UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(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 27, 2008

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





MICHAEL FOODS, INC.

(Exact name of registrant as specified in its charter)







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



|                                                    |  |           
|--------------------------------------------------- |  | ----------
|301 Carlson Parkway Suite 400 Minnetonka, Minnesota |  | 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)





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 (the 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer   ̈    Accelerated filer   ̈    Non-accelerated filer  x    Smaller Reporting Company   ̈

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 10, 2008.









---

PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MICHAEL FOODS, INC.

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

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in Thousands, except for share data)



|                                                                                                                           |  |                   |           |                  |   |          
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | ---------------- | - | ---------
|                                                                                                                           |  | September 27,2008 |           | December 29,2007
|ASSETS                                                                                                                     |  |                   |           |                  |   |          
|Current Assets                                                                                                             |  |                   |           |                  |   |          
|Cash and equivalents                                                                                                       |  | $                 | 49,490    |                  | $ | 30,077   
|Accounts receivable, less allowances                                                                                       |  |                   | 145,410   |                  |   | 132,922  
|Inventories                                                                                                                |  |                   | 133,900   |                  |   | 114,758  
|Prepaid expenses and other                                                                                                 |  |                   | 17,843    |                  |   | 7,711    
|                                                                                                                           |  |                   |           |                  |   |          
|Total Current Assets                                                                                                       |  |                   | 346,643   |                  |   | 285,468  
|                                                                                                                           |  |                  
|Property, Plant and Equipment                                                                                              |  |                   |           |                  |   |          
|Land                                                                                                                       |  |                   | 4,258     |                  |   | 4,044    
|Buildings and improvements                                                                                                 |  |                   | 140,657   |                  |   | 123,839  
|Machinery and equipment                                                                                                    |  |                   | 353,043   |                  |   | 333,755  
|                                                                                                                           |  |                   |           |                  |   |          
|                                                                                                                           |  |                   | 497,958   |                  |   | 461,638  
|Less accumulated depreciation                                                                                              |  |                   | 266,385   |                  |   | 222,772  
|                                                                                                                           |  |                   |           |                  |   |          
|                                                                                                                           |  |                   | 231,573   |                  |   | 238,866  
|                                                                                                                           |  |                  
|Other Assets                                                                                                               |  |                   |           |                  |   |          
|Goodwill                                                                                                                   |  |                   | 522,916   |                  |   | 518,264  
|Intangible assets, net                                                                                                     |  |                   | 190,367   |                  |   | 201,449  
|Other assets                                                                                                               |  |                   | 10,600    |                  |   | 29,814   
|                                                                                                                           |  |                   |           |                  |   |          
|                                                                                                                           |  |                   | 723,883   |                  |   | 749,527  
|                                                                                                                           |  |                   |           |                  |   |          
|                                                                                                                           |  | $                 | 1,302,099 |                  | $ | 1,273,861
|                                                                                                                           |  |                   |           |                  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                       |  |                   |           |                  |   |          
|Current Liabilities                                                                                                        |  |                   |           |                  |   |          
|Current maturities of long-term debt                                                                                       |  | $                 | 3,339     |                  | $ | 2,479    
|Accounts payable                                                                                                           |  |                   | 100,192   |                  |   | 95,419   
|Accrued liabilities                                                                                                        |  |                   |           |                  |   |          
|Compensation                                                                                                               |  |                   | 19,306    |                  |   | 20,651   
|Customer programs                                                                                                          |  |                   | 40,336    |                  |   | 40,094   
|Other                                                                                                                      |  |                   | 34,221    |                  |   | 32,244   
|                                                                                                                           |  |                   |           |                  |   |          
|Total Current Liabilities                                                                                                  |  |                   | 197,394   |                  |   | 190,887  
|Long-term debt, less current maturities                                                                                    |  |                   | 596,449   |                  |   | 599,304  
|Deferred income taxes                                                                                                      |  |                   | 92,684    |                  |   | 102,284  
|Other long-term liabilities                                                                                                |  |                   | 20,854    |                  |   | 21,297   
|Commitments and contingencies                                                                                              |  |                   |          |                  |   |         
|Shareholders Equity                                                                                                       |  |                   |           |                  |   |          
|Common stock, $0.01 par value, 3,000 shares authorized, issued and outstanding on September 27, 2008 and December 29,
2007 |  |                   |          |                  |   |         
|Additional paid-in capital                                                                                                 |  |                   | 271,191   |                  |   | 265,819  
|Retained earnings                                                                                                          |  |                   | 121,943   |                  |   | 88,393   
|Accumulated other comprehensive income                                                                                     |  |                   | 1,584     |                  |   | 5,877    
|                                                                                                                           |  |                   |           |                  |   |          
|                                                                                                                           |  |                   | 394,718   |                  |   | 360,089  
|                                                                                                                           |  |                   |           |                  |   |          
|                                                                                                                           |  | $                 | 1,302,099 |                  | $ | 1,273,861
|                                                                                                                           |  |                   |           |                  |   |          

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 27, 2008 and September 29, 2007

(Unaudited, in Thousands)



|                                             |  |      |         |      |   |        
|-------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                             |  | 2008 |         | 2007
|Net sales                                    |  | $    | 450,058 |      | $ | 381,111
|Cost of sales                                |  |      | 383,922 |      |   | 317,984
|                                             |  |      |         |      |   |        
|Gross profit                                 |  |      | 66,136  |      |   | 63,127 
|Selling, general and administrative expenses |  |      | 41,650  |      |   | 38,105 
|Plant closing expenses                       |  |      |        |      |   | 1,293  
|                                             |  |      |         |      |   |        
|Operating profit                             |  |      | 24,486  |      |   | 23,729 
|Interest expense, net                        |  |      | 8,833   |      |   | 12,644 
|                                             |  |      |         |      |   |        
|Earnings before income taxes                 |  |      | 15,653  |      |   | 11,085 
|Income tax expense                           |  |      | 4,629   |      |   | 3,882  
|                                             |  |      |         |      |   |        
|Net earnings                                 |  | $    | 11,024  |      | $ | 7,203  
|                                             |  |      |         |      |   |        

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 27, 2008 and September 29, 2007

(Unaudited, in Thousands)



|                                             |  |      |           |      |   |          
|-------------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                             |  | 2008 |           | 2007
|Net sales                                    |  | $    | 1,320,070 |      | $ | 1,056,985
|Cost of sales                                |  |      | 1,115,891 |      |   | 881,120  
|                                             |  |      |           |      |   |          
|Gross profit                                 |  |      | 204,179   |      |   | 175,865  
|Selling, general and administrative expenses |  |      | 122,820   |      |   | 111,663  
|Plant closing expenses                       |  |      |          |      |   | 1,525    
|                                             |  |      |           |      |   |          
|Operating profit                             |  |      | 81,359    |      |   | 62,677   
|Interest expense, net                        |  |      | 32,120    |      |   | 39,409   
|                                             |  |      |           |      |   |          
|Earnings before income taxes                 |  |      | 49,239    |      |   | 23,268   
|Income tax expense                           |  |      | 15,689    |      |   | 8,415    
|                                             |  |      |           |      |   |          
|Net earnings                                 |  | $    | 33,550    |      | $ | 14,853   
|                                             |  |      |           |      |   |          

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 27, 2008 and September 29, 2007

(Unaudited, in Thousands)



|                                                                  |  |      |         |   |      |   |         |  
|----------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                  |  | 2008 |         |   | 2007 |  
|Net cash provided by operating activities                         |  | $    | 49,786  |   |      | $ | 47,913  |  
|Cash flows from investing activities:                             |  |      |         |   |      |   |         |  
|Capital expenditures                                              |  |      | (19,927 | ) |      |   | (21,330 | )
|Business acquisition                                              |  |      | (8,652  | ) |      |   |        |  
|Other assets                                                      |  |      |        |   |      |   | (99     | )
|                                                                  |  |      |         |   |      |   |         |  
|Net cash used in investing activities                             |  |      | (28,579 | ) |      |   | (21,429 | )
|Cash flows from financing activities:                             |  |      |         |   |      |   |         |  
|Payments on long-term debt                                        |  |      | (1,853  | ) |      |   | (1,582  | )
|Investment by parent                                              |  |      | 125     |   |      |   | 500     |  
|                                                                  |  |      |         |   |      |   |         |  
|Net cash used in financing activities                             |  |      | (1,728  | ) |      |   | (1,082  | )
|Effect of exchange rate changes on cash                           |  |      | (66     | ) |      |   | 234     |  
|                                                                  |  |      |         |   |      |   |         |  
|Net increase in cash and equivalents                              |  |      | 19,413  |   |      |   | 25,636  |  
|Cash and equivalents at beginning of period                       |  |      | 30,077  |   |      |   | 21,576  |  
|                                                                  |  |      |         |   |      |   |         |  
|Cash and equivalents at end of period                             |  | $    | 49,490  |   |      | $ | 47,212  |  
|                                                                  |  |      |         |   |      |   |         |  
|                                                                  |  |     
|Supplemental disclosures:                                         |  |      |         |   |      |   |         |  
|Non-cash capital investment by parent                             |  | $    | 4,625   |   |      | $ | 4,306   |  
|                                                                  |  |      |         |   |      |   |         |  
|Non-cash industrial revenue bond guarantees                       |  | $    |        |   |      | $ | 6,000   |  
|                                                                  |  |      |         |   |      |   |         |  
|Reclassification of other assets to property, plant and equipment |  | $    | 16,250  |   |      | $ |        |  
|                                                                  |  |      |         |   |      |   |         |  

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 AND SIGNIFICANT ACCOUNTING POLICIES

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
quarterly periods ended September 27, 2008 and September 29, 2007 were 13 week periods.

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 for the three and nine month periods
ended September 27, 2008 and cash flows for the nine month period ended September 27, 2008 are not necessarily indicative of the results expected for the full year.

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS)
No. 157, Fair Value Measurements (FAS 157). FAS 157 established a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels. Level
1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either
directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.

We are exposed to market risks from changes in commodity prices, which may adversely affect our operating results and financial position. When
appropriate, we minimize our risks from commodity price fluctuations through the use of derivative financial instruments. We have classified these financial assets within level 2 of the fair value hierarchy. At September 27, 2008, our financial
assets, measured on a recurring basis, are carried at a fair value of $6,287,000 and are included in other current assets. The implementation of FAS 157 for our financial assets and financial liabilities, effective January 1, 2008, did not have
a material impact on our consolidated financial position or results of operations.

The effective date of FAS 157 for nonfinancial assets
and nonfinancial liabilities was deferred to fiscal years beginning after November 15, 2008. We are assessing the impact of FAS 157 for nonfinancial assets and nonfinancial liabilities on our consolidated financial position and results of
operations.

Goodwill and Intangible Assets

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 (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 assessment of market value 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.

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



|                |  |                   |         |                  |   |        
|--------------- |  | ----------------- | ------- | ---------------- | - | -------
|                |  | September 27,2008 |         | December 29,2007
|Egg Products    |  | $                 | 430,992 |                  | $ | 426,340
|Crystal Farms   |  |                   | 32,068  |                  |   | 32,068 
|Potato Products |  |                   | 59,856  |                  |   | 59,856 
|                |  |                   |         |                  |   |        
|                |  | $                 | 522,916 |                  | $ | 518,264
|                |  |                   |         |                  |   |        



6



---

The $4,652,000 increase in goodwill for the Egg Products Division is the result of our acquisition of
certain assets of Mr. Bs of Abbotsford, Inc. and related entities on January 11, 2008. The purchase price was $8,652,000, was financed through available cash, and was accounted for during the period ended March 29, 2008 using
the purchase method in accordance with SFAS Standards No. 141, Business Combinations. The acquired net assets, which consisted primarily of accounts receivable and property, plant and equipment, were recorded at fair value as of the date
of the acquisition.

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. Straight-line amortization reflects an appropriate allocation of the cost of intangible assets to earnings in proportion to the
amount of economic benefit obtained by us in each reporting period. 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.

Our intangible assets, other than goodwill, were as follows (in thousands):



|                                                                |  |                   |         |   |                  |   |         |  
|--------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                |  | September 27,2008 |         |   | December 29,2007 |  
|Amortized intangible assets, principally customer relationships |  | $                 | 230,215 |   |                  | $ | 229,915 |  
|Accumulated amortization                                        |  |                   | (73,973 | ) |                  |   | (62,591 | )
|                                                                |  |                   |         |   |                  |   |         |  
|                                                                |  |                   | 156,242 |   |                  |   | 167,324 |  
|Indefinite lived intangible assets, trademarks                  |  |                   | 34,125  |   |                  |   | 34,125  |  
|                                                                |  |                   |         |   |                  |   |         |  
|                                                                |  | $                 | 190,367 |   |                  | $ | 201,449 |  
|                                                                |  |                   |         |   |                  |   |         |  

Our amortizable intangible assets increased by $300,000 as a result of the closing of our
acquisition of Mr. Bs of Abbotsford, Inc. and related entities.

The aggregate amortization expense was $11,382,000 for the nine
months ended September 27, 2008 and was $11,498,000 for the nine months ended September 29, 2007. The estimated amortization expense for the years 2008 through 2012 is as follows (in thousands):



|     |  |   |       
|---- |  | - | ------
|2008 |  | $ | 15,424
|2009 |  |   | 15,431
|2010 |  |   | 15,431
|2011 |  |   | 15,338
|2012 |  |   | 15,331

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

Deferred Financing Costs

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



|                         |  |                   |         |   |                  |   |         |  
|------------------------ |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                         |  | September 27,2008 |         |   | December 29,2007 |  
|Deferred financing costs |  | $                 | 31,598  |   |                  | $ | 31,597  |  
|Accumulated amortization |  |                   | (21,571 | ) |                  |   | (18,707 | )
|                         |  |                   |         |   |                  |   |         |  
|                         |  | $                 | 10,027  |   |                  | $ | 12,890  |  
|                         |  |                   |         |   |                  |   |         |  



7



---

NOTE BINVENTORIES

Inventories, other than flocks, are stated at the lower of cost (determined on a first-in, first-out basis) or market. Flock inventory represents the cost of purchasing and raising flocks to laying maturity, at which
time their cost is amortized to operations over their expected useful lives of generally 12 to 18 months, assuming no salvage value.

Inventories consisted of the following (in thousands):



|                                   |  |                   |         |                  |   |        
|---------------------------------- |  | ----------------- | ------- | ---------------- | - | -------
|                                   |  | September 27,2008 |         | December 29,2007
|Raw materials and supplies         |  | $                 | 20,907  |                  | $ | 20,225 
|Work in process and finished goods |  |                   | 83,856  |                  |   | 67,340 
|Flocks                             |  |                   | 29,137  |                  |   | 27,193 
|                                   |  |                   |         |                  |   |        
|                                   |  | $                 | 133,900 |                  | $ | 114,758
|                                   |  |                   |         |                  |   |        

NOTE CCOMMITMENTS AND CONTINGENCIES

On March 27, 2008, we received a subpoena from the U.S. Department of Justice, through the U.S. Attorney for the Eastern District of Pennsylvania,
requesting documents for the period of January 1, 2002 through March 27, 2008 relating primarily to the pricing, marketing, and sales of our egg products. On the same date one of our subsidiaries received a related subpoena. We are fully
cooperating with the Department of Justice request.

A number of civil, class-action lawsuits, in reference to the Department of Justice
investigation, have been filed in federal court, all alleging antitrust violations in connection with shell eggs and or processed-egg products. The first of these suits was filed September 24, 2008. As of November 7, 2008, we are aware of
15 such lawsuits where we are named as one of multiple defendants; one of these lawsuits was filed in the District of Minnesota, 13 in the Eastern District of Pennsylvania, and one in the District of New Jersey. Also in reference to the Department
of Justice investigation, we received a Civil Investigative Demand from the Florida Attorney General, issued October 27, 2008, regarding an investigation of the sale of eggs and or egg products.

We cannot predict what, if any, impact these matters and any results from such matters could have on our future results of operations.

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.

NOTE DSHAREHOLDERS EQUITY

Additional Paid-in Capital

We recorded non-cash
capital contributions from our parent, M-Foods Holdings, Inc. (Holdings), of $4.6 million in the nine month period ended September 27, 2008 and $4.3 million in the nine month period ended September 29, 2007 related to the tax
benefit we receive on Holdings interest deduction due to filing a consolidated Federal tax return with Holdings.

Comprehensive Income

The components of and changes in accumulated other comprehensive income (loss), net of taxes, during the nine months ended
September 27, 2008 were as follows (in thousands):



|                                          |  |                 |        |   |                            |   |        |                |  |   |        |  
|----------------------------------------- |  | --------------- | ------ | - | -------------------------- | - | ------ | -------------- |  | - | ------ | -
|                                          |  | Cash FlowHedges |        |   | ForeignCurrencyTranslation |   |        | TotalAOCI/AOCL | 
|Balance at December 29, 2007              |  | $               | 360    |   |                            | $ | 5,517  |                |  | $ | 5,877  |  
|Foreign currency translation adjustment   |  |                 |       |   |                            |   | (1,132 | )              |  |   | (1,132 | )
|Fair value adjustment of cash flow hedges |  |                 | (3,161 | ) |                            |   |       |                |  |   | (3,161 | )
|                                          |  |                 |        |   |                            |   |        |                |  |   |        |  
|Balance at September 27, 2008             |  | $               | (2,801 | ) |                            | $ | 4,385  |                |  | $ | 1,584  |  
|                                          |  |                 |        |   |                            |   |        |                |  |   |        |  



8



---

Comprehensive income (loss), net of taxes was as follows (in thousands):



|                                                                   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------ |  | - | ------- | - |  | - | ------- | -
|Net earnings for the three months ended September 27, 2008         |  |   |         |   |  | $ | 11,024  |  
|Net losses arising during the period:                              |  |   |         |   |  |   |         |  
|Fair value adjustment of cash flow hedges                          |  | $ | (10,811 | ) |  |   |         |  
|Foreign currency translation adjustment                            |  |   | (418    | ) |  |   |         |  
|                                                                   |  |   |         |   |  |   |         |  
|Other comprehensive loss                                           |  |   |         |   |  |   | (11,229 | )
|                                                                   |  |   |         |   |  |   |         |  
|Comprehensive loss for the three months ended September 27, 2008   |  |   |         |   |  | $ | (205    | )
|                                                                   |  |   |         |   |  |   |         |  
|                                                                   |  |  
|Net earnings for the three months ended September 29, 2007         |  |   |         |   |  | $ | 7,203   |  
|Net gains (losses) arising during the period:                      |  |   |         |   |  |   |         |  
|Fair value adjustment of cash flow hedges                          |  | $ | (303    | ) |  |   |         |  
|Foreign currency translation adjustment                            |  |   | 2,089   |   |  |   |         |  
|                                                                   |  |   |         |   |  |   |         |  
|Other comprehensive income                                         |  |   |         |   |  |   | 1,786   |  
|                                                                   |  |   |         |   |  |   |         |  
|Comprehensive income for the three months ended September 29, 2007 |  |   |         |   |  | $ | 8,989   |  
|                                                                   |  |   |         |   |  |   |         |  
|                                                                   |  |  
|Net earnings for the nine months ended September 27, 2008          |  |   |         |   |  | $ | 33,550  |  
|Net losses arising during the period:                              |  |   |         |   |  |   |         |  
|Fair value adjustment of cash flow hedges                          |  | $ | (3,161  | ) |  |   |         |  
|Foreign currency translation adjustment                            |  |   | (1,132  | ) |  |   |         |  
|                                                                   |  |   |         |   |  |   |         |  
|Other comprehensive loss                                           |  |   |         |   |  |   | (4,293  | )
|                                                                   |  |   |         |   |  |   |         |  
|Comprehensive income for the nine months ended September 27, 2008  |  |   |         |   |  | $ | 29,257  |  
|                                                                   |  |   |         |   |  |   |         |  
|                                                                   |  |  
|Net earnings for the nine months ended September 29, 2007          |  |   |         |   |  | $ | 14,853  |  
|Net gains arising during the period:                               |  |   |         |   |  |   |         |  
|Fair value adjustment of cash flow hedges                          |  | $ | 1,287   |   |  |   |         |  
|Foreign currency translation adjustment                            |  |   | 2,640   |   |  |   |         |  
|                                                                   |  |   |         |   |  |   |         |  
|Other comprehensive income                                         |  |   |         |   |  |   | 3,927   |  
|                                                                   |  |   |         |   |  |   |         |  
|Comprehensive income for the nine months ended September 29, 2007  |  |   |         |   |  | $ | 18,780  |  
|                                                                   |  |   |         |   |  |   |         |  

NOTE EBUSINESS SEGMENTS

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



|                                       |  |             |         |                |   |              |  |                        |         |  |       |         |   |  |   |          
|-------------------------------------- |  | ----------- | ------- | -------------- | - | ------------ |  | ---------------------- | ------- |  | ----- | ------- | - |  | - | ---------
|                                       |  | EggProducts |         | PotatoProducts |   | CrystalFarms |  | Corporate&Eliminations |         |  | Total
|Three months ended September 27, 2008: |  |             |         |                |   |              |  |                        |         |  |       |         |   |  |   |          
|External net sales                     |  | $           | 318,908 |                | $ | 30,524       |  | $                      | 100,626 |  | $     |        |   |  | $ | 450,058  
|Intersegment sales                     |  |             | 3,439   |                |   | 5,209        |  |                        |        |  |       | (8,648  | ) |  |   |         
|Operating profit (loss)                |  |             | 20,553  |                |   | 3,548        |  |                        | 4,643   |  |       | (4,258  | ) |  |   | 24,486   
|Depreciation and amortization          |  |             | 16,176  |                |   | 1,676        |  |                        | 1,131   |  |       | 1       |   |  |   | 18,984   
|                                       |  |             |         |                |  
|Three months ended September 29, 2007: |  |             |         |                |   |              |  |                        |         |  |       |         |   |  |   |          
|External net sales                     |  | $           | 266,549 |                | $ | 30,026       |  | $                      | 84,536  |  | $     |        |   |  | $ | 381,111  
|Intersegment sales                     |  |             | 3,132   |                |   | 4,242        |  |                        |        |  |       | (7,374  | ) |  |   |         
|Operating profit (loss)                |  |             | 20,339  |                |   | 4,421        |  |                        | 1,702   |  |       | (2,733  | ) |  |   | 23,729   
|Depreciation and amortization          |  |             | 16,242  |                |   | 1,628        |  |                        | 1,100   |  |       | 2       |   |  |   | 18,972   
|                                       |  |             |         |                |  
|Nine months ended September 27, 2008:  |  |             |         |                |   |              |  |                        |         |  |       |         |   |  |   |          
|External net sales                     |  | $           | 939,444 |                | $ | 89,859       |  | $                      | 290,767 |  | $     |        |   |  | $ | 1,320,070
|Intersegment sales                     |  |             | 11,734  |                |   | 14,612       |  |                        |        |  |       | (26,346 | ) |  |   |         
|Operating profit (loss)                |  |             | 74,780  |                |   | 9,588        |  |                        | 9,199   |  |       | (12,208 | ) |  |   | 81,359   
|Depreciation and amortization          |  |             | 48,535  |                |   | 5,027        |  |                        | 3,395   |  |       | 3       |   |  |   | 56,960   



9



---

|                                      |  |   |         |  |   |        |  |   |         |  |   |         |   |  |   |          
|------------------------------------- |  | - | ------- |  | - | ------ |  | - | ------- |  | - | ------- | - |  | - | ---------
|Nine months ended September 29, 2007: |  |   |         |  |   |        |  |   |         |  |   |         |   |  |   |          
|External net sales                    |  | $ | 739,230 |  | $ | 86,609 |  | $ | 231,146 |  | $ |        |   |  | $ | 1,056,985
|Intersegment sales                    |  |   | 10,889  |  |   | 13,318 |  |   |        |  |   | (24,207 | ) |  |   |         
|Operating profit (loss)               |  |   | 50,023  |  |   | 12,051 |  |   | 8,460   |  |   | (7,857  | ) |  |   | 62,677   
|Depreciation and amortization         |  |   | 49,015  |  |   | 4,884  |  |   | 3,264   |  |   | 8       |   |  |   | 57,171   

NOTE FSUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

Our senior credit agreement 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 unaudited condensed
consolidating financial information presents our condensed consolidating balance sheets at September 27, 2008 and December 29, 2007, together with our condensed consolidating statements of earnings for the three and nine month periods
ended September 27, 2008 and September 29, 2007 and condensed consolidating statements of cash flows for the nine months ended September 27, 2008 and September 29, 2007. These financial statements reflect Michael Foods, Inc.
(Corporate), 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.



10



---

Condensed Consolidating Balance Sheets

September 27, 2008

(Unaudited, in Thousands)



|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|------------------------------------------ |  | --------- | ------- | - | --------------------- | - | --------- | ----------------------- |  | - | ------------ | - |  | ------------ | -------- | - |  | - | ---------
|                                           |  | Corporate |         |   | GuarantorSubsidiaries |   |           | Non-GuarantorSubsidiary |  |   | Eliminations |   |  | Consolidated
|Assets                                     |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Current Assets                             |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Cash and equivalents                       |  | $         | 47,638  |   |                       | $ |          |                         |  | $ | 1,852        |   |  | $            |         |   |  | $ | 49,490   
|Accounts receivable, less allowances       |  |           | 3,969   |   |                       |   | 152,025   |                         |  |   | 7,236        |   |  |              | (17,820  | ) |  |   | 145,410  
|Inventories                                |  |           |        |   |                       |   | 127,649   |                         |  |   | 6,251        |   |  |              |         |   |  |   | 133,900  
|Prepaid expenses and other                 |  |           | 2,688   |   |                       |   | 14,769    |                         |  |   | 386          |   |  |              |         |   |  |   | 17,843   
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Total current assets                       |  |           | 54,295  |   |                       |   | 294,443   |                         |  |   | 15,725       |   |  |              | (17,820  | ) |  |   | 346,643  
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Property, Plant and Equipmentnet          |  |           | 11      |   |                       |   | 218,649   |                         |  |   | 12,913       |   |  |              |         |   |  |   | 231,573  
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Other assets:                              |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Goodwill                                   |  |           |        |   |                       |   | 519,890   |                         |  |   | 3,026        |   |  |              |         |   |  |   | 522,916  
|Intangibles and other assets               |  |           | 10,600  |   |                       |   | 203,016   |                         |  |   | 2,410        |   |  |              | (15,059  | ) |  |   | 200,967  
|Investment in subsidiaries                 |  |           | 930,372 |   |                       |   | (1,442    | )                       |  |   |             |   |  |              | (928,930 | ) |  |   |         
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|                                           |  |           | 940,972 |   |                       |   | 721,464   |                         |  |   | 5,436        |   |  |              | (943,989 | ) |  |   | 723,883  
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Total assets                               |  | $         | 995,278 |   |                       | $ | 1,234,556 |                         |  | $ | 34,074       |   |  | $            | (961,809 | ) |  | $ | 1,302,099
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Liabilities and Shareholders Equity       |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Current Liabilities                        |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Current maturities of long-term debt       |  | $         | (434    | ) |                       | $ | 2,721     |                         |  | $ | 1,052        |   |  | $            |         |   |  | $ | 3,339    
|Accounts payable                           |  |           | 157     |   |                       |   | 112,886   |                         |  |   | 4,969        |   |  |              | (17,820  | ) |  |   | 100,192  
|Accrued liabilities                        |  |           | 19,312  |   |                       |   | 73,122    |                         |  |   | 1,429        |   |  |              |         |   |  |   | 93,863   
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Total current liabilities                  |  |           | 19,035  |   |                       |   | 188,729   |                         |  |   | 7,450        |   |  |              | (17,820  | ) |  |   | 197,394  
|Long-term debt, less current maturities    |  |           | 576,249 |   |                       |   | 13,642    |                         |  |   | 25,444       |   |  |              | (18,886  | ) |  |   | 596,449  
|Deferred income taxes                      |  |           | (15,578 | ) |                       |   | 108,540   |                         |  |   | (406         | ) |  |              | 128      |   |  |   | 92,684   
|Other long-term liabilities                |  |           | 20,854  |   |                       |   |          |                         |  |   |             |   |  |              |         |   |  |   | 20,854   
|Shareholders equity                       |  |           | 394,718 |   |                       |   | 923,645   |                         |  |   | 1,586        |   |  |              | (925,231 | ) |  |   | 394,718  
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Total liabilities and shareholders equity |  | $         | 995,278 |   |                       | $ | 1,234,556 |                         |  | $ | 34,074       |   |  | $            | (961,809 | ) |  | $ | 1,302,099
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          



11



---

Condensed Consolidating Balance Sheets

December 29, 2007

(Unaudited, in Thousands)



|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|------------------------------------------ |  | --------- | ------- | - | --------------------- | - | --------- | ----------------------- |  | - | ------------ | - |  | ------------ | -------- | - |  | - | ---------
|                                           |  | Corporate |         |   | GuarantorSubsidiaries |   |           | Non-GuarantorSubsidiary |  |   | Eliminations |   |  | Consolidated
|Assets                                     |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Current Assets                             |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Cash and equivalents                       |  | $         | 28,505  |   |                       | $ |          |                         |  | $ | 1,572        |   |  | $            |         |   |  | $ | 30,077   
|Accounts receivable, less allowances       |  |           | 7,366   |   |                       |   | 136,177   |                         |  |   | 6,654        |   |  |              | (17,275  | ) |  |   | 132,922  
|Inventories                                |  |           |        |   |                       |   | 108,414   |                         |  |   | 6,344        |   |  |              |         |   |  |   | 114,758  
|Prepaid expenses and other                 |  |           | 505     |   |                       |   | 7,134     |                         |  |   | 72           |   |  |              |         |   |  |   | 7,711    
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Total current assets                       |  |           | 36,376  |   |                       |   | 251,725   |                         |  |   | 14,642       |   |  |              | (17,275  | ) |  |   | 285,468  
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Property, Plant and Equipmentnet          |  |           | 14      |   |                       |   | 224,626   |                         |  |   | 14,226       |   |  |              |         |   |  |   | 238,866  
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Other assets:                              |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Goodwill                                   |  |           |        |   |                       |   | 515,238   |                         |  |   | 3,026        |   |  |              |         |   |  |   | 518,264  
|Other assets                               |  |           | 13,563  |   |                       |   | 230,648   |                         |  |   | 2,410        |   |  |              | (15,358  | ) |  |   | 231,263  
|Investment in subsidiaries                 |  |           | 913,370 |   |                       |   | (7,358    | )                       |  |   |             |   |  |              | (906,012 | ) |  |   |         
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|                                           |  |           | 926,933 |   |                       |   | 738,528   |                         |  |   | 5,436        |   |  |              | (921,370 | ) |  |   | 749,527  
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Total assets                               |  | $         | 963,323 |   |                       | $ | 1,214,879 |                         |  | $ | 34,304       |   |  | $            | (938,645 | ) |  | $ | 1,273,861
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Liabilities and Shareholders Equity       |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Current Liabilities                        |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Current maturities of long-term debt       |  | $         | (6,143  | ) |                       | $ | 7,240     |                         |  | $ | 1,382        |   |  | $            |         |   |  | $ | 2,479    
|Accounts payable                           |  |           | 252     |   |                       |   | 102,276   |                         |  |   | 10,166       |   |  |              | (17,275  | ) |  |   | 95,419   
|Accrued liabilities                        |  |           | 18,541  |   |                       |   | 72,873    |                         |  |   | 1,575        |   |  |              |         |   |  |   | 92,989   
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Total current liabilities                  |  |           | 12,650  |   |                       |   | 182,389   |                         |  |   | 13,123       |   |  |              | (17,275  | ) |  |   | 190,887  
|Long-term debt, less current maturities    |  |           | 577,350 |   |                       |   | 14,830    |                         |  |   | 27,358       |   |  |              | (20,234  | ) |  |   | 599,304  
|Deferred income taxes                      |  |           | (8,063  | ) |                       |   | 110,427   |                         |  |   | (215         | ) |  |              | 135      |   |  |   | 102,284  
|Other long-term liabilities                |  |           | 21,297  |   |                       |   |          |                         |  |   |             |   |  |              |         |   |  |   | 21,297   
|Shareholders equity                       |  |           | 360,089 |   |                       |   | 907,233   |                         |  |   | (5,962       | ) |  |              | (901,271 | ) |  |   | 360,089  
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          
|Total liabilities and shareholders equity |  | $         | 963,323 |   |                       | $ | 1,214,879 |                         |  | $ | 34,304       |   |  | $            | (938,645 | ) |  | $ | 1,273,861
|                                           |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |          |   |  |   |          



12



---

Condensed Consolidating Statements of Earnings

Three months ended September 27, 2008

(Unaudited, in Thousands)



|                                                                                  |  |           |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|--------------------------------------------------------------------------------- |  | --------- | ------- | - | --------------------- | - | ------- | ----------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | -------
|                                                                                  |  | Corporate |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiary |  |   | Eliminations |   |  | Consolidated
|Net sales                                                                         |  | $         |        |   |                       | $ | 444,479 |                         |  | $ | 17,912       |   |  | $            | (12,333 | ) |  | $ | 450,058
|Cost of sales                                                                     |  |           |        |   |                       |   | 381,634 |                         |  |   | 14,621       |   |  |              | (12,333 | ) |  |   | 383,922
|                                                                                  |  |           |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Gross profit                                                                      |  |           |        |   |                       |   | 62,845  |                         |  |   | 3,291        |   |  |              |        |   |  |   | 66,136 
|Selling, general and administrative expenses                                      |  |           | 4,258   |   |                       |   | 38,910  |                         |  |   | 973          |   |  |              | (2,491  | ) |  |   | 41,650 
|                                                                                  |  |           |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Operating profit (loss)                                                           |  |           | (4,258  | ) |                       |   | 23,935  |                         |  |   | 2,318        |   |  |              | 2,491   |   |  |   | 24,486 
|Interest expense (income), net                                                    |  |           | 8,434   |   |                       |   | (28     | )                       |  |   | 427          |   |  |              |        |   |  |   | 8,833  
|Other expense (income)                                                            |  |           | (2,491  | ) |                       |   |        |                         |  |   |             |   |  |              | 2,491   |   |  |   |       
|                                                                                  |  |           |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before equity in earnings (loss) of subsidiaries and income taxes |  |           | (10,201 | ) |                       |   | 23,963  |                         |  |   | 1,891        |   |  |              |        |   |  |   | 15,653 
|Equity in earnings (loss) of subsidiaries                                         |  |           | 17,777  |   |                       |   | 2,450   |                         |  |   |             |   |  |              | (20,227 | ) |  |   |       
|                                                                                  |  |           |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before income taxes                                               |  |           | 7,576   |   |                       |   | 26,413  |                         |  |   | 1,891        |   |  |              | (20,227 | ) |  |   | 15,653 
|Income tax expense (benefit)                                                      |  |           | (3,448  | ) |                       |   | 8,636   |                         |  |   | (559         | ) |  |              |        |   |  |   | 4,629  
|                                                                                  |  |           |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Net earnings (loss)                                                               |  | $         | 11,024  |   |                       | $ | 17,777  |                         |  | $ | 2,450        |   |  | $            | (20,227 | ) |  | $ | 11,024 
|                                                                                  |  |           |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |        



13



---

Condensed Consolidating Statements of Earnings

Three months ended September 29, 2007

(Unaudited, in Thousands)



|                                                                                  |  |           |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|--------------------------------------------------------------------------------- |  | --------- | ------- | - | --------------------- | - | ------- | ----------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | -------
|                                                                                  |  | Corporate |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiary |  |   | Eliminations |   |  | Consolidated
|Net sales                                                                         |  | $         |        |   |                       | $ | 374,408 |                         |  | $ | 17,863       |   |  | $            | (11,160 | ) |  | $ | 381,111
|Cost of sales                                                                     |  |           |        |   |                       |   | 313,468 |                         |  |   | 15,676       |   |  |              | (11,160 | ) |  |   | 317,984
|                                                                                  |  |           |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Gross profit                                                                      |  |           |        |   |                       |   | 60,940  |                         |  |   | 2,187        |   |  |              |        |   |  |   | 63,127 
|Selling, general and administrative expenses                                      |  |           | 2,733   |   |                       |   | 36,123  |                         |  |   | 1,173        |   |  |              | (1,924  | ) |  |   | 38,105 
|Plant closing expenses                                                            |  |           |        |   |                       |   |        |                         |  |   | 1,293        |   |  |              |        |   |  |   | 1,293  
|                                                                                  |  |           |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Operating profit (loss)                                                           |  |           | (2,733  | ) |                       |   | 24,817  |                         |  |   | (279         | ) |  |              | 1,924   |   |  |   | 23,729 
|Interest expense (income), net                                                    |  |           | 12,366  |   |                       |   | (234    | )                       |  |   | 512          |   |  |              |        |   |  |   | 12,644 
|Other expense (income)                                                            |  |           | (1,924  | ) |                       |   |        |                         |  |   |             |   |  |              | 1,924   |   |  |   |       
|                                                                                  |  |           |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before equity in earnings (loss) of subsidiaries and income taxes |  |           | (13,175 | ) |                       |   | 25,051  |                         |  |   | (791         | ) |  |              |        |   |  |   | 11,085 
|Equity in earnings (loss) of subsidiaries                                         |  |           | 15,936  |   |                       |   | (749    | )                       |  |   |             |   |  |              | (15,187 | ) |  |   |       
|                                                                                  |  |           |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before income taxes                                               |  |           | 2,761   |   |                       |   | 24,302  |                         |  |   | (791         | ) |  |              | (15,187 | ) |  |   | 11,085 
|Income tax expense (benefit)                                                      |  |           | (4,442  | ) |                       |   | 8,366   |                         |  |   | (42          | ) |  |              |        |   |  |   | 3,882  
|                                                                                  |  |           |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Net earnings (loss)                                                               |  | $         | 7,203   |   |                       | $ | 15,936  |                         |  | $ | (749         | ) |  | $            | (15,187 | ) |  | $ | 7,203  
|                                                                                  |  |           |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |        



14



---

Condensed Consolidating Statements of Earnings

Nine months ended September 27, 2008

(Unaudited, in Thousands)



|                                                                                  |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |         |   |  |   |          
|--------------------------------------------------------------------------------- |  | --------- | ------- | - | --------------------- | - | --------- | ----------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ---------
|                                                                                  |  | Corporate |         |   | GuarantorSubsidiaries |   |           | Non-GuarantorSubsidiary |  |   | Eliminations |   |  | Consolidated
|Net sales                                                                         |  | $         |        |   |                       | $ | 1,302,800 |                         |  | $ | 52,832       |   |  | $            | (35,562 | ) |  | $ | 1,320,070
|Cost of sales                                                                     |  |           |        |   |                       |   | 1,107,226 |                         |  |   | 44,227       |   |  |              | (35,562 | ) |  |   | 1,115,891
|                                                                                  |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |         |   |  |   |          
|Gross profit                                                                      |  |           |        |   |                       |   | 195,574   |                         |  |   | 8,605        |   |  |              |        |   |  |   | 204,179  
|Selling, general and administrative expenses                                      |  |           | 12,208  |   |                       |   | 114,608   |                         |  |   | 2,799        |   |  |              | (6,795  | ) |  |   | 122,820  
|                                                                                  |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |         |   |  |   |          
|Operating profit (loss)                                                           |  |           | (12,208 | ) |                       |   | 80,966    |                         |  |   | 5,806        |   |  |              | 6,795   |   |  |   | 81,359   
|Interest expense (income), net                                                    |  |           | 30,743  |   |                       |   | (30       | )                       |  |   | 1,407        |   |  |              |        |   |  |   | 32,120   
|Other expense (income)                                                            |  |           | (6,795  | ) |                       |   |          |                         |  |   |             |   |  |              | 6,795   |   |  |   |         
|                                                                                  |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |         |   |  |   |          
|Earnings (loss) before equity in earnings (loss) of subsidiaries and income taxes |  |           | (36,156 | ) |                       |   | 80,996    |                         |  |   | 4,399        |   |  |              |        |   |  |   | 49,239   
|Equity in earnings (loss) of subsidiaries                                         |  |           | 59,252  |   |                       |   | 5,914     |                         |  |   |             |   |  |              | (65,166 | ) |  |   |         
|                                                                                  |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |         |   |  |   |          
|Earnings (loss) before income taxes                                               |  |           | 23,096  |   |                       |   | 86,910    |                         |  |   | 4,399        |   |  |              | (65,166 | ) |  |   | 49,239   
|Income tax expense (benefit)                                                      |  |           | (10,454 | ) |                       |   | 27,658    |                         |  |   | (1,515       | ) |  |              |        |   |  |   | 15,689   
|                                                                                  |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |         |   |  |   |          
|Net earnings (loss)                                                               |  | $         | 33,550  |   |                       | $ | 59,252    |                         |  | $ | 5,914        |   |  | $            | (65,166 | ) |  | $ | 33,550   
|                                                                                  |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |         |   |  |   |          



15



---

Condensed Consolidating Statements of Earnings

Nine months ended September 29, 2007

(Unaudited, in Thousands)



|                                                                                  |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |         |   |  |   |          
|--------------------------------------------------------------------------------- |  | --------- | ------- | - | --------------------- | - | --------- | ----------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ---------
|                                                                                  |  | Corporate |         |   | GuarantorSubsidiaries |   |           | Non-GuarantorSubsidiary |  |   | Eliminations |   |  | Consolidated
|Net sales                                                                         |  | $         |        |   |                       | $ | 1,046,406 |                         |  | $ | 47,630       |   |  | $            | (37,051 | ) |  | $ | 1,056,985
|Cost of sales                                                                     |  |           |        |   |                       |   | 874,743   |                         |  |   | 43,428       |   |  |              | (37,051 | ) |  |   | 881,120  
|                                                                                  |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |         |   |  |   |          
|Gross profit                                                                      |  |           |        |   |                       |   | 171,663   |                         |  |   | 4,202        |   |  |              |        |   |  |   | 175,865  
|Selling, general and administrative expenses                                      |  |           | 7,857   |   |                       |   | 105,908   |                         |  |   | 3,346        |   |  |              | (5,448  | ) |  |   | 111,663  
|Plant closing expenses                                                            |  |           |        |   |                       |   |          |                         |  |   | 1,525        |   |  |              |        |   |  |   | 1,525    
|                                                                                  |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |         |   |  |   |          
|Operating profit (loss)                                                           |  |           | (7,857  | ) |                       |   | 65,755    |                         |  |   | (669         | ) |  |              | 5,448   |   |  |   | 62,677   
|Interest expense (income), net                                                    |  |           | 38,534  |   |                       |   | (546      | )                       |  |   | 1,421        |   |  |              |        |   |  |   | 39,409   
|Other expense (income)                                                            |  |           | (5,448  | ) |                       |   |          |                         |  |   |             |   |  |              | 5,448   |   |  |   |         
|                                                                                  |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |         |   |  |   |          
|Earnings (loss) before equity in earnings (loss) of subsidiaries and income taxes |  |           | (40,943 | ) |                       |   | 66,301    |                         |  |   | (2,090       | ) |  |              |        |   |  |   | 23,268   
|Equity in earnings (loss) of subsidiaries                                         |  |           | 42,078  |   |                       |   | (2,070    | )                       |  |   |             |   |  |              | (40,008 | ) |  |   |         
|                                                                                  |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |         |   |  |   |          
|Earnings (loss) before income taxes                                               |  |           | 1,135   |   |                       |   | 64,231    |                         |  |   | (2,090       | ) |  |              | (40,008 | ) |  |   | 23,268   
|Income tax expense (benefit)                                                      |  |           | (13,718 | ) |                       |   | 22,153    |                         |  |   | (20          | ) |  |              |        |   |  |   | 8,415    
|                                                                                  |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |         |   |  |   |          
|Net earnings (loss)                                                               |  | $         | 14,853  |   |                       | $ | 42,078    |                         |  | $ | (2,070       | ) |  | $            | (40,008 | ) |  | $ | 14,853   
|                                                                                  |  |           |         |   |                       |   |           |                         |  |   |              |   |  |              |         |   |  |   |          



16



---

Condensed Consolidating Statements of Cash Flows

Nine months ended September 27, 2008

(Unaudited, in Thousands)



|                                                                  |  |           |        |                       |   |         |                         |  |   |              |   |  |   |         |  
|----------------------------------------------------------------- |  | --------- | ------ | --------------------- | - | ------- | ----------------------- |  | - | ------------ | - |  | - | ------- | -
|                                                                  |  | Corporate |        | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiary |  |   | Consolidated |  
|Net cash provided by operating activities                         |  | $         | 10,424 |                       | $ | 37,365  |                         |  | $ | 1,997        |   |  | $ | 49,786  |  
|Cash flows from investing activities:                             |  |           |        |                       |   |         |                         |  |   |              |   |  |   |         |  
|Capital expenditures                                              |  |           |       |                       |   | (19,032 | )                       |  |   | (895         | ) |  |   | (19,927 | )
|Business acquisition                                              |  |           |       |                       |   | (8,652  | )                       |  |   |             |   |  |   | (8,652  | )
|                                                                  |  |           |        |                       |   |         |                         |  |   |              |   |  |   |         |  
|Net cash used in investing activities                             |  |           |       |                       |   | (27,684 | )                       |  |   | (895         | ) |  |   | (28,579 | )
|Cash flows from financing activities:                             |  |           |        |                       |   |         |                         |  |   |              |   |  |   |         |  
|Payments on long-term debt                                        |  |           |       |                       |   | (1,097  | )                       |  |   | (756         | ) |  |   | (1,853  | )
|Investment from parent                                            |  |           | 125    |                       |   |        |                         |  |   |             |   |  |   | 125     |  
|Investment in subsidiaries                                        |  |           | 8,584  |                       |   | (8,584  | )                       |  |   |             |   |  |   |        |  
|                                                                  |  |           |        |                       |   |         |                         |  |   |              |   |  |   |         |  
|Net cash provided by (used in) financing activities               |  |           | 8,709  |                       |   | (9,681  | )                       |  |   | (756         | ) |  |   | (1,728  | )
|Effect of exchange rate changes on cash                           |  |           |       |                       |   |        |                         |  |   | (66          | ) |  |   | (66     | )
|                                                                  |  |           |        |                       |   |         |                         |  |   |              |   |  |   |         |  
|Net increase in cash and equivalents                              |  |           | 19,133 |                       |   |        |                         |  |   | 280          |   |  |   | 19,413  |  
|Cash and equivalents at beginning of period                       |  |           | 28,505 |                       |   |        |                         |  |   | 1,572        |   |  |   | 30,077  |  
|                                                                  |  |           |        |                       |   |         |                         |  |   |              |   |  |   |         |  
|Cash and equivalents at end of period                             |  | $         | 47,638 |                       | $ |        |                         |  | $ | 1,852        |   |  | $ | 49,490  |  
|                                                                  |  |           |        |                       |   |         |                         |  |   |              |   |  |   |         |  
|Supplemental disclosures:                                         |  |           |        |                       |   |         |                         |  |   |              |   |  |   |         |  
|Non-cash capital investment by parent                             |  | $         | 4,625  |                       | $ |        |                         |  | $ |             |   |  | $ | 4,625   |  
|                                                                  |  |           |        |                       |   |         |                         |  |   |              |   |  |   |         |  
|Reclassification of other assets to property, plant and equipment |  | $         |       |                       | $ | 16,250  |                         |  | $ |             |   |  | $ | 16,250  |  
|                                                                  |  |           |        |                       |   |         |                         |  |   |              |   |  |   |         |  



17



---

Condensed Consolidating Statements of Cash Flows

Nine months ended September 29, 2007

(Unaudited, in Thousands)



|                                                    |  |           |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|--------------------------------------------------- |  | --------- | ------ | - | --------------------- | - | ------- | ----------------------- |  | - | ------------ | - |  | - | ------- | -
|                                                    |  | Corporate |        |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiary |  |   | Consolidated |  
|Net cash provided by operating activities           |  | $         | 22,723 |   |                       | $ | 23,511  |                         |  | $ | 1,679        |   |  | $ | 47,913  |  
|Cash flows from investing activities:               |  |           |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Capital expenditures                                |  |           |       |   |                       |   | (21,147 | )                       |  |   | (183         | ) |  |   | (21,330 | )
|Other assets                                        |  |           | (7     | ) |                       |   | (92     | )                       |  |   |             |   |  |   | (99     | )
|                                                    |  |           |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Net cash used in investing activities               |  |           | (7     | ) |                       |   | (21,239 | )                       |  |   | (183         | ) |  |   | (21,429 | )
|Cash flows from financing activities:               |  |           |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Payments on long-term debt                          |  |           |       |   |                       |   | (325    | )                       |  |   | (1,257       | ) |  |   | (1,582  | )
|Investment from parent                              |  |           | 500    |   |                       |   |        |                         |  |   |             |   |  |   | 500     |  
|Investment in subsidiaries                          |  |           | 1,947  |   |                       |   | (1,947  | )                       |  |   |             |   |  |   |        |  
|                                                    |  |           |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Net cash provided by (used in) financing activities |  |           | 2,447  |   |                       |   | (2,272  | )                       |  |   | (1,257       | ) |  |   | (1,082  | )
|Effect of exchange rate changes on cash             |  |           |       |   |                       |   |        |                         |  |   | 234          |   |  |   | 234     |  
|                                                    |  |           |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Net increase in cash and equivalents                |  |           | 25,163 |   |                       |   |        |                         |  |   | 473          |   |  |   | 25,636  |  
|Cash and equivalents at beginning of period         |  |           | 20,727 |   |                       |   |        |                         |  |   | 849          |   |  |   | 21,576  |  
|                                                    |  |           |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Cash and equivalents at end of period               |  | $         | 45,890 |   |                       | $ |        |                         |  | $ | 1,322        |   |  | $ | 47,212  |  
|                                                    |  |           |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Supplemental disclosures:                           |  |           |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Non-cash capital investment by parent               |  | $         | 4,306  |   |                       | $ |        |                         |  | $ |             |   |  | $ | 4,306   |  
|                                                    |  |           |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Non-cash industrial revenue bond guarantees         |  | $         |       |   |                       | $ | 6,000   |                         |  | $ |             |   |  | $ | 6,000   |  
|                                                    |  |           |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  



18



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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 ingredient 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 growing trend toward food consumption away from home. We believe our operational scale, product breadth and geographic scope make us an attractive and important strategic
partner for our customers.

Commodities and Product Pricing

The principal market risks to which we are exposed that may adversely affect our results of operations and financial position include changes in commodity prices. We seek to minimize or manage these market risks
through normal operating and financing activities and with commodity contracts, where practicable. We do not trade or use instruments with the objective of earning financial gains on the commodity price, nor do we use instruments where we do not
have underlying exposures.

The profit margins we earn on many of our products are sensitive to changes in commodity prices. Generally,
70-75% of the Egg Products Divisions annual net sales come from higher value-added egg products, such as extended shelf-life liquid and precooked products, with the remainder coming from products mainly used in the food ingredients market, or
shell eggs. Gross profit margins for higher value-added egg products are generally less sensitive to commodity price fluctuations, such as in grains used for hen feed and certain externally sourced eggs, than are other egg products or shell eggs;
however, we are unable to adjust product pricing for value-added products as quickly as we are for other egg products and shell eggs when our costs change. Margins for our food ingredient egg products and shell eggs 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. Shell egg pricing, which
is generally indicative of the price trend for external eggs we purchase to convert into liquid, and which often foretells market pricing for an array of egg products, was approximately 53% higher in the first nine months of 2008 than in the
comparable 2007 period (as measured by Urner Barry Publications). Feed costs, determined largely by corn and soybean meal prices, increased approximately 43% year-over-year in the 2008 period.

Crystal Farms derives a majority of its net sales from refrigerated products produced by others. A majority of those sales 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 changes. The national cheese market exhibited continued strength in
the first nine months of 2008, with block cheese prices up 15% year-over-year. Apart from sales of refrigerated products, the balance of Crystal Farms 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% to 95% of its raw potatoes from
contract producers under fixed price 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 and nine month periods ended September 27, 2008.

Three Months Ended
September 27, 2008 as Compared to Three Months Ended September 29, 2007

Net Sales.Net sales for the three months
ended September 27, 2008 increased $69.0 million, or 18%, to $450.1 million from $381.1 million for the three months ended September 29, 2007. The increased sales reflected higher market-related pricing to cover increased costs and
increased volumes.



19



---

Egg Products Division Net Sales.Egg Products Division external net sales for the three months
ended September 27, 2008 increased $52.4 million, or 20%, to $318.9 million from $266.5 million for the three months ended September 29, 2007. External net sales in 2008 increased for all of our egg product categories as compared to 2007.
Pricing increased in all categories, reflecting the continued high egg markets and significantly higher corn and soybean meal markets, resulting in higher market-related pricing. Volume rose in 2008 for our higher value-added product lines, while
the more commodity-based product lines including frozen, dried and short shelf-life liquid items showed declines. Growth was particularly driven by unit volume gains in extended shelf-life liquid, retail and precooked egg products. Overall, the
divisions unit sales increased by 1% in 2008 as compared to 2007, which is down from the growth rate in the first half of 2008.

Potato Products Division Net Sales.Potato Products Division external net sales for the three months ended September 27, 2008 increased $0.5 million, or 2%, to $30.5 million from $30.0 million for the three months ended
September 29, 2007. The divisions unit sales increased 1% in 2008, led by retail unit sales, as compared to 2007, which is down from the growth rate in the first half of 2008. Pricing in 2008 was steady with 2007 levels.

Crystal Farms Net Sales.Crystal Farms external net sales for the three months ended September 27, 2008 increased $16.1 million, or 19%, to
$100.6 million from $84.5 million for the three months ended September 29, 2007. This increase was due primarily to pricing actions taken as a result of significantly higher cheese costs, along with the growth of a national private-label cheese
account. The core branded cheese line net sales and volume growth was 22% and 7%, respectively, year-over-year. Unit sales for distributed products (excluding shell eggs) increased 11% in 2008 as compared to 2007, primarily reflecting significant
growth in branded and private label cheese.

Gross Profit.Gross profit for the three months ended September 27, 2008 increased
$3.0 million, or 5%, to $66.1 million from $63.1 million for the three months ended September 29, 2007. Our gross profit margin decreased to 14.7% in 2008 as compared to 16.6% in 2007. The lower gross profit margin reflected decreased gross
profit margin within the foodservice egg products lines, reflecting increased grain costs which we were unable to fully pass through to our customers in a timely manner. Additionally, we experienced increases in energy, packaging and transportation
costs, which we were not able to fully offset with selective price increases. Offsetting this gross margin pressure was positive gross margin contributions from retail egg products and food ingredient egg products compared to margins from these
products in 2007. Crystal Farms also experienced an increase in gross profit margin mainly due to branded cheese pricing returning to levels in 2008 in-line with cheese costs, in contrast to 2007 when, due to the rapidly increasing cheese costs, our
branded cheese pricing was not in-line with cheese costs.

Selling, General and Administrative Expenses.Selling, general and
administrative expenses for the three months ended September 27, 2008 increased $3.6 million, or 9%, to $41.7 million from $38.1 million for the three months ended September 29, 2007. The increase was mainly due to increases in legal and
compensation costs incurred in 2008, as compared to 2007.

Plant Closing Expenses.In March 2007, we closed our egg products plant
in St. Marys, Ontario. In September 2007, we recorded $1.3 million of asset impairment charges related to plant equipment write-offs.

Operating Profit.Operating profit for the three months ended September 27, 2008 increased $0.8 million, or 3%, to $24.5 million from $23.7 million for the three months ended September 29, 2007, due to the increased gross
profits discussed above.

Egg Products Division Operating Profit.Egg Products Division operating profit for the three months ended
September 27, 2008 increased $0.3 million, or 1%, to $20.6 million from $20.3 million for the three months ended September 29, 2007. Operating profits for foodservice egg products decreased, reflecting higher egg costs due to higher grain
and increased other costs which we were unable to fully pass through to our customers in a timely manner. Offsetting that decline, operating profits improved for food ingredient egg products as a result of product pricing execution. Operating
profits also increased for retail egg products as a result of volume growth.

Potato Products Division Operating Profit.Potato
Products Division operating profit for the three months ended September 27, 2008 decreased $0.9 million, or 20%, to $3.5 million, compared to $4.4 million for the three months ended September 29, 2007. The decrease in operating profit
reflects increased raw material and manufacturing costs. Those cost increases were partially offset by unit volume growth, particularly for our retail potato products, in 2008.

Crystal Farms Operating Profit.Crystal Farms operating profit for the three months ended September 27, 2008 increased $2.9 million, or 171%,
to $4.6 million from $1.7 million for the three months ended September 29, 2007. Operating profits for our key product lines, branded and private-label cheese, increased significantly in 2008, as compared to 2007. The operating profit increase
reflects pricing actions taken and the significant volume growth.



20



---

Interest Expense and Income Taxes.Net interest expense decreased by approximately $3.8 million in
the three months ended September 27, 2008 compared to 2007, reflecting reduced interest rates and a reduction in interest due to a $50 million voluntary debt repayment in the fourth quarter of 2007. Our effective tax rate on earnings before
income taxes was 29.6% in the three months ended September 27, 2008 compared to 35.0% in 2007. The effective rate was affected by the amount of permanent differences between book and taxable income, including the qualified production activities
deduction created by The American Jobs Creation Act of 2004. The rate was also affected by the reversal of unrecognized tax benefits that have expired due to statute of limitations expiration. Additionally, the rate for 2008 was affected by improved
results in one of our foreign subsidiaries, impacting the valuation allowance against their deferred tax assets.

Nine Months Ended September 27,
2008 as Compared to Nine Months Ended September 29, 2007

Net Sales.Net sales for the nine months ended September 27,
2008 increased $263.1 million, or 25%, to $1,320.1 million from $1,057.0 million for the nine months ended September 29, 2007. The increased sales reflected higher market-related pricing to cover increased costs and volume growth.

Egg Products Division Net Sales.Egg Products Division external net sales for the nine months ended September 27, 2008 increased $200.2
million, or 27%, to $939.4 million from $739.2 million for the nine months ended September 29, 2007. External net sales in 2008 increased for all of our egg product categories as compared to 2007. Pricing increased in all categories, reflecting
the continued high egg markets and significantly higher corn and soybean meal markets, resulting in higher market-related pricing. Volume rose in 2008 for our higher value-added lines, while frozen, dried and short shelf-life liquid items showed
declines. Growth was particularly driven by unit volume gains in extended shelf-life liquid, retail and precooked egg products. Overall, the divisions unit sales increased by 2% in 2008, as compared to 2007, but have slowed from a higher
growth rate in the first half of 2008.

Potato Products Division Net Sales.Potato Products Division external net sales for the nine
months ended September 27, 2008 increased $3.3 million, or 4%, to $89.9 million from $86.6 million for the nine months ended September 29, 2007. The divisions unit sales increased 3% in 2008, led by retail unit sales, as compared to
2007 levels, but have slowed from the higher growth rate in the first half of 2008. Pricing in 2008 was steady with 2007 levels.

Crystal Farms Net Sales.Crystal Farms external net sales for the nine months ended September 27, 2008 increased $59.7 million, or 26%, to $290.8 million from $231.1 million for the nine months ended September 29, 2007.
This increase was due primarily to pricing actions taken as a result of significantly higher cheese costs, along with the growth of a national private-label cheese account. The core branded cheese line net sales and volume growth were 23% and 4%,
respectively, year-over-year. Shell egg sales increased 16% in 2008 due to higher market prices despite lower volumes. Unit sales for distributed products (excluding shell eggs) increased 11% in 2008 as compared to 2007, primarily reflecting
significant growth in branded and private-label cheese.

Gross Profit.Gross profit for the nine months ended September 27,
2008 increased $28.3 million, or 16%, to $204.2 million from $175.9 million for the nine months ended September 29, 2007. Our gross profit margin decreased to 15.5% in 2008 as compared to 16.6% in 2007. The lower gross profit margin reflected a
decreased gross profit margin in the Crystal Farms Division reflecting increased cheese costs, mainly in the first-half of 2008, which we were unable to fully pass through to our customers in a timely manner. Offsetting this gross margin pressure
was positive gross margin contribution from food ingredient egg products, retail egg products and shell eggs compared to margins from these products in 2007. We also experienced a decreased gross profit margin within the foodservice egg products
lines, reflecting increased grain costs which we were unable to fully pass through to our customers in a timely manner. Additionally, we experienced increases in energy, packaging and transportation costs, which we were not able to fully offset with
selective price increases.

Selling, General and Administrative Expenses.Selling, general and administrative expenses for the nine
months ended September 27, 2008 increased $11.1 million, or 10%, to $122.8 million from $111.7 million for the nine months ended September 29, 2007. The increase was due to increases in legal and compensation costs incurred in 2008, as
compared to 2007.

Plant Closing Expenses.In March 2007, we closed our plant in St. Marys, Ontario. During the nine months ended
September 29, 2007 we recorded $0.2 million of employee termination costs and $1.3 million of asset impairment charges related to plant equipment write-offs.

Operating Profit.Operating profit for the nine months ended September 27, 2008 increased $18.7 million, or 30%, to $81.4 million from $62.7 million for the nine months ended September 29, 2007, due
to the increased gross profits discussed above.



21



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Egg Products Division Operating Profit.Egg Products Division operating profit for the nine months
ended September 27, 2008 increased $24.8 million, or 50%, to $74.8 million from $50.0 million for the nine months ended September 29, 2007. Operating profits for foodservice egg products decreased, reflecting higher egg costs due to higher
grain and increased other costs which we were unable to fully pass through to our customers in a timely manner. Offsetting that decline, operating profits improved for food ingredient egg products and shell eggs as a result of pricing execution and
high Urner Barry markets. Operating profits also increased for retail egg products as a result of volume growth.

Potato Products
Division Operating Profit.Potato Products Division operating profit for the nine months ended September 27, 2008 decreased $2.5 million, or 21%, to $9.6 million, compared to $12.1 million for the nine months ended September 29, 2007.
The decrease in operating profit reflects increased raw material and manufacturing costs. Those cost increases were partially offset by unit volume growth, particularly for our retail potato products, in 2008.

Crystal Farms Operating Profit.Crystal Farms operating profit for the nine months ended September 27, 2008 increased $0.7 million, or 8%, to
$9.2 million from $8.5 million for the nine months ended September 29, 2007. Operating profits improved due to growth in the private-label cheese category, offset by a decline in our key product line, branded cheese, as compared to 2007, due to
continued high cheese costs, particularly in the first half of 2008, which we were unable to fully pass through to our customers in a timely manner.

Interest Expense and Income Taxes.Net interest expense decreased by approximately $7.3 million in the nine months ended September 27, 2008 period compared to 2007, reflecting reduced interest rates and a
reduction in interest due to a $50 million voluntary debt repayment in the fourth quarter of 2007. Our effective tax rate on earnings before income taxes was 31.9% for the nine months ended September 27, 2008 compared to 36.2% in 2007. The
effective rate was affected by the amount of permanent differences between book and taxable income, including the qualified production activities deduction created by The American Jobs Creation Act of 2004. Additionally, the rate for 2008 was
affected by improved results in one of our foreign subsidiaries, impacting the valuation allowance against their deferred tax assets.

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 maintain our competitive position.

Cash flow provided by operating
activities was $49.8 million for the nine months ended September 27, 2008, compared to $47.9 million in the 2007 period, reflecting higher earnings in 2008. Our cash flows used in investing activities increased to $28.6 million for the nine
months ended September 27, 2008 from $21.4 million for the 2007 period, of which $8.7 million of available cash was used to acquire the assets of Mr. Bs of Abbotsford, Inc. and related entities in January 2008. Cash flows used in
financing activities included payments on long-term debt.

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 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 and the indenture as of September 27, 2008.



22



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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 27, 2008 and September 29, 2007. 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.



|                                                                                         |  |                           |         |   |               |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ------------- | - | ------- | -
|                                                                                         |  | Twelve Months Ended       |        
|                                                                                         |  | September 27,             |         |   | September 29, |  
|                                                                                         |  | 2008                      |         |   | 2007          |  
|                                                                                         |  | (Unaudited, in Thousands) |        
|Calculation of Interest Coverage Ratio:                                                  |  |                           |         |   |               |   |         |  
|Consolidated EBITDA (1)                                                                  |  | $                         | 197,284 |   |               | $ | 175,261 |  
|Consolidated Cash Interest Expense (2)                                                   |  |                           | 41,873  |   |               |   | 51,327  |  
|Actual Interest Coverage Ratio (Ratio of EBITDA to interest expense)                     |  |                           | 4.71    | x |               |   | 3.41    | x
|Minimum Permitted Interest Coverage Ratio                                                |  |                           | 2.75    | x |               |   | 2.50    | x
|Calculation of Leverage Ratio:                                                           |  |                           |         |   |               |   |         |  
|Funded Indebtedness (3)                                                                  |  | $                         | 612,500 |   |               | $ | 664,470 |  
|Less: Cash and equivalents                                                               |  |                           | (49,490 | ) |               |   | (47,212 | )
|                                                                                         |  |                           |         |   |               |   |         |  
|                                                                                         |  | $                         | 563,010 |   |               | $ | 617,258 |  
|Consolidated EBITDA (1)                                                                  |  |                           | 197,284 |   |               |   | 175,261 |  
|Actual Leverage Ratio (Ratio of funded indebtedness less cash and equivalents to EBITDA) |  |                           | 2.85    | x |               |   | 3.52    | x
|Maximum Permitted Leverage Ratio                                                         |  |                           | 4.25    | x |               |   | 4.50    | x



|(1) | Consolidated EBITDA (earnings before interest expense, taxes, depreciation and amortization) is defined in our senior credit facility as follows:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                                       |  |                           |         |   |               |   |        
|-------------------------------------------------------------------------------------- |  | ------------------------- | ------- | - | ------------- | - | -------
|                                                                                       |  | Twelve Months Ended      
|                                                                                       |  | September 27,             |         |   | September 29,
|                                                                                       |  | 2008                      |         |   | 2007         
|                                                                                       |  | (Unaudited, in Thousands)
|Net earnings                                                                           |  | $                         | 46,262  |   |               | $ | 19,444 
|Interest expense, excluding amortization of debt issuance costs                        |  |                           | 40,367  |   |               |   | 49,912 
|Amortization of debt issuance costs                                                    |  |                           | 4,308   |   |               |   | 6,592  
|Income tax expense                                                                     |  |                           | 22,665  |   |               |   | 15,609 
|Depreciation and amortization                                                          |  |                           | 74,832  |   |               |   | 75,467 
|Equity sponsor management fee                                                          |  |                           | 1,825   |   |               |   | 1,763  
|Expenses related to industrial revenue bonds guaranteed by certain of our subsidiaries |  |                           | 979     |   |               |   | 991    
|Other (a)                                                                              |  |                           | 2,657   |   |               |   | 6,246  
|                                                                                       |  |                           |         |   |               |   |        
|                                                                                       |  |                           | 193,895 |   |               |   | 176,024
|Minus: Unrealized gains (losses) on swap contracts                                     |  |                           | (3,389  | ) |               |   | 763    
|                                                                                       |  |                           |         |   |               |   |        
|Consolidated EBITDA, as defined in our senior credit facility                          |  | $                         | 197,284 |   |               | $ | 175,261
|                                                                                       |  |                           |         |   |               |   |        



|(a) | Other reflects the following:
|--- | -----------------------------



|                                                                             |  |                           |       |               |   |      
|---------------------------------------------------------------------------- |  | ------------------------- | ----- | ------------- | - | -----
|                                                                             |  | Twelve Months Ended      
|                                                                             |  | September 27,             |       | September 29,
|                                                                             |  | 2008                      |       | 2007         
|                                                                             |  | (Unaudited, in Thousands)
|Losses from the disposition of assets not in the ordinary course of business |  | $                         |      |               | $ | 4,178
|Non-cash compensation                                                        |  |                           | 2,094 |               |   | 1,451
|Letter of credit fees                                                        |  |                           | 129   |               |   | 139  
|Other non-recurring charges                                                  |  |                           | 434   |               |   | 478  
|                                                                             |  |                           |       |               |   |      
|                                                                             |  | $                         | 2,657 |               | $ | 6,246
|                                                                             |  |                           |       |               |   |      



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|(2) | Consolidated cash interest expense, as calculated in our senior credit facility, was as follows:
|--- | ------------------------------------------------------------------------------------------------



|                                           |  |                           |        |               |   |       
|------------------------------------------ |  | ------------------------- | ------ | ------------- | - | ------
|                                           |  | Twelve Months Ended      
|                                           |  | September 27,             |        | September 29,
|                                           |  | 2008                      |        | 2007         
|                                           |  | (Unaudited, in Thousands)
|Interest expense, net                      |  | $                         | 45,202 |               | $ | 56,388
|Plus: Interest income                      |  |                           | 979    |               |   | 1,531 
|                                           |  |                           |        |               |   |       
|Gross interest expense                     |  |                           | 46,181 |               |   | 57,919
|Minus: Amortization of debt issuance costs |  |                           | 4,308  |               |   | 6,592 
|                                           |  |                           |        |               |   |       
|Consolidated cash interest expense         |  | $                         | 41,873 |               | $ | 51,327
|                                           |  |                           |        |               |   |       



|(3) | Funded Indebtedness was as follows:
|--- | -----------------------------------



|                                                                                     |  |                           |         |               |   |        
|------------------------------------------------------------------------------------ |  | ------------------------- | ------- | ------------- | - | -------
|                                                                                     |  | September 27,             |         | September 29,
|                                                                                     |  | 2008                      |         | 2007         
|                                                                                     |  | (Unaudited, in Thousands)
|Term loan facility                                                                   |  | $                         | 427,300 |               | $ | 477,300
|8% senior subordinated notes                                                         |  |                           | 150,000 |               |   | 150,000
|Insurance bonds                                                                      |  |                           | 1,330   |               |   | 470    
|Guarantee obligations (see debt guarantees described below)                          |  |                           | 19,636  |               |   | 21,106 
|Capital leases                                                                       |  |                           | 4,666   |               |   | 5,768  
|Standby letters of credit (primarily our casualty insurance carrier, Liberty Mutual) |  |                           | 6,574   |               |   | 7,027  
|Funded indebtedness of Trilogy Egg Products, Inc.                                    |  |                           | 2,944   |               |   | 2,749  
|Other                                                                                |  |                           | 50      |               |   | 50     
|                                                                                     |  |                           |         |               |   |        
|                                                                                     |  | $                         | 612,500 |               | $ | 664,470
|                                                                                     |  |                           |         |               |   |        

We use EBITDA as a measurement of our financial results because we believe it is indicative of the
relative strength of our operating performance, it is used to determine incentive compensation levels and it is a key measurement contained in the financial covenants of our senior indebtedness.

As of September 27, 2008, approximately $427.3 million was outstanding under the senior credit facility, and additional capacity of approximately
$6.6 million was used under our $100 million revolving line of credit for outstanding letters of credit. The weighted average interest rate for our borrowings under the senior credit facility was approximately 4.9% at September 27, 2008. The
current Eurodollar loans for the majority of our borrowings under the senior credit facility reset on November 21, 2008 with the remainder resetting on December 19, 2008. 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, and or a significant capital project, which could result in some or all
of the revolving line of credit being utilized at some point.

We have guaranteed, through our Waldbaum subsidiary, the repayment of
certain industrial revenue bonds used for the expansion of the wastewater treatment facilities of three municipalities where we have food processing facilities. In May 2007, a $6.0 million bond financing was completed by one of the three
municipalities, the City of Wakefield, Nebraska, at an annual interest rate of 8.22%, with such proceeds used for the construction of the wastewater treatment facility. The wastewater treatment facility became operational in early 2008. We have
guaranteed the principal and interest payments related to these bonds, which mature September 15, 2017. These bonds, along with the original $10.25 million guaranteed in September 2005, are included in current maturities of long-term debt and
long-term debt. The remaining principal balance for all guaranteed bonds at September 27, 2008 was approximately $19.6 million.

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 27, 2008 was $146.9 million. As a wholly-owned subsidiary of M-Foods Holdings, Inc., we
are responsible for servicing these notes.

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



24



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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 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 senior subordinated 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 senior subordinated notes and our senior credit facility, may limit our ability to pursue any of these alternatives.

We invested approximately $19.9 million in capital expenditures in the nine months ended September 27, 2008. We plan to spend approximately $42
million on capital expenditures in 2008. Our spending continues to focus on expanding capacity for higher value-added products, maintaining existing production facilities, and upgrading information technology systems, among other projects. Our
spending is funded largely from operating cash flows. We expect these investments to improve manufacturing efficiencies, customer service and product quality.

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.

Subject to market conditions and other factors, we and/or our subsidiaries, affiliates and/or significant direct or indirect shareholders from time to
time may repurchase or purchase, as the case may be, all or a portion of our senior subordinated notes, in privately negotiated or open market transactions, by tender offer or otherwise. No assurance can be given as to whether or when, or at what
prices, such repurchases or purchases may occur. Any such repurchases by us and/or our subsidiaries would be limited by certain restrictions found in our credit agreement and in the indenture governing the subordinated notes.

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 and
incremental consumer demand. Generally, Crystal Farms 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 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 was no material change in our market risk during the nine months ended September 27, 2008. 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 29, 2007.

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
officers, 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 27, 2008. Based on these
evaluations, our principal executive and principal financial officer concluded that our disclosure controls and procedures were effective as of September 27, 2008.



25



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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 27, 2008, 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

On March 27, 2008, we received a subpoena from the U.S. Department of Justice, through the U.S. Attorney for the Eastern District of Pennsylvania,
requesting documents for the period of January 1, 2002 through March 27, 2008 relating primarily to the pricing, marketing, and sales of our egg products. On the same date one of our subsidiaries received a related subpoena. We are fully
cooperating with the Department of Justice request.

A number of civil, class-action lawsuits, in reference to the Department of Justice
investigation, have been filed in federal court, all alleging antitrust violations in connection with shell eggs and or processed-egg products. The first of these suits was filed September 24, 2008. As of November 7, 2008, we are aware of
15 such lawsuits where we are named as one of multiple defendants; one of these lawsuits was filed in the District of Minnesota, 13 in the Eastern District of Pennsylvania, and one in the District of New Jersey. Also in reference to the Department
of Justice investigation, we received a Civil Investigative Demand from the Florida Attorney General, issued October 27, 2008, regarding an investigation of the sale of eggs and or egg products.

We cannot predict what, if any, impact these matters and any results from such matters could have on our future results of operations.

ITEM 1A. RISK FACTORS

Readers are directed to our Form
10-K for the year ended December 29, 2007, Item 1A, for a discussion of Risk Factors. We do not believe there have been any material changes to our Risk Factors since that filing.

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
|            | 
|31.2        |  | Certification of Chief Financial Officer



26



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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 10, 2008 |  | By:                 |  | /s/ David S. Johnson                               
|                        |  |                     |  | David S. Johnson                                   
|                        |  |                     |  | (Chief Executive Officer and President)            
|                        |  |                    
|                        |  | By:                 |  | /s/ Mark W. Westphal                               
|                        |  |                     |  | Mark W. Westphal                                   
|                        |  |                     |  | (Chief Financial Officer and Senior Vice President)



27