                  |  |        |         |   |                        |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|Operating profit (loss)                                                           |  |        | (6,869  | ) |                        |   | 79,881  |                          |  |   | (2,428       | ) |  |              | 4,250   |   |  |   | 74,834 
|Interest expense, net                                                             |  |        | 33,510  |   |                        |   | 328     |                          |  |   | 1,312        |   |  |              |        |   |  |   | 35,150 
|Other expense (income)                                                            |  |        | (4,250  | ) |                        |   | 711     |                          |  |   |             |   |  |              | 4,250   |   |  |   | 711    
|                                                                                  |  |        |         |   |                        |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before equity in earnings (loss) of subsidiaries and income taxes |  |        | (36,129 | ) |                        |   | 78,842  |                          |  |   | (3,740       | ) |  |              |        |   |  |   | 38,973 
|Equity in earnings (loss) of subsidiaries                                         |  |        | 47,647  |   |                        |   | (2,035  | )                        |  |   |             |   |  |              | (45,612 | ) |  |   |       
|                                                                                  |  |        |         |   |                        |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before income taxes                                               |  |        | 11,518  |   |                        |   | 76,807  |                          |  |   | (3,740       | ) |  |              | (45,612 | ) |  |   | 38,973 
|Income tax expense (benefit)                                                      |  |        | (12,845 | ) |                        |   | 29,160  |                          |  |   | (1,705       | ) |  |              |        |   |  |   | 14,610 
|                                                                                  |  |        |         |   |                        |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|Net earnings (loss)                                                               |  | $      | 24,363  |   |                        | $ | 47,647  |                          |  | $ | (2,035       | ) |  | $            | (45,612 | ) |  | $ | 24,363 
|                                                                                  |  |        |         |   |                        |   |         |                          |  |   |              |   |  |              |         |   |  |   |        



13



---

Condensed Consolidating Statements of Earnings

Three months ended September 30, 2004

(Unaudited, in thousands)



|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------ |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                                                  |  | Parent |         |   | GuarantorSubsidiaries |   |         | Non-Guarantor Subsidiary |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                                                         |  | $      |        |   |                       | $ | 312,007 |                          |  | $ | 17,901       |   |  | $            | (6,037  | ) |  | $ | 323,871 |  
|Cost of sales                                                                     |  |        |        |   |                       |   | 257,665 |                          |  |   | 15,512       |   |  |              | (6,037  | ) |  |   | 267,140 |  
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |         |  
|Gross profit                                                                      |  |        |        |   |                       |   | 54,342  |                          |  |   | 2,389        |   |  |              |        |   |  |   | 56,731  |  
|Selling, general and administrative expenses                                      |  |        | 2,890   |   |                       |   | 29,375  |                          |  |   | 2,149        |   |  |              | (1,297  | ) |  |   | 33,117  |  
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |         |  
|Operating profit (loss)                                                           |  |        | (2,890  | ) |                       |   | 24,967  |                          |  |   | 240          |   |  |              | 1,297   |   |  |   | 23,614  |  
|Interest expense, net                                                             |  |        | 9,950   |   |                       |   | 222     |                          |  |   | 404          |   |  |              |        |   |  |   | 10,576  |  
|Other expense (income)                                                            |  |        | (1,297  | ) |                       |   | (149    | )                        |  |   |             |   |  |              | 1,297   |   |  |   | (149    | )
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |         |  
|Earnings (loss) before equity in earnings (loss) of subsidiaries and income taxes |  |        | (11,543 | ) |                       |   | 24,894  |                          |  |   | (164         | ) |  |              |        |   |  |   | 13,187  |  
|Equity in earnings (loss) of subsidiaries                                         |  |        | 15,308  |   |                       |   | 44      |                          |  |   |             |   |  |              | (15,352 | ) |  |   |        |  
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |         |  
|Earnings (loss) before income taxes                                               |  |        | 3,765   |   |                       |   | 24,938  |                          |  |   | (164         | ) |  |              | (15,352 | ) |  |   | 13,187  |  
|Income tax expense (benefit)                                                      |  |        | (4,340  | ) |                       |   | 9,630   |                          |  |   | (208         | ) |  |              |        |   |  |   | 5,082   |  
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |         |  
|Net earnings (loss)                                                               |  | $      | 8,105   |   |                       | $ | 15,308  |                          |  | $ | 44           |   |  | $            | (15,352 | ) |  | $ | 8,105   |  
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |         |  



14



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Condensed Consolidating Statements of Earnings

Nine months ended September 30, 2004

(Unaudited, in thousands)



|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|--------------------------------------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------ |  | - | ------------ | - |  | ------------ | ------- | - |  | - | -------
|                                                                                  |  | Parent |         |   | GuarantorSubsidiaries |   |         | Non-Guarantor Subsidiary |  |   | Eliminations |   |  | Consolidated
|Net sales                                                                         |  | $      |        |   |                       | $ | 961,580 |                          |  | $ | 55,568       |   |  | $            | (27,981 | ) |  | $ | 989,167
|Cost of sales                                                                     |  |        |        |   |                       |   | 798,621 |                          |  |   | 48,974       |   |  |              | (27,981 | ) |  |   | 819,614
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|Gross profit                                                                      |  |        |        |   |                       |   | 162,959 |                          |  |   | 6,594        |   |  |              |        |   |  |   | 169,553
|Selling, general and administrative expenses                                      |  |        | 7,683   |   |                       |   | 88,494  |                          |  |   | 5,780        |   |  |              | (3,971  | ) |  |   | 97,986 
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|Operating profit (loss)                                                           |  |        | (7,683  | ) |                       |   | 74,465  |                          |  |   | 814          |   |  |              | 3,971   |   |  |   | 71,567 
|Interest expense, net                                                             |  |        | 30,077  |   |                       |   | 804     |                          |  |   | 1,256        |   |  |              |        |   |  |   | 32,137 
|Other expense (income)                                                            |  |        | (3,971  | ) |                       |   | 923     |                          |  |   |             |   |  |              | 3,971   |   |  |   | 923    
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before equity in earnings (loss) of subsidiaries and income taxes |  |        | (33,789 | ) |                       |   | 72,738  |                          |  |   | (442         | ) |  |              |        |   |  |   | 38,507 
|Equity in earnings (loss) of subsidiaries                                         |  |        | 43,833  |   |                       |   | (395    | )                        |  |   |             |   |  |              | (43,438 | ) |  |   |       
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before income taxes                                               |  |        | 10,044  |   |                       |   | 72,343  |                          |  |   | (442         | ) |  |              | (43,438 | ) |  |   | 38,507 
|Income tax expense (benefit)                                                      |  |        | (13,631 | ) |                       |   | 28,510  |                          |  |   | (47          | ) |  |              |        |   |  |   | 14,832 
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |        
|Net earnings (loss)                                                               |  | $      | 23,675  |   |                       | $ | 43,833  |                          |  | $ | (395         | ) |  | $            | (43,438 | ) |  | $ | 23,675 
|                                                                                  |  |        |         |   |                       |   |         |                          |  |   |              |   |  |              |         |   |  |   |        



15



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Condensed Consolidating Statements of Cash Flows

Nine months ended September 30, 2005

(Unaudited, in thousands)



|                                                    |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  
|--------------------------------------------------- |  | ------ | ------ | - | ---------------------- | - | ------- | ------------------------ |  | - | ------------ | - |  | - | ------- | -
|                                                    |  | Parent |        |   | Guarantor Subsidiaries |   |         | Non-Guarantor Subsidiary |  |   | Consolidated |  
|Net cash provided by operating activities           |  | $      | 17,995 |   |                        | $ | 48,704  |                          |  | $ | 969          |   |  | $ | 67,668  |  
|Cash flows from investing activities:               |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  
|Capital expenditures                                |  |        |       |   |                        |   | (29,136 | )                        |  |   | (1,004       | ) |  |   | (30,140 | )
|Other assets                                        |  |        | 1      |   |                        |   | 130     |                          |  |   |             |   |  |   | 131     |  
|                                                    |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  
|Net cash provided by (used in) investing activities |  |        | 1      |   |                        |   | (29,006 | )                        |  |   | (1,004       | ) |  |   | (30,009 | )
|Cash flows from financing activities                |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  
|Payments on long-term debt                          |  |        | (3,238 | ) |                        |   | (1,077  | )                        |  |   | (727         | ) |  |   | (5,042  | )
|Investment in subsidiaries                          |  |        | 18,621 |   |                        |   | (18,621 | )                        |  |   |             |   |  |   |        |  
|                                                    |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  
|Net cash provided by (used in) financing activities |  |        | 15,383 |   |                        |   | (19,698 | )                        |  |   | (727         | ) |  |   | (5,042  | )
|Effect of exchange rate changes on cash             |  |        |       |   |                        |   |        |                          |  |   | 27           |   |  |   | 27      |  
|                                                    |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  
|Net increase (decrease) in cash and equivalents     |  |        | 33,379 |   |                        |   |        |                          |  |   | (735         | ) |  |   | 32,644  |  
|Cash and equivalents at beginning of period         |  |        | 29,954 |   |                        |   |        |                          |  |   | 1,862        |   |  |   | 31,816  |  
|                                                    |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  
|Cash and equivalents at end of period               |  | $      | 63,333 |   |                        | $ |        |                          |  | $ | 1,127        |   |  | $ | 64,460  |  
|                                                    |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  



16



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Condensed Consolidating Statements of Cash Flows

Nine months ended September 30, 2004

(Unaudited, in thousands)



|                                                    |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  
|--------------------------------------------------- |  | ------ | ------ | - | ---------------------- | - | ------- | ------------------------ |  | - | ------------ | - |  | - | ------- | -
|                                                    |  | Parent |        |   | Guarantor Subsidiaries |   |         | Non-Guarantor Subsidiary |  |   | Consolidated |  
|Net cash provided by operating activities           |  | $      | 46,194 |   |                        | $ | 27,624  |                          |  | $ | 1,671        |   |  | $ | 75,489  |  
|Cash flows from investing activities:               |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  
|Capital expenditures                                |  |        | (24    | ) |                        |   | (28,454 | )                        |  |   | (890         | ) |  |   | (29,368 | )
|Other assets                                        |  |        | (354   | ) |                        |   | 1,150   |                          |  |   |             |   |  |   | 796     |  
|                                                    |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  
|Net cash used in investing activities               |  |        | (378   | ) |                        |   | (27,304 | )                        |  |   | (890         | ) |  |   | (28,572 | )
|Cash flows from financing activities                |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  
|Payments on long-term debt                          |  |        | (3,713 | ) |                        |   | (25     | )                        |  |   | (454         | ) |  |   | (4,192  | )
|Proceeds from long-term debt                        |  |        |       |   |                        |   |        |                          |  |   | 151          |   |  |   | 151     |  
|Additional capital invested by parent               |  |        | 7,696  |   |                        |   |        |                          |  |   |             |   |  |   | 7,696   |  
|Investment in subsidiaries                          |  |        | 295    |   |                        |   | (295    | )                        |  |   |             |   |  |   |        |  
|                                                    |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  
|Net cash provided by (used in) financing activities |  |        | 4,278  |   |                        |   | (320    | )                        |  |   | (303         | ) |  |   | 3,655   |  
|Effect of exchange rate changes on cash             |  |        |       |   |                        |   |        |                          |  |   | 86           |   |  |   | 86      |  
|                                                    |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  
|Net increase in cash and equivalents                |  |        | 50,094 |   |                        |   |        |                          |  |   | 564          |   |  |   | 50,658  |  
|Cash and equivalents at beginning of period         |  |        | 44,286 |   |                        |   |        |                          |  |   | 1,308        |   |  |   | 45,594  |  
|                                                    |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  
|Cash and equivalents at end of period               |  | $      | 94,380 |   |                        | $ |        |                          |  | $ | 1,872        |   |  | $ | 96,252  |  
|                                                    |  |        |        |   |                        |   |         |                          |  |   |              |   |  |   |         |  



17



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ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS



General



We are a producer and distributor of specialty egg products to the
foodservice, retail and food ingredients markets. We are also a producer and distributor of refrigerated potato products to the foodservice and retail grocery markets. Additionally, we distribute refrigerated food items, primarily cheese and other
dairy products, to the retail grocery market, predominantly in the central United States. We focus our growth efforts on the specialty sectors within our food categories and strive to be a market leader in product innovation and low-cost production.
We have a strategic focus on value-added processing of food products which is designed to capitalize on key food industry trends, such as (i) the desire for improved safety and convenience, (ii) the focus by foodservice operators on
reducing labor and waste, and (iii) the growth of food consumption away from home. In recent years, our net sales and operating profit, excluding transaction expenses, have each increased as a result of our focus on value-added products and
favorable food industry trends such as an increasing percentage of the total annual spending on food in the U.S. being devoted to eating away from home.



Commodities and Product Pricing



The profit margins we earn on certain of our products are sensitive to changes in commodity prices. Higher value-added egg products, such as extended
shelf-life liquid and precooked products, account for approximately 60% of the Egg Products Divisions annual net sales. Although gross profit margins for higher value-added egg products are generally less sensitive to commodity price
fluctuations than are other egg products or shell eggs, we are also unable to adjust pricing for these products as quickly as we are for other egg products and shell eggs when our costs change. The remainder of the products sold by our Egg Products
Division are mainly used in the food ingredients market, or are shell eggs, and are more commodity price-sensitive than are higher value-added product sales. 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. Graded shell egg pricing in the first nine months of 2005 was substantially lower than in the comparable 2004 period (as measured by Urner Barry Publications) and resulted in
significantly lower food ingredients egg products prices. Feed costs declined year-over-year during the 2005 period.



The Refrigerated Distribution Division derives approximately 80% of its net sales from refrigerated products produced by others, thereby somewhat reducing
the effects of commodity price swings. However, a majority of the approximately 80% represents cheese and butter, and the costs for both fluctuate with national dairy markets. Time lags between cost changes for these lines and wholesale/retail
pricing changes can result in significant margin expansion or compression. The balance of the Refrigerated Distribution Divisions sales are mainly from shell eggs, some of which are produced by the Egg Products Division, sold on a
distribution, or non-commodity, basis.



The Potato Products
Division purchases approximately 90%-95% 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 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 the Potato Products Divisions operating results.



Results of Operations



Readers are directed to Note EBusiness Segments for data on the unaudited financial results of our business segments
for the three months and nine months ended September 30, 2005 and 2004.



Three Months Ended September 30, 2005 as Compared to Three Months Ended September 30, 2004



Net Sales.Net sales for the three months ended September 30, 2005 decreased $14.7 million, or approximately 5%, to $309.2 million from
$323.9 million for the three months ended September 30, 2004, reflecting egg market deflation, which reduced selling prices within the Egg Products Division.



Egg Products Division Net Sales.Egg Products Division external net sales for the three months ended
September 30, 2005 decreased $16.4 million, or 7%, to $218.5 million from $234.9 million for the three months ended September 30, 2004. External net sales in the 2005 period increased for most higher value-added lines and decreased
for most other product lines. Divisional unit sales increased 2% in the 2005 period compared to the 2004 period, with egg substitutes and frozen items showing the strongest gains. Sales were strongest for egg substitutes, which recorded a 7% net
sales gain on a 13% volume gain. Sales were weakest for dried items, which recorded a 40% net sales decline on relatively flat volume. Egg market pricing in the 2005 period (i.e., shell eggs, as reported by Urner Barry Publications) was comparable
to 2004 period levels. However, a considerable decline, over many months, in the egg products market resulted in significantly lower pricing for all



18



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food ingredients egg products, most notably dried products, in the 2005 period compared to the 2004 period. Sales of higher value-added egg products
represented approximately 66% of the Egg Products Divisions external net sales in the 2005 period and 60% in the 2004 period.



Refrigerated Distribution Division Net Sales.Refrigerated Distribution Division external net sales for the three months ended September 30,
2005 decreased $2.6 million, or 4%, to $66.1 million from $68.7 million for the three months ended September 30, 2004. This decrease was due primarily to increased trade promotional spending for branded cheese, which is our most important
product line in this division. Branded cheese volume declined 2% in the 2005 period as compared to the 2004 period, with net sales down 5%. Results from other product lines were mixed, although potato products net sales increased over 35% to the
Divisions retail customers.



Potato Products Division
Net Sales.Potato Products Division external net sales for the three months ended September 30, 2005 increased $4.4 million, or 21%, to $24.6 million from $20.2 million for the three months ended September 30, 2004. This increase was
attributable to strong unit sales growth for both foodservice and retail potato products, with the latter increasing 11% from 2004 period levels. As a category, retail refrigerated potato products have shown notable growth in 2005 and our late 2004
activities to enhance and relaunch our Simply Potatoes® brand have proven successful. In particular, retail mashed items continued to show notable sales growth. Pricing of our potato products increased year-over-year.



Gross Profit.Gross profit for the three months ended
September 30, 2005 increased $2.5 million, or 4%, to $59.2 million from $56.7 million for the three months ended September 30, 2004. Our gross profit margin increased to 19.2% compared to the 2004 period at 17.5%. The higher gross profit
margin reflected an increased gross profit margin from all divisions, with particular strength seen from our Potato Products Division. Certain raw material costs declined, particularly external egg purchases, and we experienced generally favorable
sales mix shifts and improved pricing for certain products. These factors more than offset significant increases in energy, packaging and freight costs, allowing the rise in gross profit margin.



Selling, General and Administrative Expenses.Selling, general and
administrative expenses for the three months ended September 30, 2005 decreased $0.3 million, or 1%, to $32.8 million from $33.1 million for the three months ended September 30, 2004. Selling, general and administrative expenses increased
to 10.6% of net sales in the 2005 period compared with 10.2% for the 2004 period. The 2004 period included costs associated with an exchange offer for our senior subordinated notes. Salaries, wages and employee benefits costs increased
year-over-year in the 2005 period, while deflationary pressures caused a reduction in net sales. These factors resulted in the operating expense ratio increase.



Operating Profit.Operating profit for the three months ended September 30, 2005 increased $2.8 million, or approximately 12%, to $26.4
million from $23.6 million for the three months ended September 30, 2004. This increase is attributable to increased gross profits. Our operating profit margin increased to 8.5% in the 2005 period from 7.3% in the 2004 period due to notable
gross profit margin improvement.



Egg Products Division
Operating Profit.Egg Products Division operating profit for the three months ended September 30, 2005 decreased $1.3 million, or 6%, to $21.1 million from $22.4 million for the three months ended September 30, 2004. Operating profits
for higher value-added egg products increased significantly in the 2005 period due primarily to volume growth and a decline in egg costs. However, food ingredients egg products and shell eggs had a significant operating loss in the 2005 period, as a
result of generally lower market-driven egg pricing levels. This compares to notable profitability in the 2004 period.



Refrigerated Distribution Division Operating Profit.Refrigerated Distribution Division operating profit for the three months ended
September 30, 2005 increased $0.9 million, or 37%, to $3.4 million from $2.5 million for the three months ended September 30, 2004. Operating profits for our key product line, branded cheese, increased in the 2005 period due to lower raw
material costs. This increase was somewhat offset by reduced operating profits from certain other product lines.



Potato Products Division Operating Profit.Potato Products Division operating profit for the three months ended September 30, 2005 increased
to $3.7 million from $1.6 million for the three months ended September 30, 2004. This increase reflected a notable improvement, from approximately break-even to a meaningful profit, for the foodservice business in the 2005 period, while
operating profits from our retail potato products sales increased significantly. The profit improvements resulted from strong volume growth, improved pricing and higher processing yields, related, in part, to improved raw material quality.



Other Expense (Income). Other expense of $23,000 was
recorded in the 2005 period as compared to $149,000 of other income recorded in the 2004 period. The change related to an increase in net losses from our Belgium joint venture for the 2005 period compared to the 2004 period.



19



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Interest Expense and Income Taxes.Interest expense increased by approximately $1.0 million in the
2005 period compared to the 2004 period, reflecting higher interest rates. Our effective tax rate was 37.5% in the 2005 period compared to 38.5% in the 2004 period. The reduction of the effective tax rate for the third quarter of 2005 is related to
the domestic manufacturers deduction, which was enacted as part of the American Jobs Creation Act of 2004.



Nine Months Ended September 30, 2005 as Compared to Nine Months Ended September 30, 2004



Net Sales.Net sales for the nine months ended September 30, 2005 decreased $74.0 million, or 7%, to $915.2 million from $989.2 million
for the nine months ended September 30, 2004, reflecting substantial egg market deflation, which reduced selling prices within both the Egg Products and Refrigerated Distribution divisions.



Egg Products Division Net Sales.Egg Products Division external net
sales for the nine months ended September 30, 2005 decreased $74.1 million, or 10%, to $645.6 million from $719.7 million for the nine months ended September 30, 2004. Sales decreased notably for dried and short shelf-life egg
products, with pricing down significantly for each. Sales increased for egg substitutes and precooked egg products. Divisional unit sales increased 3% in the 2005 period compared to the 2004 period, with precooked unit sales showing the strongest
gains at approximately 17%, due to strong foodservice results driven, in part, by customers promotional activities and product introductions. Egg market pricing in the 2005 period fell to average levels, relative to historical pricing, after
being significantly above historical levels in the 2004 period. During the 2005 period, shell egg prices were approximately 26% lower than in the 2004 period (as reported by Urner Barry Publications), resulting in significantly lower pricing for
food ingredients egg products and shell eggs.Sales of higher value-added egg products represented approximately 65% of the Egg Products Divisions external net sales in the 2005 period and 58% in the 2004 period.



Refrigerated Distribution Division Net Sales.Refrigerated
Distribution Division external net sales for the nine months ended September 30, 2005 decreased $13.7 million, or 6%, to $197.0 million from $210.7 million for the nine months ended September 30, 2004. This decrease was primarily due to
much lower pricing for shell eggs. However, overall distributed products (i.e., excluding shell eggs) unit and net sales were approximately unchanged in the 2005 period compared to the 2004 period, as several product lines showed volume growth,
particularly cheese, bagels and potato products. Our most important product line, branded cheese, saw a 3% increase in unit sales in the 2005 period as compared to the 2004 period.



Potato Products Division Net Sales.Potato Products Division external net sales for the nine months ended
September 30, 2005 increased $13.7 million, or 23%, to $72.6 million from $58.9 million for the nine months ended September 30, 2004. This increase was attributable to strong unit sales growth for both foodservice and retail potato
products, with the latter increasing 23% from 2004 period levels. As a category, retail refrigerated potato products have shown notable growth in 2005 and our late 2004 activities to enhance and relaunch our Simply Potatoes® brand have proven successful. In particular, retail
mashed items continued to show notable sales growth. Pricing of our potato products increased year-over-year.



Gross Profit.Gross profit for the nine months ended September 30, 2005 increased $5.7 million, or 3%, to $175.3 million from $169.6 million
for the nine months ended September 30, 2004. Our gross profit margin increased to 19.1% in the 2005 period compared to the 2004 period at 17.1%. The higher gross profit margin reflected an increased gross profit margin from all divisions, with
particular strength seen from our Potato Products Division. Certain raw material costs declined, particularly external egg purchases, and generally we experienced favorable sales mix shifts and improved pricing for certain products. These factors
more than offset significant increases in energy, packaging and freight costs, allowing the rise in gross profit margin.



Selling, General and Administrative Expenses.Selling, general and administrative expenses for the nine months ended September 30, 2005
increased $2.4 million, or 2%, to $100.4 million from $98.0 million for the nine months ended September 30, 2004. Selling, general and administrative expenses increased to 11% of net sales in the 2005 period compared with 9.9% for the 2004
period. The 2004 period included a $2.0 million expense reduction related to litigation settlements and costs associated with an exchange offer for our senior subordinated notes. Salaries, wages and employee benefits costs increased year-over-year
in the 2005 period, while deflationary pressures caused a reduction in net sales. These factors resulted in the operating expense ratio increase.



Operating Profit.Operating profit for the nine months ended September 30, 2005 increased $3.2 million, or approximately 5%, to $74.8 million
from $71.6 million for the nine months ended September 30, 2004. This increase is attributable to increased gross profits. Our operating profit margin increased to 8.2% in the 2005 period from 7.2% in the 2004 period due to notable gross profit
margin improvement.



20



---

Egg Products Division Operating Profit.Egg Products Division operating profit for the nine months
ended September 30, 2005 decreased $6.6 million, or 10%, to $60.1 million from $66.7 million for the nine months ended September 30, 2004. Operating profits for higher value-added egg products increased significantly in the 2005 period due
primarily to volume growth and a decline in egg costs. However, food ingredients egg products and shell eggs had a significant operating loss in the 2005 period, as a result of depressed market-driven egg pricing levels. This compares to notable
profitability in the 2004 period.



Refrigerated Distribution
Division Operating Profit.Refrigerated Distribution Division operating profit for the nine months ended September 30, 2005 increased $1.6 million, or 19%, to $10.5 million from $8.9 million for the nine months ended September 30,
2004. Operating profits for our key product line, branded cheese, increased in the 2005 period due to sales volume growth and lower raw material costs. This increase was somewhat offset by reduced operating profits from our private label cheese and
other distributed product lines.



Potato Products Division
Operating Profit.Potato Products Division operating profit for the nine months ended September 30, 2005 increased $7.4 million to $11 million from $3.6 million for the nine months ended September 30, 2004. This increase reflected a
notable improvement from a small loss to a meaningful profit from the foodservice business in the 2005 period, while operating profits from our retail potato products sales increased significantly. The profit improvements resulted from strong volume
growth, improved pricing and higher processing yields, related, in part, to improved raw material quality.



Other Expense (Income). Other expense of $0.7 million was recorded in the 2005 period as compared to $0.9 million in the 2004 period, this decrease
related to a reduction in net losses from our Belgium joint venture (see Note C to the condensed consolidated financial statements).



Interest Expense and Income Taxes.Interest expense increased by approximately $3.0 million in the 2005 period compared to the 2004 period,
reflecting higher interest rates. Our effective tax rate was 37.5% in the 2005 period compared to 38.5% in the 2004 period. The reduction of the effective tax rate for 2005 is related to the domestic manufacturers deduction, which was enacted as
part of the American Jobs Creation Act of 2004.



Liquidity and Capital
Resources



Historically, we have financed our liquidity
requirements through internally generated funds, senior bank borrowings and the issuance of other indebtedness. We believe such sources remain viable financing alternatives to meet our anticipated needs. Our investments in acquisitions, joint
ventures and capital expenditures have been a significant use of capital. We plan to continue to invest in advanced production facilities to enhance our competitive position.



Cash flow provided by operating activities was $67.7 million for the nine months ended September 30, 2005, compared to
$75.5 million in the comparable 2004 period. The decrease in cash flow provided by operating activities relates to increased working capital in the 2005 period. Our cash flows used in investing activities increased to $30.0 million for the nine
months ended September 30, 2005 from $28.6 million for the 2004 period. Cash flows used by financing activities were $5.0 million for the nine months ended September 30, 2005, compared to cash flows provided by financing activities of $3.7
million in the 2004 period.



We continue to have substantial
annual cash interest expense. Our senior credit facility requires us to meet a minimum interest coverage ratio and a maximum leverage ratio. In addition, the senior credit facility, the senior unsecured term loan facility and the indenture relating
to the 8% Senior Subordinated Notes due 2013 contain certain restrictive covenants which, among other things, limit the incurrence of additional indebtedness, investments, dividends, transactions with affiliates, asset sales, acquisitions, mergers
and consolidations, prepayments of other indebtedness, liens and encumbrances and other matters customarily restricted in these agreements. Our failure to comply with these covenants could result in an event of default, which if not cured or waived
could have a material adverse effect on our results of operations, financial position and cash flow. In general, the debt covenants limit our discretion in the operation of our businesses. We were in compliance with all of the covenants under the
senior credit facility, the senior unsecured term loan agreement and the indenture as of September 30, 2005.



21



---

The following is a calculation of our minimum interest coverage and maximum leverage ratios under our
senior credit facility for the twelve-month periods ended September 30, 2005 and 2004. The terms and related calculations are defined in our senior credit facility, which agreement and amendments thereto were included as Exhibit 10.1 of our
registration statement on Form S-4 (Registration No. 333-112714) as filed with the Commission on February 11, 2004, as Exhibit 10.33 to our current report on Form 8-K as filed with the Commission on September 22, 2004 and as Exhibit
10.1 to our current report on Form 8-K as filed with the Commission on May 18, 2005.



|                                          |  |                |         |   |      |   |         |  
|----------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                          |  | 2005           |         |   | 2004 |  
|                                          |  | (in thousands) |        
|Calculation of Interest Coverage Ratio:   |  |                |         |  
|Consolidated EBITDA (1)                   |  | $              | 175,010 |   |      | $ | 181,676 |  
|Consolidated Cash Interest Expense (2)    |  |                | 45,305  |   |      |   | 41,473  |  
|Actual Interest Coverage Ratio (3)        |  |                | 3.86 x  |   |      |   | 4.38 x  |  
|Minimum Permitted Interest Coverage Ratio |  |                | 2.25 x  |   |      |   | 2.10 x  |  
|Calculation of Leverage Ratio:            |  |                |         |   |      |   |         |  
|Funded Indebtedness (4)                   |  | $              | 770,346 |   |      | $ | 800,170 |  
|Less: Cash and equivalents                |  |                | (64,460 | ) |      |   | (96,252 | )
|                                          |  |                |         |   |      |   |         |  
|Funded Indebtedness, net of cash          |  |                | 705,886 |   |      |   | 703,918 |  
|Consolidated EBITDA (1)                   |  |                | 175,010 |   |      |   | 181,676 |  
|Actual Leverage Ratio (5)                 |  |                | 4.03 x  |   |      |   | 3.87 x  |  
|Maximum Permitted Leverage Ratio          |  |                | 5.50 x  |   |      |   | 5.95 x  |  

---

|(1) | Consolidated EBITDA is defined in our senior credit facility as follows:
|--- | ------------------------------------------------------------------------



|                                                                  |  |                                        |         |      |   |         |  
|----------------------------------------------------------------- |  | -------------------------------------- | ------- | ---- | - | ------- | -
|                                                                  |  | Last Twelve Months Ended September 30, |        
|                                                                  |  | 2005                                   |         | 2004 |  
|                                                                  |  | (in thousands)                         |        
|Net earnings (loss)                                               |  | $                                      | 34,202  |      | $ | (23,519 | )
|Interest expense, excluding amortization of debt issuance costs   |  |                                        | 44,130  |      |   | 36,585  |  
|Amortization of debt issuance costs                               |  |                                        | 2,064   |      |   | 5,243   |  
|Income tax expense (benefit)                                      |  |                                        | 20,761  |      |   | (14,957 | )
|Depreciation and amortization                                     |  |                                        | 68,599  |      |   | 64,176  |  
|Equity sponsor management fee (a)                                 |  |                                        | 1,926   |      |   | 1,487   |  
|Industrial revenue bonds related expenses (b)                     |  |                                        | 924     |      |   | 793     |  
|Other non-recurring charges related to acquisition accounting (c) |  |                                        | 214     |      |   | 7,809   |  
|Transaction expenses (d)                                          |  |                                        |        |      |   | 22,838  |  
|Loss on early extinguishment of debt                              |  |                                        |        |      |   | 61,226  |  
|Loss on Dairy Division disposition                                |  |                                        |        |      |   | 16,288  |  
|Other (e)                                                         |  |                                        | 2,869   |      |   | 3,707   |  
|                                                                  |  |                                        |         |      |   |         |  
|                                                                  |  |                                        | 175,689 |      |   | 181,676 |  
|Unrealized gains (losses) on swap contracts                       |  |                                        | 679     |      |   |        |  
|                                                                  |  |                                        |         |      |   |         |  
|Consolidated EBITDA, as defined in our senior credit facility     |  | $                                      | 175,010 |      | $ | 181,676 |  
|                                                                  |  |                                        |         |      |   |         |  

---

|(a) | Reflects management fees paid to equity sponsors.
|--- | -------------------------------------------------

|(b) | Reflects fees associated with industrial revenue bonds guaranteed by certain of our subsidiaries.
|--- | -------------------------------------------------------------------------------------------------

|(c) | Reflects loss associated with SFAS 141 purchase accounting primarily for inventories.
|--- | -------------------------------------------------------------------------------------

|(d) | Reflects expenses incurred in connection with our acquisition by an investor group, including members of our management, in November 2003.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------

|(e) | Reflects the following:
|--- | -----------------------



|                                                                      |  |      |       |      |   |      
|--------------------------------------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                                                      |  | 2005 |       | 2004
|Equity losses of unconsolidated subsidiaries                          |  | $    | 249   |      | $ | 1,079
|Losses from the sale of assets not in the ordinary course of business |  |      | 1,420 |      |   |     
|Preferred return on deferred compensation                             |  |      | 1,034 |      |   | 1,695
|Letter of credit fees                                                 |  |      | 139   |      |   | 159  
|Other non-recurring charges                                           |  |      | 27    |      |   | 774  
|                                                                      |  |      |       |      |   |      
|                                                                      |  | $    | 2,869 |      | $ | 3,707
|                                                                      |  |      |       |      |   |      



22



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|(2) | Consolidated cash interest expense for the periods ended September 30, as calculated in our senior credit facility, was as follows (in thousands):
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



|                                          |  |                                       |        |                                     |   |       
|----------------------------------------- |  | ------------------------------------- | ------ | ----------------------------------- | - | ------
|                                          |  | Twelve Months EndedSeptember 30, 2005 |        | Nine Months EndedSeptember 30, 2004
|Interest expense, net                     |  | $                                     | 46,298 |                                     | $ | 32,137
|Interest income                           |  |                                       | 1,071  |                                     |   | 498   
|                                          |  |                                       |        |                                     |   |       
|Gross interest expense                    |  |                                       | 47,369 |                                     |   | 32,635
|Less: Amortization of debt issuance costs |  |                                       | 2,064  |                                     |   | 1,530 
|                                          |  |                                       |        |                                     |   |       
|                                          |  |                                       | 45,305 |                                     |   | 31,105
|                                          |  |                                       | X1     |                                     |   | X1 1/3
|                                          |  |                                       |        |                                     |   |       
|Consolidated cash interest expense        |  | $                                     | 45,305 |                                     | $ | 41,473
|                                          |  |                                       |        |                                     |   |       



|(3) | Represents ratio of consolidated EBITDA to consolidated interest expense.
|--- | -------------------------------------------------------------------------



|(4) | Funded indebtedness as of September 30 was as follows (in thousands):
|--- | ---------------------------------------------------------------------



|                                                                          |  |      |         |      |   |        
|------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                                                          |  | 2005 |         | 2004
|Term loan facility                                                        |  | $    | 451,812 |      | $ | 491,288
|Senior unsecured term loan facility                                       |  |      | 135,000 |      |   | 135,000
|8% senior subordinated notes                                              |  |      | 150,000 |      |   | 150,000
|Insurance bonds                                                           |  |      | 878     |      |   | 878    
|Guarantee obligations (see Debt Guarantees described below)               |  |      | 16,281  |      |   | 6,152  
|Capital leases                                                            |  |      | 6,688   |      |   | 6,741  
|Standby letters of credit (primarily with our casualty insurance carrier) |  |      | 6,489   |      |   | 6,489  
|Funded indebtedness of Trilogy Egg Products, Inc.                         |  |      | 2,964   |      |   | 3,362  
|Other                                                                     |  |      | 234     |      |   | 260    
|                                                                          |  |      |         |      |   |        
|                                                                          |  | $    | 770,346 |      | $ | 800,170
|                                                                          |  |      |         |      |   |        



|(5) | Represents ratio of funded indebtedness less cash and equivalents to consolidated EBITDA.
|--- | -----------------------------------------------------------------------------------------



As of September 30, 2005, (i) approximately $451.8 million was outstanding under the senior credit facility, and
additional capacity of approximately $6.5 million was used under the revolving line of credit for letters of credit, and (ii) a $135.0 million senior unsecured term loan was outstanding. The weighted average interest rate for our borrowings
under the senior credit facility and the unsecured term loan was approximately 5.5% at September 30, 2005. Given our business trends and cash flow forecast, we do not anticipate any use of the revolving line of credit in the near future, except
for letters of credit purposes. However, it is possible that one or more acquisitions could arise, which could result in much, or all, of the revolving line of credit being utilized at some point.



We have guaranteed, through our Waldbaum subsidiary, the repayment of three
industrial revenue bonds used for expansions of wastewater treatment facilities of three municipalities where we operate food processing plants. The repayment of these bonds is funded through the wastewater treatment fees we pay. Should such fees be
insufficient to fund the bond payments as they become due, we have agreed to pay any shortfall. The principal balance of these bonds as of September 30, 2005 was approximately $6.0 million. Also, on September 30, 2005 a $10.25 million bond
financing was completed by the City of Wakefield, Nebraska at an annual interest rate of 7.6%, with such proceeds to be used for the construction of a wastewater treatment facility. We have guaranteed the principal and interest payments related to
these bonds, which mature September 15, 2017. These $10.25 million bonds were recorded as long-term debt on our balance sheet in accordance with current accounting literature, FASB Interpretation No. 45. In addition, our parent, M-Foods
Holdings, Inc., has outstanding 9.75% Senior Discount Notes due October 1, 2013. The accreted balance of these notes as of September 30, 2005 was $110.4 million.



Our ability to make payments on and to refinance our debt, including the notes and to fund
planned capital expenditures will depend on our ability to generate sufficient cash in the future. This, to some extent, is subject to general economic, financial, competitive and other factors that are beyond our control. We believe that, based on
current levels of operations, we will be able to meet our debt service obligations when due. Significant assumptions underlie this belief, including, among other things, that we will continue to be successful in implementing our business strategy
and that there will be no material adverse developments in our business, liquidity or capital requirements. If our future cash flows from operations and other capital resources are insufficient to pay our obligations as they mature or to fund our
liquidity needs, we



23



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may be forced to reduce or delay our business activities and capital expenditures, sell assets, obtain additional debt or equity capital or restructure or
refinance all or a portion of our debt, including the notes, on or before maturity. We cannot assure our investors that we would be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all. In addition, the
terms of our existing and future indebtedness, including the notes, our senior credit facility and our senior unsecured term loan may limit our ability to pursue any of these alternatives.



We invested approximately $30 million in capital expenditures in the nine
months ended September 30, 2005. We plan to spend approximately $46 million in total capital expenditures for 2005, which has been, or will be, used to maintain existing production facilities, expand refrigerated warehouse capacity, and to
expand our value-added egg products capacity. We expect to fund this spending from operating cash flows.



Our longer-term planning is focused on growing our sales, earnings and cash flows primarily by focusing on our existing business lines through expanding
product offerings, increasing production capacity for value-added products and broadening customer bases. We believe our financial resources are sufficient to meet the working capital and capital spending necessary to execute our longer-term plans.
In executing these plans, we expect to reduce debt over the coming years. However, possible significant acquisition activity could result in us seeking additional financing resources, which we would expect would be available to us if they are
sought.



Seasonality



Our consolidated quarterly operating results are affected by the seasonal
fluctuations of our net sales and operating profits. Specifically, egg prices typically rise seasonally in the first and fourth quarters of the year due to increased demand during holiday periods. Consequently, net sales in the Egg Products Division
may increase in the first and fourth quarters. Operating profits from the Potato Products Division are less seasonal, but tend to be higher in the second half of the year coinciding with the potato harvest. Generally, the Refrigerated Distribution
Division has higher net sales and operating profits in the fourth quarter, coinciding with incremental consumer demand during the holiday season.



Forward-looking Statements



Certain items in this Form 10-Q may be forward-looking statements. Such forward-looking statements are subject to numerous risks and uncertainties,
including variances in the demand for our products due to consumer, industry and broad economic developments, as well as variances in the costs to produce such products, including normal volatility in egg, feed, cheese and butter costs. Our actual
financial results could differ materially from the results estimated by, forecasted by, or implied by us in such forward-looking statements. Forward-looking statements contained in this Form 10-Q speak only as of the date hereof. We disclaim any
obligation or understanding to publicly release updates to, or revisions of, forward-looking statements to reflect changes in our expectations or events, conditions or circumstances on which any such statement is made.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK



There were no material changes in our market risk
during the nine months ended September 30, 2005. For additional information regarding our market risk, please refer to Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K for the year
ended December 31, 2004.



ITEM 4.
CONTROLS AND PROCEDURES



a. Evaluation of disclosure controls
and procedures.



Our management evaluated, with the
participation of our principal executive and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act), as of September 30, 2005. Based on these evaluations, our principal executive and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2005.



b. Changes in internal controls



There were no changes in our internal controls over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2005, that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.



PART IIOTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



None.



24



---

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



None.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None.



ITEM 5. OTHER INFORMATION



None.



ITEM 6. EXHIBITS



EXHIBIT INDEX



|            |  |                                                                                                   
|----------- |  | --------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                       
|31.1        |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|            | 
|31.2        |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



25



---

SIGNATURES



Pursuant to the requirements 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: November 4, 2005 |  | By:                 |  | /s/ GREGG A. OSTRANDER                                              
|                       |  |                     |  | Gregg A. Ostrander (Chairman, Chief Executive Officer and President)
|                       |  |                    
|                       |  | By:                 |  | /s/ JOHN D. REEDY                                                   
|                       |  |                     |  | John D. Reedy (Executive Vice President and Chief Financial Officer)



26