---



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 June 30, 2004



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 ofincorporation or organization) |  | (I.R.S. EmployerIdentification No.)



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



(952) 258-4000

(Registrants telephone number, including area code)



None

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



---



Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. ̈Yes    x No



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



The number of shares outstanding of the registrants Common Stock, $0.01
par value, as of August 3, 2004, was 3,000 shares.



---



---

PART IFINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



MICHAEL FOODS, INC.

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



CONDENSED
CONSOLIDATED BALANCE SHEETS

(in thousands, except shares)



|                                                                               |  |               |           |   |                  |   |           |  
|------------------------------------------------------------------------------ |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                               |  | June 30, 2004 |           |   | December 31,2003 |  
|                                                                               |  | (unaudited)   |           |   |                  |  
|ASSETS                                                                         |  |               |           |   |                  |   |           |  
|CURRENT ASSETS                                                                 |  |               |           |   |                  |   |           |  
|Cash and equivalents                                                           |  | $             | 75,492    |   |                  | $ | 45,594    |  
|Accounts receivable, less allowances                                           |  |               | 117,520   |   |                  |   | 109,030   |  
|Inventories                                                                    |  |               | 99,423    |   |                  |   | 96,816    |  
|Prepaid expenses and other                                                     |  |               | 7,011     |   |                  |   | 25,327    |  
|                                                                               |  |               |           |   |                  |   |           |  
|Total current assets                                                           |  |               | 299,446   |   |                  |   | 276,767   |  
|PROPERTY, PLANT AND EQUIPMENT                                                  |  |               |           |   |                  |   |           |  
|Land                                                                           |  |               | 4,067     |   |                  |   | 4,067     |  
|Buildings and improvements                                                     |  |               | 107,476   |   |                  |   | 107,516   |  
|Machinery and equipment                                                        |  |               | 226,343   |   |                  |   | 205,150   |  
|                                                                               |  |               |           |   |                  |   |           |  
|                                                                               |  |               | 337,886   |   |                  |   | 316,733   |  
|Less accumulated depreciation                                                  |  |               | 30,194    |   |                  |   | 4,003     |  
|                                                                               |  |               |           |   |                  |   |           |  
|                                                                               |  |               | 307,692   |   |                  |   | 312,730   |  
|OTHER ASSETS                                                                   |  |               |           |   |                  |   |           |  
|Goodwill                                                                       |  |               | 525,035   |   |                  |   | 525,035   |  
|Intangible assets, net                                                         |  |               | 254,575   |   |                  |   | 262,340   |  
|Other assets                                                                   |  |               | 38,494    |   |                  |   | 39,810    |  
|                                                                               |  |               |           |   |                  |   |           |  
|                                                                               |  |               | 818,104   |   |                  |   | 827,185   |  
|                                                                               |  |               |           |   |                  |   |           |  
|                                                                               |  | $             | 1,425,242 |   |                  | $ | 1,416,682 |  
|                                                                               |  |               |           |   |                  |   |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                           |  |               |           |   |                  |   |           |  
|CURRENT LIABILITIES                                                            |  |               |           |   |                  |   |           |  
|Current maturities of long-term debt                                           |  | $             | 5,557     |   |                  | $ | 5,537     |  
|Accounts payable                                                               |  |               | 66,409    |   |                  |   | 71,332    |  
|Accrued liabilities                                                            |  |               |           |   |                  |   |           |  
|Compensation                                                                   |  |               | 13,487    |   |                  |   | 20,335    |  
|Customer programs                                                              |  |               | 42,195    |   |                  |   | 40,582    |  
|Interest                                                                       |  |               | 4,828     |   |                  |   | 4,527     |  
|Other                                                                          |  |               | 29,344    |   |                  |   | 25,578    |  
|                                                                               |  |               |           |   |                  |   |           |  
|Total current liabilities                                                      |  |               | 161,820   |   |                  |   | 167,891   |  
|LONG-TERM DEBT, less current maturities                                        |  |               | 781,740   |   |                  |   | 784,539   |  
|DEFERRED INCOME TAXES                                                          |  |               | 157,714   |   |                  |   | 151,301   |  
|DEFERRED COMPENSATION                                                          |  |               | 26,396    |   |                  |   | 25,413    |  
|COMMITMENTS AND CONTINGENCIES                                                  |  |               |          |   |                  |   |          |  
|SHAREHOLDERS EQUITY                                                           |  |               |           |   |                  |   |           |  
|Common stock, $0.01 par value, 3,000 shares authorized, issued and outstanding |  |               |          |   |                  |   |          |  
|Additional paid-in capital                                                     |  |               | 289,308   |   |                  |   | 289,308   |  
|Retained earnings (accumulated deficit)                                        |  |               | 11,041    |   |                  |   | (4,529    | )
|Accumulated other comprehensive income (loss)                                  |  |               | (2,777    | ) |                  |   | 2,759     |  
|                                                                               |  |               |           |   |                  |   |           |  
|                                                                               |  |               | 297,572   |   |                  |   | 287,538   |  
|                                                                               |  |               |           |   |                  |   |           |  
|                                                                               |  | $             | 1,425,242 |   |                  | $ | 1,416,682 |  
|                                                                               |  |               |           |   |                  |   |           |  



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



I-1



---

MICHAEL FOODS, INC.

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



CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

For the three months ended June 30,

(Unaudited, in thousands)



|                                             |  |             |         |                 |   |         |  
|-------------------------------------------- |  | ----------- | ------- | --------------- | - | ------- | -
|                                             |  | Company2004 |         | Predecessor2003 |  
|Net sales                                    |  | $           | 324,684 |                 | $ | 323,931 |  
|Cost of sales                                |  |             | 267,128 |                 |   | 266,555 |  
|                                             |  |             |         |                 |   |         |  
|Gross profit                                 |  |             | 57,556  |                 |   | 57,376  |  
|Selling, general and administrative expenses |  |             | 33,577  |                 |   | 30,931  |  
|                                             |  |             |         |                 |   |         |  
|Operating profit                             |  |             | 23,979  |                 |   | 26,445  |  
|Other expense (income)                       |  |             | 1,178   |                 |   | (47     | )
|Interest expense, net                        |  |             | 10,781  |                 |   | 12,095  |  
|                                             |  |             |         |                 |   |         |  
|Earnings before income taxes                 |  |             | 12,020  |                 |   | 14,397  |  
|Income tax expense                           |  |             | 4,631   |                 |   | 5,549   |  
|                                             |  |             |         |                 |   |         |  
|Net earnings                                 |  | $           | 7,389   |                 | $ | 8,848   |  
|                                             |  |             |         |                 |   |         |  



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



I-2



---

MICHAEL FOODS, INC.

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



CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

For the six months ended June 30,

(Unaudited, in thousands)



|                                             |  |             |         |                 |   |         |  
|-------------------------------------------- |  | ----------- | ------- | --------------- | - | ------- | -
|                                             |  | Company2004 |         | Predecessor2003 |  
|Net sales                                    |  | $           | 665,296 |                 | $ | 622,144 |  
|Cost of sales                                |  |             | 552,474 |                 |   | 513,853 |  
|                                             |  |             |         |                 |   |         |  
|Gross profit                                 |  |             | 112,822 |                 |   | 108,291 |  
|Selling, general and administrative expenses |  |             | 64,869  |                 |   | 60,331  |  
|                                             |  |             |         |                 |   |         |  
|Operating profit                             |  |             | 47,953  |                 |   | 47,960  |  
|Other expense (income)                       |  |             | 1,072   |                 |   | (13     | )
|Interest expense, net                        |  |             | 21,561  |                 |   | 23,967  |  
|                                             |  |             |         |                 |   |         |  
|Earnings before income taxes                 |  |             | 25,320  |                 |   | 24,006  |  
|Income tax expense                           |  |             | 9,750   |                 |   | 9,259   |  
|                                             |  |             |         |                 |   |         |  
|Net earnings                                 |  | $           | 15,570  |                 | $ | 14,747  |  
|                                             |  |             |         |                 |   |         |  



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



I-3



---

MICHAEL FOODS, INC.

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



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30,

(Unaudited, in thousands)



|                                            |  |             |         |   |                 |   |         |  
|------------------------------------------- |  | ----------- | ------- | - | --------------- | - | ------- | -
|                                            |  | Company2004 |         |   | Predecessor2003 |  
|Net cash provided by operating activities   |  | $           | 53,335  |   |                 | $ | 58,115  |  
|Cash flows from investing activities:       |  |             |         |   |                 |   |         |  
|Capital expenditures                        |  |             | (21,715 | ) |                 |   | (16,359 | )
|Other assets                                |  |             | 283     |   |                 |   |        |  
|                                            |  |             |         |   |                 |   |         |  
|Net cash used in investing activities       |  |             | (21,432 | ) |                 |   | (16,359 | )
|Cash flows from financing activities:       |  |             |         |   |                 |   |         |  
|Payments on long-term debt                  |  |             | (2,849  | ) |                 |   | (38,179 | )
|Proceeds from long-term debt                |  |             | 835     |   |                 |   |        |  
|                                            |  |             |         |   |                 |   |         |  
|Net cash used in financing activities       |  |             | (2,014  | ) |                 |   | (38,179 | )
|Effect of exchange rate changes on cash     |  |             | 9       |   |                 |   | 96      |  
|                                            |  |             |         |   |                 |   |         |  
|Net increase in cash and equivalents        |  |             | 29,898  |   |                 |   | 3,673   |  
|Cash and equivalents at beginning of period |  |             | 45,594  |   |                 |   | 20,572  |  
|                                            |  |             |         |   |                 |   |         |  
|Cash and equivalents at end of period       |  | $           | 75,492  |   |                 | $ | 24,245  |  
|                                            |  |             |         |   |                 |   |         |  



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



I-4



---

MICHAEL FOODS, INC.

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

(Unaudited)



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE AMERGER



On November 20, 2003, Michael Foods, Inc. and its subsidiaries (Michael Foods, Company,
we, us, our) was acquired by an investor group comprised of a management group led by our Chairman, President and Chief Executive Officer, and affiliates of the private equity investment firm Thomas H. Lee
Partners, L.P. (collectively Michael Foods Investors, LLC), through the merger (the Merger) of THL Food Products Holding Co. with and into M-Foods Holdings, Inc., the parent of our predecessor entity, Michael Foods, Inc.
(Minn.) (the Predecessor), with M-Foods Holdings, Inc. (successor holding company) being the continuing entity. Michael Foods, Inc. (Minn.) then merged with and into M-Foods Holdings, Inc. M-Foods Holdings, Inc. continued as the
surviving corporation and was immediately renamed Michael Foods, Inc. (Del.).



Michael Foods, Inc. is a wholly-owned subsidiary of M-Foods Holdings, Inc. (Holdings or Parent; f/k/a THL Food Products Holding Co. ). M-Foods Holdings, Inc. is a wholly-owned subsidiary of
Michael Foods Investors, LLC.



Under the terms of the Merger,
all outstanding shares and stock options were purchased for $1.018 billion ($1,055,000,000, less purchase price adjustments of $47,366,000, in accordance with the Merger agreement, plus direct acquisition costs of $10,788,000) and was financed
through new equity cash contributions of approximately $290,907,000, a senior secured credit facility of up to $595,000,000 (of which $495,000,000 was drawn at the close of the transactions), a senior unsecured term loan of $135,000,000 and
$150,000,000 of 8% senior subordinated notes.



The Merger was
accounted for as a purchase in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations and EITF 88-16, Basis In Leveraged Buyout Transactions. Accordingly, the acquired assets and liabilities
have been recorded at fair value for the interests acquired by new investors and at the carryover basis for continuing investors. As a result, the assets and liabilities were assigned new values, which were part Predecessor cost and part fair value,
in the same proportions as the carryover basis of the residual interests retained by the continuing management investors and the new interests acquired by the affiliates of Thomas H. Lee Partners. The amount of the carryover basis was reflected as a
deemed dividend of $3,551,000.



The following unaudited pro
forma financial information reflects our consolidated results of operations for the six months ended June 30, 2003, as if the Merger had taken place on January 1, 2003. The net sales and net earnings for the six months ended June 30, 2004 represent
actual results for the period.



|             |  |                |         |                 |   |        
|------------ |  | -------------- | ------- | --------------- | - | -------
|             |  | Company2004    |         | Predecessor2003
|             |  | (in thousands)
|Net sales    |  | $              | 665,296 |                 | $ | 529,266
|Net earnings |  |                | 15,570  |                 |   | 7,465  



The most significant
of the pro forma adjustments reflected in the above amounts were to record the incremental interest on the additional debt incurred in connection with the Merger, to record additional depreciation and amortization expense resulting from the fair
value adjustments made to property, plant and equipment and intangible assets, and to remove the Dairy Products Division, which was sold effective September 30, 2003. The pro forma financial information should be read in conjunction with the related
historical information and is not necessarily indicative of the results that would have been obtained had the transaction actually taken place at the beginning of the period presented.



NOTE BSALE OF DAIRY PRODUCTS DIVISION



Effective September 30, 2003, the Predecessor completed the sale of our Dairy Products Division operating segment to Dean Foods Company for
approximately $155 million. The Dairy Products Division processed and sold ice milk and ice cream mixes, creamers, milk and specialty dairy products. In accordance with a transition services agreement, we were compensated for certain transition
services provided to the buyer through February 2004. These transition services included services such as information technology, sales, customer service and procurement. By providing these transition services, the Predecessor was deemed to have
significant continuing involvement in the Dairy Products Division operating segment. Therefore, the Predecessor determined at the time of the sale that the transaction did not meet the accounting criteria for discontinued operations. Accordingly,
the operations of the Dairy Products Division operating segment are included in the Predecessors statement of earnings for the three and six month periods



I-5



---

ended June 30, 2003. External net sales and earnings before income taxes from the Dairy Products Division operating segment for the three months ended June
30, 2003 were $52,276,000 and $3,990,000, respectively, and were $92,878,000 and $5,582,000, for the six months ended June 30, 2003, respectively.



NOTE CBASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS



The accompanying condensed consolidated financial statements have been prepared in accordance with Regulation S-X of the Securities and Exchange
Commission. The financial statements for the period ended June 30, 2003 have been taken from the historical books and records of the Predecessor. 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 quarters ended June 30, 2004 and 2003 each included 13 weeks of operations. For clarity of presentation, we describe both periods as if the quarters ended on June 30th.



In the opinion of management, the unaudited financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the results of operations for the periods indicated. Our results of operations and cash flows for the period ended June 30, 2004 are not necessarily indicative of the results expected for the full year.



FASB Interpretation No. (FIN) 46 as amended by FIN 46 R,
Consolidation of Variable Interest Entitiesan Interpretation of ARB No. 51, as amended, clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to entities in which equity investors do not
have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 R applied immediately to
entities created after December 31, 2003. For variable interest entities created before December 31, 2003, FIN 46 R is effective for the first period beginning after December 15, 2004. The adoption of FIN 46 R did not have any impact on our
financial position or results of operations.



NOTE DOTHER FINANCIAL
STATEMENT DATA



Inventories



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



Inventories consisted of the
following (in thousands):



|                                   |  |              |        |                   |   |       
|---------------------------------- |  | ------------ | ------ | ----------------- | - | ------
|                                   |  | June 30,2004 |        | December 31, 2003
|Raw materials and supplies         |  | $            | 14,860 |                   | $ | 14,702
|Work in process and finished goods |  |              | 61,831 |                   |   | 60,455
|Flocks                             |  |              | 22,732 |                   |   | 21,659
|                                   |  |              |        |                   |   |       
|                                   |  | $            | 99,423 |                   | $ | 96,816
|                                   |  |              |        |                   |   |       



NOTE ECOMMITMENTS AND
CONTINGENCIES



Patent Litigation



We have an exclusive license agreement for a patented process for the
production and sale of extended shelf-life liquid egg products. Under the license agreement, we have the right to defend and prosecute infringement of the underlying patents.



The U.S. Federal Court of Appeals has upheld the validity of the patents on two separate occasions. In 2000, the U.S. Patent
and Trademark Office allowed product claims beyond the process claims previously allowed for the extended shelf-life liquid egg product. These patents are scheduled to expire beginning in 2006.



Litigation related to the infringement of these patents has been settled with
three parties, one in 2000 and two in early 2004. The 2004 settlements aggregated approximately $2.0 million (see ITEM 2Managements Discussion and Analysis of Financial Condition and Results of Operations). A sublicense has been issued
to each of the infringing parties, granting them the right to manufacture and distribute extended shelf-life liquid whole egg products subject to a royalty payable to us on all future product sales. In connection with each of these settlements, lump
sum payments to the Company were made to cover the past production and sale of



I-6



---

such products and other matters related to the infringements. We are appealing a non-infringement decision in our patent litigation against Sunny Fresh
Foods, Inc., a subsidiary of Cargill, Inc.



Other Litigation



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



Other Matter



In March 2003, Belovo S.A., our egg products joint venture in Belgium, in which we hold a 35.63% interest, notified the Belgian governmental health
authorities of a potential processed egg powder contamination issue. In June 2004, Belovo recorded charges related to the write-down of the contaminated inventory. Therefore, we recorded other expenses of $1.2 million related to this write-down
during the quarter ended June 30, 2004. Our investment in Belovo is approximately $2.6 million as of June 30, 2004.



NOTE FCOMPREHENSIVE INCOME



The components of and changes in accumulated other comprehensive income (loss), net of taxes, during the six months ended June 30, 2004 were as follows (in thousands):



|                                                                                                                   |  |                 |        |   |                            |   |        |       |  |   |        |  
|------------------------------------------------------------------------------------------------------------------ |  | --------------- | ------ | - | -------------------------- | - | ------ | ----- |  | - | ------ | -
|                                                                                                                   |  | Cash FlowHedges |        |   | ForeignCurrencyTranslation |   |        | Total | 
|Balance at December 31, 2003                                                                                       |  | $               | 2,430  |   |                            | $ | 329    |       |  | $ | 2,759  |  
|Foreign currency translation adjustment                                                                            |  |                 |       |   |                            |   | (228   | )     |  |   | (228   | )
|Net unrealized change on cash flow hedges                                                                          |  |                 | (5,308 | ) |                            |   |       |       |  |   | (5,308 | )
|                                                                                                                   |  |                 |        |   |                            |   |        |       |  |   |        |  
|Balance at June 30, 2004                                                                                           |  | $               | (2,878 | ) |                            | $ | 101    |       |  | $ | (2,777 | )
|                                                                                                                   |  |                 |        |   |                            |   |        |       |  |   |        |  
|                                                                                                                  
|Comprehensive income, net of taxes, for the six months ended June 30, 2004 and 2003 was as follows (in
thousands): | 
|                                                                                                                   |  |                 |       
|Net income for the six months ended June 30, 2004                                                                  |  |                 |        |   |                            |   |        |       |  | $ | 15,570 |  
|Net losses arising during the period:                                                                              |  |                 |        |   |                            |   |        |       |  |   |        |  
|Net unrealized derivative losses from cash flow hedges                                                             |  |                 |        |   |                            |   | (5,308 | )     |  |   |        |  
|Foreign currency translation adjustment                                                                            |  |                 |        |   |                            |   | (228   | )     |  |   |        |  
|                                                                                                                   |  |                 |        |   |                            |   |        |       |  |   |        |  
|Other comprehensive loss                                                                                           |  |                 |        |   |                            |   |        |       |  |   | (5,536 | )
|                                                                                                                   |  |                 |        |   |                            |   |        |       |  |   |        |  
|Comprehensive income for the six months ended June 30, 2004                                                        |  |                 |        |   |                            |   |        |       |  | $ | 10,034 |  
|                                                                                                                   |  |                 |        |   |                            |   |        |       |  |   |        |  
|Net income for the six months ended June 30, 2003                                                                  |  |                 |        |   |                            |   |        |       |  | $ | 14,747 |  
|Net gains arising during the period:                                                                               |  |                 |        |   |                            |   |        |       |  |   |        |  
|Net unrealized derivative gains from cash flow hedges                                                              |  |                 |        |   |                            |   | 2,326  |       |  |   |        |  
|Foreign currency translation adjustment                                                                            |  |                 |        |   |                            |   | 2,695  |       |  |   |        |  
|                                                                                                                   |  |                 |        |   |                            |   |        |       |  |   |        |  
|Other comprehensive income                                                                                         |  |                 |        |   |                            |   |        |       |  |   | 5,021  |  
|                                                                                                                   |  |                 |        |   |                            |   |        |       |  |   |        |  
|Comprehensive income for the six months ended June 30, 2003                                                        |  |                 |        |   |                            |   |        |       |  | $ | 19,768 |  
|                                                                                                                   |  |                 |        |   |                            |   |        |       |  |   |        |  



I-7



---

NOTE GBUSINESS SEGMENTS



We operate in three reportable segmentsEgg Products, Refrigerated Distribution and Potato Products. See Note B
regarding the sale of the Dairy Products Division operating segment effective September 30, 2003. Certain financial information on our operating segments is as follows (unaudited, in thousands):



|                                  |  |             |         |                          |   |                |  |               |        |           |   |        |       |   |        |   |  |   |        
|--------------------------------- |  | ----------- | ------- | ------------------------ | - | -------------- |  | ------------- | ------ | --------- | - | ------ | ----- | - | ------ | - |  | - | -------
|                                  |  | EGGPRODUCTS |         | REFRIGERATEDDISTRIBUTION |   | POTATOPRODUCTS |  | DAIRYPRODUCTS |        | CORPORATE |   |        | TOTAL
|Company                          
|                                  |  |             |         |                          |   |               
|Three months ended June 30, 2004: |  |             |         |                          |   |                |  |               |        |           |   |        |       |   |        |   |  |   |        
|External net sales                |  | $           | 234,950 |                          | $ | 70,616         |  | $             | 19,118 |           | $ |       |       | $ |       |   |  | $ | 324,684
|Intersegment sales                |  |             | 3,383   |                          |   |               |  |               | 776    |           |   |       |       |   |       |   |  |   | 4,159  
|Operating profit (loss)           |  |             | 22,502  |                          |   | 2,921          |  |               | 875    |           |   |       |       |   | (2,319 | ) |  |   | 23,979 
|Depreciation and amortization     |  |             | 14,020  |                          |   | 1,117          |  |               | 1,821  |           |   |       |       |   | 2      |   |  |   | 16,960 
|Six months ended June 30, 2004:   |  |             |         |                          |   |                |  |               |        |           |   |        |       |   |        |   |  |   |        
|External net sales                |  | $           | 484,713 |                          | $ | 141,939        |  | $             | 38,644 |           | $ |       |       | $ |       |   |  | $ | 665,296
|Intersegment sales                |  |             | 9,418   |                          |   |               |  |               | 1,578  |           |   |       |       |   |       |   |  |   | 10,996 
|Operating profit (loss)           |  |             | 44,309  |                          |   | 6,382          |  |               | 2,055  |           |   |       |       |   | (4,793 | ) |  |   | 47,953 
|Depreciation and amortization     |  |             | 28,055  |                          |   | 2,260          |  |               | 3,644  |           |   |       |       |   | 4      |   |  |   | 33,963 
|                                 
|Predecessor                      
|                                  |  |             |         |                          |   |               
|Three months ended June 30, 2003: |  |             |         |                          |   |                |  |               |        |           |   |        |       |   |        |   |  |   |        
|External net sales                |  | $           | 189,206 |                          | $ | 63,932         |  | $             | 18,517 |           | $ | 52,276 |       | $ |       |   |  | $ | 323,931
|Intersegment sales                |  |             | 3,559   |                          |   |               |  |               | 871    |           |   | 34     |       |   |       |   |  |   | 4,464  
|Operating profit (loss)           |  |             | 17,309  |                          |   | 4,430          |  |               | 1,958  |           |   | 4,753  |       |   | (2,005 | ) |  |   | 26,445 
|Depreciation and amortization     |  |             | 11,235  |                          |   | 731            |  |               | 1,170  |           |   | 887    |       |   | 8      |   |  |   | 14,031 
|Six months ended June 30, 2003:   |  |             |         |                          |   |                |  |               |        |           |   |        |       |   |        |   |  |   |        
|External net sales                |  | $           | 367,774 |                          | $ | 125,279        |  | $             | 36,213 |           | $ | 92,878 |       | $ |       |   |  | $ | 622,144
|Intersegment sales                |  |             | 6,833   |                          |   |               |  |               | 1,766  |           |   | 62     |       |   |       |   |  |   | 8,661  
|Operating profit (loss)           |  |             | 32,569  |                          |   | 8,902          |  |               | 3,583  |           |   | 6,560  |       |   | (3,654 | ) |  |   | 47,960 
|Depreciation and amortization     |  |             | 22,438  |                          |   | 1,439          |  |               | 2,340  |           |   | 2,200  |       |   | 15     |   |  |   | 28,432 



NOTE HSUPPLEMENTAL GUARANTOR
FINANCIAL INFORMATION



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



The following condensed consolidating financial information presents our
condensed consolidating balance sheets at June 30, 2004 and December 31, 2003, together with our condensed consolidating statements of earnings for the three and six month periods ended June 30, 2004 and cash flows for the six months ended June 30,
2004 and statements of earnings of the Predecessor for the three month and six month periods ended June 30, 2003 and cash flows for the six months ended June 30, 2003. These financial statements reflect Michael Foods, Inc., the parent, the wholly
owned guarantor subsidiaries (on a combined basis), the non-guarantor subsidiary (MFI Food Canada Ltd.), and elimination entries necessary to combine such entities on a consolidated basis.



I-8



---

Company

Condensed Consolidating Balance Sheets

June 30, 2004

(Unaudited, in thousands)



|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|------------------------------------------ |  | ------ | --------- | - | --------------------- | - | --------- | ----------------------- |  | - | ------------ | - |  | ------------ | ---------- | - |  | - | ---------
|                                           |  | Parent |           |   | GuarantorSubsidiaries |   |           | Non-GuarantorSubsidiary |  |   | Eliminations |   |  | Consolidated
|Assets                                     |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Current Assets                             |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Cash and equivalents                       |  | $      | 74,742    |   |                       | $ | (1,467    | )                       |  | $ | 2,217        |   |  | $            |           |   |  | $ | 75,492   
|Accounts receivable, less allowances       |  |        | 51        |   |                       |   | 115,164   |                         |  |   | 8,459        |   |  |              | (6,154     | ) |  |   | 117,520  
|Inventories                                |  |        |          |   |                       |   | 91,058    |                         |  |   | 8,365        |   |  |              |           |   |  |   | 99,423   
|Prepaid expenses and other                 |  |        | 1,064     |   |                       |   | 5,676     |                         |  |   | 271          |   |  |              |           |   |  |   | 7,011    
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Total current assets                       |  |        | 75,857    |   |                       |   | 210,431   |                         |  |   | 19,312       |   |  |              | (6,154     | ) |  |   | 299,446  
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Property, plant and equipmentnet          |  |        | 30        |   |                       |   | 287,879   |                         |  |   | 19,783       |   |  |              |           |   |  |   | 307,692  
|Other assets                               |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Goodwill                                   |  |        |          |   |                       |   | 522,009   |                         |  |   | 3,026        |   |  |              |           |   |  |   | 525,035  
|Other assets                               |  |        | 36,373    |   |                       |   | 275,026   |                         |  |   |             |   |  |              | (18,330    | ) |  |   | 293,069  
|Investment in subsidiaries                 |  |        | 984,868   |   |                       |   | 4,106     |                         |  |   |             |   |  |              | (988,974   | ) |  |   |         
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|                                           |  |        | 1,021,241 |   |                       |   | 801,141   |                         |  |   | 3,026        |   |  |              | (1,007,304 | ) |  |   | 818,104  
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Total assets                               |  | $      | 1,097,128 |   |                       | $ | 1,299,451 |                         |  | $ | 42,121       |   |  | $            | (1,013,458 | ) |  | $ | 1,425,242
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Liabilities and Shareholders Equity       |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Current Liabilities                        |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Current maturities of long-term debt       |  | $      | 4,950     |   |                       | $ | 33        |                         |  | $ | 574          |   |  | $            |           |   |  | $ | 5,557    
|Accounts payable                           |  |        | 380       |   |                       |   | 63,440    |                         |  |   | 9,107        |   |  |              | (6,518     | ) |  |   | 66,409   
|Accrued liabilities                        |  |        | 16,072    |   |                       |   | 72,290    |                         |  |   | 1,492        |   |  |              |           |   |  |   | 89,854   
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Total current liabilities                  |  |        | 21,402    |   |                       |   | 135,763   |                         |  |   | 11,173       |   |  |              | (6,518     | ) |  |   | 161,820  
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Long-term debt, less current maturities    |  |        | 772,625   |   |                       |   | 186       |                         |  |   | 27,786       |   |  |              | (18,857    | ) |  |   | 781,740  
|Deferred income taxes                      |  |        | (20,867   | ) |                       |   | 178,634   |                         |  |   | (53          | ) |  |              |           |   |  |   | 157,714  
|Deferred compensation                      |  |        | 26,396    |   |                       |   |          |                         |  |   |             |   |  |              |           |   |  |   | 26,396   
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Total liabilities                          |  |        | 799,556   |   |                       |   | 314,583   |                         |  |   | 38,906       |   |  |              | (25,375    | ) |  |   | 1,127,670
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Shareholders equity                       |  |        | 297,572   |   |                       |   | 984,868   |                         |  |   | 3,215        |   |  |              | (988,083   | ) |  |   | 297,572  
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Total liabilities and shareholders equity |  | $      | 1,097,128 |   |                       | $ | 1,299,451 |                         |  | $ | 42,121       |   |  | $            | (1,013,458 | ) |  | $ | 1,425,242
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          



I-9



---

Company

Condensed Consolidating Balance Sheets

December 31, 2003



|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|------------------------------------------ |  | ------ | --------- | - | --------------------- | - | --------- | ----------------------- |  | - | ------------ | - |  | ------------ | ---------- | - |  | - | ---------
|                                           |  | Parent |           |   | GuarantorSubsidiaries |   |           | Non-GuarantorSubsidiary |  |   | Eliminations |   |  | Consolidated
|Assets                                     |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Current Assets                             |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Cash and equivalents                       |  | $      | 52,201    |   |                       | $ | (7,915    | )                       |  | $ | 1,308        |   |  | $            |           |   |  | $ | 45,594   
|Accounts receivable, less allowances       |  |        | 136       |   |                       |   | 105,795   |                         |  |   | 9,822        |   |  |              | (6,723     | ) |  |   | 109,030  
|Inventories                                |  |        |          |   |                       |   | 86,706    |                         |  |   | 10,110       |   |  |              |           |   |  |   | 96,816   
|Prepaid expenses and other                 |  |        | 13,517    |   |                       |   | 10,864    |                         |  |   | 946          |   |  |              |           |   |  |   | 25,327   
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Total current assets                       |  |        | 65,854    |   |                       |   | 195,450   |                         |  |   | 22,186       |   |  |              | (6,723     | ) |  |   | 276,767  
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Property, plant and equipmentnet          |  |        | 14        |   |                       |   | 292,068   |                         |  |   | 20,648       |   |  |              |           |   |  |   | 312,730  
|Other assets                               |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Goodwill                                   |  |        |          |   |                       |   | 522,009   |                         |  |   | 3,026        |   |  |              |           |   |  |   | 525,035  
|Other assets                               |  |        | 37,519    |   |                       |   | 283,672   |                         |  |   |             |   |  |              | (19,041    | ) |  |   | 302,150  
|Investment in subsidiaries                 |  |        | 980,300   |   |                       |   | 3,695     |                         |  |   |             |   |  |              | (983,995   | ) |  |   |         
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|                                           |  |        | 1,017,819 |   |                       |   | 809,376   |                         |  |   | 3,026        |   |  |              | (1,003,036 | ) |  |   | 827,185  
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Total assets                               |  | $      | 1,083,687 |   |                       | $ | 1,296,894 |                         |  | $ | 45,860       |   |  | $            | (1,009,759 | ) |  | $ | 1,416,682
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Liabilities and Shareholders Equity       |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Current Liabilities                        |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Current maturities of long-term debt       |  | $      | 4,950     |   |                       | $ | 33        |                         |  | $ | 554          |   |  | $            |           |   |  | $ | 5,537    
|Accounts payable                           |  |        | 3,406     |   |                       |   | 62,728    |                         |  |   | 11,912       |   |  |              | (6,714     | ) |  |   | 71,332   
|Accrued liabilities                        |  |        | 17,374    |   |                       |   | 72,176    |                         |  |   | 1,472        |   |  |              |           |   |  |   | 91,022   
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Total current liabilities                  |  |        | 25,730    |   |                       |   | 134,937   |                         |  |   | 13,938       |   |  |              | (6,714     | ) |  |   | 167,891  
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Long-term debt, less current maturities    |  |        | 775,100   |   |                       |   | 202       |                         |  |   | 27,994       |   |  |              | (18,757    | ) |  |   | 784,539  
|Deferred income taxes                      |  |        | (30,094   | ) |                       |   | 181,455   |                         |  |   | (60          | ) |  |              |           |   |  |   | 151,301  
|Deferred compensation                      |  |        | 25,413    |   |                       |   |          |                         |  |   |             |   |  |              |           |   |  |   | 25,413   
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Total liabilities                          |  |        | 796,149   |   |                       |   | 316,594   |                         |  |   | 41,872       |   |  |              | (25,471    | ) |  |   | 1,129,144
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Shareholders equity                       |  |        | 287,538   |   |                       |   | 980,300   |                         |  |   | 3,988        |   |  |              | (984,288   | ) |  |   | 287,538  
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          
|Total liabilities and shareholders equity |  | $      | 1,083,687 |   |                       | $ | 1,296,894 |                         |  | $ | 45,860       |   |  | $            | (1,009,759 | ) |  | $ | 1,416,682
|                                           |  |        |           |   |                       |   |           |                         |  |   |              |   |  |              |            |   |  |   |          



I-10



---

Company

Condensed Consolidating Statements of Earnings

Three months ended June 30, 2004

(Unaudited, in thousands)



|                                                                                  |  |        |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ----------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                                                  |  | Parent |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiary |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                                                         |  | $      |        |   |                       | $ | 317,854 |                         |  | $ | 19,172       |   |  | $            | (12,342 | ) |  | $ | 324,684 |  
|Cost of sales                                                                     |  |        |        |   |                       |   | 262,898 |                         |  |   | 16,572       |   |  |              | (12,342 | ) |  |   | 267,128 |  
|                                                                                  |  |        |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |         |  
|Gross profit                                                                      |  |        |        |   |                       |   | 54,956  |                         |  |   | 2,600        |   |  |              |        |   |  |   | 57,556  |  
|Selling, general and administrative expenses                                      |  |        | 2,319   |   |                       |   | 30,499  |                         |  |   | 2,001        |   |  |              | (1,242  | ) |  |   | 33,577  |  
|                                                                                  |  |        |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |         |  
|Operating profit (loss)                                                           |  |        | (2,319  | ) |                       |   | 24,457  |                         |  |   | 599          |   |  |              | 1,242   |   |  |   | 23,979  |  
|Interest expense, net                                                             |  |        | 10,063  |   |                       |   | 281     |                         |  |   | 437          |   |  |              |        |   |  |   | 10,781  |  
|Other income (expense)                                                            |  |        | 1,242   |   |                       |   | (1,178  | )                       |  |   |             |   |  |              | (1,242  | ) |  |   | (1,178  | )
|                                                                                  |  |        |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |         |  
|Earnings (loss) before equity in earnings (loss) of subsidiaries and income taxes |  |        | (11,140 | ) |                       |   | 22,998  |                         |  |   | 162          |   |  |              |        |   |  |   | 12,020  |  
|Equity in earnings (loss) of subsidiaries                                         |  |        | 13,687  |   |                       |   | (1      | )                       |  |   |             |   |  |              | (13,686 | ) |  |   |        |  
|                                                                                  |  |        |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |         |  
|Earnings (loss) before income taxes                                               |  |        | 2,547   |   |                       |   | 22,997  |                         |  |   | 162          |   |  |              | (13,686 | ) |  |   | 12,020  |  
|Income tax expense (benefit)                                                      |  |        | (4,842  | ) |                       |   | 9,310   |                         |  |   | 163          |   |  |              |        |   |  |   | 4,631   |  
|                                                                                  |  |        |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |         |  
|Net earnings (loss)                                                               |  | $      | 7,389   |   |                       | $ | 13,687  |                         |  | $ | (1           | ) |  | $            | (13,686 | ) |  | $ | 7,389   |  
|                                                                                  |  |        |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |         |  



I-11



---

Company

Condensed Consolidating Statements of Earnings

Six months ended June 30, 2004

(Unaudited, in thousands)



|                                                                                  |  |        |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ----------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                                                  |  | Parent |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiary |  |   | Eliminations |   |  | Consolidated |        
|Net sales                                                                         |  | $      |        |   |                       | $ | 649,573 |                         |  | $ | 37,667       |   |  | $            | (21,944 | ) |  | $ | 665,296 |  
|Cost of sales                                                                     |  |        |        |   |                       |   | 540,956 |                         |  |   | 33,462       |   |  |              | (21,944 | ) |  |   | 552,474 |  
|                                                                                  |  |        |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |         |  
|Gross profit                                                                      |  |        |        |   |                       |   | 108,617 |                         |  |   | 4,205        |   |  |              |        |   |  |   | 112,822 |  
|Selling, general and administrative expenses                                      |  |        | 4,793   |   |                       |   | 59,119  |                         |  |   | 3,631        |   |  |              | (2,674  | ) |  |   | 64,869  |  
|                                                                                  |  |        |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |         |  
|Operating profit (loss)                                                           |  |        | (4,793  | ) |                       |   | 49,498  |                         |  |   | 574          |   |  |              | 2,674   |   |  |   | 47,953  |  
|Interest expense, net                                                             |  |        | 20,127  |   |                       |   | 582     |                         |  |   | 852          |   |  |              |        |   |  |   | 21,561  |  
|Other income (expense)                                                            |  |        | 2,674   |   |                       |   | (1,072  | )                       |  |   |             |   |  |              | (2,674  | ) |  |   | (1,072  | )
|                                                                                  |  |        |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |         |  
|Earnings (loss) before equity in earnings (loss) of subsidiaries and income taxes |  |        | (22,246 | ) |                       |   | 47,844  |                         |  |   | (278         | ) |  |              |        |   |  |   | 25,320  |  
|Equity in earnings (loss) of subsidiaries                                         |  |        | 28,525  |   |                       |   | (439    | )                       |  |   |             |   |  |              | (28,086 | ) |  |   |        |  
|                                                                                  |  |        |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |         |  
|Earnings (loss) before income taxes                                               |  |        | 6,279   |   |                       |   | 47,405  |                         |  |   | (278         | ) |  |              | (28,086 | ) |  |   | 25,320  |  
|Income tax expense (benefit)                                                      |  |        | (9,291  | ) |                       |   | 18,880  |                         |  |   | 161          |   |  |              |        |   |  |   | 9,750   |  
|                                                                                  |  |        |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |         |  
|Net earnings (loss)                                                               |  | $      | 15,570  |   |                       | $ | 28,525  |                         |  | $ | (439         | ) |  | $            | (28,086 | ) |  | $ | 15,570  |  
|                                                                                  |  |        |         |   |                       |   |         |                         |  |   |              |   |  |              |         |   |  |   |         |  



I-12



---

Predecessor

Condensed Consolidating Statements of Earnings

Three months ended June 30, 2003

(Unaudited, in thousands)



|                                                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |              |         |   |  |   |        
|--------------------------------------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | -------
|                                                                                  |  | Parent |         |   | GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated
|Net sales                                                                         |  | $      |        |   |                       | $ | 276,086                   |  | $ | 52,309       |   |  | $            | (4,464  | ) |  | $ | 323,931
|Cost of sales                                                                     |  |        |        |   |                       |   | 225,811                   |  |   | 45,598       |   |  |              | (4,854  | ) |  |   | 266,555
|                                                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |              |         |   |  |   |        
|Gross profit                                                                      |  |        |        |   |                       |   | 50,275                    |  |   | 6,711        |   |  |              | 390     |   |  |   | 57,376 
|Selling, general and administrative expenses                                      |  |        | 2,005   |   |                       |   | 27,504                    |  |   | 2,705        |   |  |              | (1,283  | ) |  |   | 30,931 
|                                                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |              |         |   |  |   |        
|Operating profit (loss)                                                           |  |        | (2,005  | ) |                       |   | 22,771                    |  |   | 4,006        |   |  |              | 1,673   |   |  |   | 26,445 
|Interest expense, net                                                             |  |        | 11,277  |   |                       |   | 802                       |  |   | 16           |   |  |              |        |   |  |   | 12,095 
|Other income (expense)                                                            |  |        | 1,229   |   |                       |   | 47                        |  |   |             |   |  |              | (1,229  | ) |  |   | 47     
|                                                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before equity in earnings (loss) of subsidiaries and income taxes |  |        | (12,053 | ) |                       |   | 22,016                    |  |   | 3,990        |   |  |              | 444     |   |  |   | 14,397 
|Equity in earnings (loss) of subsidiaries                                         |  |        | 15,826  |   |                       |   | 3,990                     |  |   | (3,990       | ) |  |              | (15,826 | ) |  |   |       
|                                                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before income taxes                                               |  |        | 3,773   |   |                       |   | 26,006                    |  |   |             |   |  |              | (15,382 | ) |  |   | 14,397 
|Income tax expense (benefit)                                                      |  |        | (4,631  | ) |                       |   | 10,180                    |  |   |             |   |  |              |        |   |  |   | 5,549  
|                                                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |              |         |   |  |   |        
|Net earnings (loss)                                                               |  | $      | 8,404   |   |                       | $ | 15,826                    |  | $ |             |   |  | $            | (15,382 | ) |  | $ | 8,848  
|                                                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |              |         |   |  |   |        



I-13



---

Predecessor

Condensed Consolidating Statements of Earnings

Six months ended June 30, 2003

(Unaudited, in thousands)



|                                                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |              |         |   |  |   |        
|--------------------------------------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | -------
|                                                                                  |  | Parent |         |   | GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries |  |   | Eliminations |   |  | Consolidated
|Net sales                                                                         |  | $      |        |   |                       | $ | 537,866                   |  | $ | 92,939       |   |  | $            | (8,661  | ) |  | $ | 622,144
|Cost of sales                                                                     |  |        |        |   |                       |   | 440,932                   |  |   | 81,972       |   |  |              | (9,051  | ) |  |   | 513,853
|                                                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |              |         |   |  |   |        
|Gross profit                                                                      |  |        |        |   |                       |   | 96,934                    |  |   | 10,967       |   |  |              | 390     |   |  |   | 108,291
|Selling, general and administrative expenses                                      |  |        | 3,655   |   |                       |   | 53,811                    |  |   | 5,356        |   |  |              | (2,491  | ) |  |   | 60,331 
|                                                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |              |         |   |  |   |        
|Operating profit (loss)                                                           |  |        | (3,655  | ) |                       |   | 43,123                    |  |   | 5,611        |   |  |              | 2,881   |   |  |   | 47,960 
|Interest expense, net                                                             |  |        | 22,317  |   |                       |   | 1,621                     |  |   | 29           |   |  |              |        |   |  |   | 23,967 
|Other income (expense)                                                            |  |        | 2,437   |   |                       |   | 13                        |  |   |             |   |  |              | (2,437  | ) |  |   | 13     
|                                                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before equity in earnings (loss) of subsidiaries and income taxes |  |        | (23,535 | ) |                       |   | 41,515                    |  |   | 5,582        |   |  |              | 444     |   |  |   | 24,006 
|Equity in earnings (loss) of subsidiaries                                         |  |        | 28,787  |   |                       |   | 5,582                     |  |   | (5,582       | ) |  |              | (28,787 | ) |  |   |       
|                                                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before income taxes                                               |  |        | 5,252   |   |                       |   | 47,097                    |  |   |             |   |  |              | (28,343 | ) |  |   | 24,006 
|Income tax expense (benefit)                                                      |  |        | (9,051  | ) |                       |   | 18,310                    |  |   |             |   |  |              |        |   |  |   | 9,259  
|                                                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |              |         |   |  |   |        
|Net earnings (loss)                                                               |  | $      | 14,303  |   |                       | $ | 28,787                    |  | $ |             |   |  | $            | (28,343 | ) |  | $ | 14,747 
|                                                                                  |  |        |         |   |                       |   |                           |  |   |              |   |  |              |         |   |  |   |        



I-14



---

Company

Condensed Consolidating Statements of Cash Flows

Six months ended June 30, 2004

(Unaudited, in thousands)



|                                                    |  |        |         |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|--------------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ----------------------- |  | - | ------------ | - |  | - | ------- | -
|                                                    |  | Parent |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiary |  |   | Consolidated |  
|Net cash provided by operating activities           |  | $      | 34,496  |   |                       | $ | 17,615  |                         |  | $ | 1,224        |   |  | $ | 53,335  |  
|Cash flows from investing activities:               |  |        |         |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Capital expenditures                                |  |        | (20     | ) |                       |   | (20,893 | )                       |  |   | (802         | ) |  |   | (21,715 | )
|Investments in joint ventures and other assets      |  |        | 124     |   |                       |   | 159     |                         |  |   |             |   |  |   | 283     |  
|                                                    |  |        |         |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Net cash provided by (used in) investing activities |  |        | 104     |   |                       |   | (20,734 | )                       |  |   | (802         | ) |  |   | (21,432 | )
|Cash flows from financing activities:               |  |        |         |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Payments on long-term debt                          |  |        | (2,475  | ) |                       |   | (17     | )                       |  |   | (357         | ) |  |   | (2,849  | )
|Proceeds from long-term debt                        |  |        |        |   |                       |   |        |                         |  |   | 835          |   |  |   | 835     |  
|Investment in subsidiaries                          |  |        | (9,584  | ) |                       |   | 9,584   |                         |  |   |             |   |  |   |        |  
|                                                    |  |        |         |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Net cash provided by (used in) financing activities |  |        | (12,059 | ) |                       |   | 9,567   |                         |  |   | 478          |   |  |   | (2,014  | )
|Effect of exchange rate changes on cash             |  |        |        |   |                       |   |        |                         |  |   | 9            |   |  |   | 9       |  
|                                                    |  |        |         |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Net increase in cash and equivalents                |  |        | 22,541  |   |                       |   | 6,448   |                         |  |   | 909          |   |  |   | 29,898  |  
|Cash and equivalents at beginning of period         |  |        | 52,201  |   |                       |   | (7,915  | )                       |  |   | 1,308        |   |  |   | 45,594  |  
|                                                    |  |        |         |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Cash and equivalents at end of period               |  | $      | 74,742  |   |                       | $ | (1,467  | )                       |  | $ | 2,217        |   |  | $ | 75,492  |  
|                                                    |  |        |         |   |                       |   |         |                         |  |   |              |   |  |   |         |  



I-15



---

Predecessor

Condensed Consolidating Statements of Cash Flows

Six months ended June 30, 2003

(Unaudited, in thousands)



|                                                |  |        |         |   |                       |   |         |                           |  |   |              |   |  |   |         |  
|----------------------------------------------- |  | ------ | ------- | - | --------------------- | - | ------- | ------------------------- |  | - | ------------ | - |  | - | ------- | -
|                                                |  | Parent |         |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiaries |  |   | Consolidated |  
|Net cash provided by operating activities       |  | $      | 17,193  |   |                       | $ | 31,782  |                           |  | $ | 9,140        |   |  | $ | 58,115  |  
|Cash flows from investing activities:           |  |        |         |   |                       |   |         |                           |  |   |              |   |  |   |         |  
|Capital expenditures                            |  |        |        |   |                       |   | (11,665 | )                         |  |   | (4,694       | ) |  |   | (16,359 | )
|                                                |  |        |         |   |                       |   |         |                           |  |   |              |   |  |   |         |  
|Net cash used in investing activities           |  |        |        |   |                       |   | (11,665 | )                         |  |   | (4,694       | ) |  |   | (16,359 | )
|Cash flows from financing activities:           |  |        |         |   |                       |   |         |                           |  |   |              |   |  |   |         |  
|Payments on long-term debt                      |  |        | (35,417 | ) |                       |   | (362    | )                         |  |   | (2,400       | ) |  |   | (38,179 | )
|Distribution to preferred unit holders          |  |        |        |   |                       |   | 2,046   |                           |  |   | (2,046       | ) |  |   |        |  
|Investment in subsidiaries                      |  |        | 24,973  |   |                       |   | (24,973 | )                         |  |   |             |   |  |   |        |  
|                                                |  |        |         |   |                       |   |         |                           |  |   |              |   |  |   |         |  
|Net cash used in financing activities           |  |        | (10,444 | ) |                       |   | (23,289 | )                         |  |   | (4,446       | ) |  |   | (38,179 | )
|Effect of exchange rate changes on cash         |  |        |        |   |                       |   | 96      |                           |  |   |             |   |  |   | 96      |  
|                                                |  |        |         |   |                       |   |         |                           |  |   |              |   |  |   |         |  
|Net increase (decrease) in cash and equivalents |  |        | 6,749   |   |                       |   | (3,076  | )                         |  |   |             |   |  |   | 3,673   |  
|Cash and equivalents at beginning of period     |  |        | 19,665  |   |                       |   | 907     |                           |  |   |             |   |  |   | 20,572  |  
|                                                |  |        |         |   |                       |   |         |                           |  |   |              |   |  |   |         |  
|Cash and equivalents at end of period           |  | $      | 26,414  |   |                       | $ | (2,169  | )                         |  | $ |             |   |  | $ | 24,245  |  
|                                                |  |        |         |   |                       |   |         |                           |  |   |              |   |  |   |         |  



I-16



---

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 industrial 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. Our strategic focus on value-added processing of food products is designed to capitalize on key food industry trends, such as (i) the desire for improved safety and convenience, (ii) the focus by foodservice operators on reducing labor
and waste, and (iii) the growth of food consumption away from home. In recent years, our net sales and operating profit, excluding transaction expenses, have each increased as a result of our focus on value-added products, combined with favorable
food industry trends, such as an increasing percentage of the total annual spending on food in the U.S. being devoted to eating away from home.



Effective September 30, 2003, our predecessor reporting entity, Michael Foods, Inc. (Minn.), completed the sale of our Dairy Products Division to Dean
Foods Company for approximately $155 million. In accordance with a transition services agreement, we were compensated for certain transition services we provided to the buyer through February 2004. These transition services included services such as
information technology, sales, customer service and procurement. We determined that the sale did not meet the accounting criteria for discontinued operations. Accordingly, the results of operations of the Dairy Products Division are
included in the Predecessors statements of operations for the three and six month periods ended June 30, 2003.



Commodities and Product Pricing



The profit margins we earn on certain of our products are sensitive to changes in commodity prices. Value-added egg products, such as extended shelf-life
liquid and precooked products, typically account for approximately 55%-60% of the Egg Products Divisions annual net sales. Although gross profit margins for these egg products are less sensitive to commodity price fluctuations than are other
egg products or shell eggs, we are also unable to adjust pricing for these products as quickly as our costs change. The remainder of the products sold by our Egg Products Division are mainly used in the industrial ingredients market, or are shell
eggs, and are more commodity price-sensitive than are higher value-added product sales. Gross profit from shell eggs is primarily dependent upon the relationship between shell egg prices and the cost of feed, both of which can fluctuate
significantly. Graded shell egg pricing in the first half of 2004 was significantly higher than in the first half of 2003 as measured by Urner Barry Publications, which also significantly raised industrial egg products prices. Feed costs also rose
significantly year-over-year.



The Refrigerated Distribution
Division derives approximately 80% of its net sales from refrigerated products produced by others, thereby somewhat reducing the effects of commodity price swings. However, a majority of the approximately 80% represents cheese and butter, and the
costs for both fluctuate with national dairy markets. Time lags between cost changes for these lines and wholesale/retail pricing changes can result in significant margin expansion or compression. The balance of Refrigerated Distribution 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 typically purchases 60%-95% of its raw potatoes from contract producers under annual contracts. The remainder is purchased at
market prices to satisfy short-term production requirements or to take advantage of market prices when they are lower than contracted prices. Moderate variations in the purchase price of raw materials or the selling price per pound of finished
products can have a significant effect on Potato Products Division operating results.



Inflation is not expected to have a significant impact on our business. We have generally been able to offset the impact of inflation through a combination of productivity gains and price increases.



THREE MONTHS ENDED JUNE 30, 2004 AS COMPARED TO
PREDECESSORS THREE MONTHS ENDED JUNE 30, 2003



Results of Operations



Readers are directed to Note GBusiness Segments for
data on the unaudited financial results of our business segments for the three months ended June 30, 2004 and the Predecessors three months ended June 30, 2003.



Net Sales.Net sales for the three months ended June 30, 2004 increased $0.8 million, or approximately 0.2%,
to $324.7 million from $323.9 million for the three months ended June 30, 2003, reflecting increased sales in our three continuing business segments that more than offset the loss of sales from our Dairy Products Division. The strongest divisional
sales growth occurred in the Egg



I-17



---

Products Division, which recorded a 24% external net sales increase. External net sales growth of 3% and 10% was recorded by the Potato Products and
Refrigerated Distribution divisions, respectively.



Egg
Products Division Net Sales.Egg Products Division external net sales for the three months ended June 30, 2004 increased $45.7 million, or 24%, to $234.9 million from $189.2 million for the three months ended June 30, 2003. External net
sales increased for all product lines, with particular strength in extended shelf-life liquid egg products, egg substitutes, hardcooked products, and dried products. Unit sales for egg products increased by 7% in the 2004 period compared to the 2003
period. Consistent with our strategy to emphasize value-added egg product sales and diminish commodity sensitive sales, shell egg unit sales declined by 34% in the 2004 period compared to the 2003 period. Egg market pricing remained strong in the
second quarter of 2004, continuing a trend which began in mid-2003. During the 2004 period, shell egg prices were approximately 7% higher than in the 2003 period, as reported by Urner Barry Publications, resulting in better pricing for
market-sensitive products such as frozen, dried and short shelf-life liquid egg products. Sales of higher value-added egg products represented approximately 57% of the Egg Products Divisions external net sales in both the 2004 period and 2003
period.



Refrigerated Distribution Division Net Sales.Refrigerated Distribution Division external net sales for the three months ended June 30, 2004 increased $6.7 million, or 10%, to $70.6 million from $63.9 million for the three months ended June 30, 2003. This increase was due, in part, to
higher unit sales for cheese. However, overall distributed products unit sales declined 4% in the 2004 period compared to the 2003 period. Shell egg unit sales declined due to the closing of a distribution center and the impact of high retail
prices. Inflation contributed to the divisional sales increase, with record high market prices prevailing for cheese and butter. There was an approximate 80% increase in the average selling price of butter compared to the 2003 period.



Potato Products Division Net Sales.Potato Products Division external
net sales for the three months ended June 30, 2004 increased $0.6 million, or 3%, to $19.1 million from $18.5 million for the three months ended June 30, 2003. This increase was attributable to strong unit sales growth for foodservice potato
products, which increased approximately 9% from 2003 period levels. Retail unit sales decreased by approximately 1%. We believe the popularity of low-carbohydrate diets affected the demand for our retail potato products. Mashed items continued to
show notable growth in both the foodservice and retail markets. Pricing of our retail products declined slightly year-over-year, but was stable for our foodservice products.



Dairy Products Division Net Sales.The Dairy Products Division was sold effective late September 2003 (see Note B to
our consolidated financial statements). Hence, for the 2004 period we had no sales from this division.



Gross Profit.Gross profit for the three months ended June 30, 2004 increased $0.2 million, or approximately 0.3%, to $57.6 million from $57.4
million for the three months ended June 30, 2003. Dairy Products gross profits were absent due to that divisions sale. Our gross profit margin was unchanged compared to the 2003 period at 17.7%. The stable gross profit margin reflected an
increased gross profit margin from Egg Products operations, which offset decreases in the gross profit margins of our Refrigerated Distribution and Potato Products operations. Improved industrial egg products prices offset higher egg and feed costs
in the 2004 period compared to the 2003 period. The increased costs reflected higher open market and market-based contracted egg prices, and higher grain prices. A reduced national milk supply diminished the supply of cheese and butter, raising
prices for these items. Normal delays in passing along increased raw material costs reduced the gross profit margin for the Refrigerated Distribution Division in the 2004 period. Potato Products gross profit margin declined in the 2004 period as a
result of a change in sales mix, with the lower margin foodservice sector contributing a greater portion of sales than in the 2003 period. Additionally, depreciation is higher in the 2004 period compared to the 2003 period due to acquisition
accounting valuations of our fixed assets related to the Merger.



Selling, General and Administrative Expenses.Selling, general and administrative expenses for the three months ended June 30, 2004 increased $2.7 million, or 9%, to $33.6 million from $30.9 million for the three months ended June
30, 2003. Selling, general and administrative expenses increased to 10.3% of net sales in the 2004 period compared with 9.5% for the 2003 period. During the 2004 period we recorded costs associated with our exchange offer of the 8% Senior
Subordinated Notes. Salaries, wages and employee benefits costs increased year-over-year as well. Additionally, amortization is significantly higher in the 2004 period compared to the 2003 period due to acquisition accounting valuation of our
customer relationship intangible assets related to the Merger.



Operating Profit.Operating profit for the three months ended June 30, 2004 decreased $2.5 million, or approximately 9%, to $24.0 million from $26.5 million for the three months ended June 30, 2003. This
decrease is primarily attributable to the absence of Dairy Products Division operating profit in the 2004 period and the increase in operating expenses noted above. The Dairy Products Division had seasonally strong operating profits of $4.8million
in the second quarter of 2003. Our operating profit margin declined to 7.4% in the 2004 period from 8.2% in the 2003 period, due to the absence of the Dairy Products Divisions impact and the higher expense level as a percentage of net
sales.



Egg Products Division Operating
Profit.Egg Products Division operating profit for the three months ended June 30, 2004 increased $5.2 million, or 30%, to $22.5 million from $17.3 million for the three months ended June 30, 2003. Operating profits for



I-18



---

higher value-added egg products decreased due to a significant increase in egg costs. However, operating profits from other egg products, such as dried and
short shelf-life products, rose to significant levels from a small loss in the 2003 period, reflecting significantly improved market-driven pricing. Shell egg profitability in the 2004 period declined from 2003 period levels, reflecting flat pricing
and higher feed costs. We also recorded an Other Expense item of approximately $1.2 million in the 2004 period related to our investment in Belovo S.A., a Belgium-based egg products company (see Note E-Commitments and Contingencies-Other Matter).



Refrigerated Distribution Division Operating Profit.Refrigerated Distribution Division operating profit for the three months ended June 30, 2004 decreased $1.5 million, or 34%, to $2.9 million from $4.4 million for the three months ended June 30, 2003. Operating profits for our key product line,
cheese, declined in the 2004 period due to significantly increased cheese sourcing costs, which were not reflected in our wholesale selling prices. Delays in passing changes in product costs on to customers are common for the Division.



Potato Products Division Operating Profit.Potato
Products Division operating profit for the three months ended June 30, 2004 decreased $1.1 million, or 55%, to $0.9 million from $2.0 million for the three months ended June 30, 2003. This decrease reflected a small loss in the foodservice business
in the 2004 period, compared to modest profitability in the 2003 period. Also, relatively flat sales volumes and higher costs in our more profitable retail operations resulted in a decrease in that sectors profitability.



Dairy Products Division Operating Profit.The Dairy Products Division
was sold effective late September 2003 (see Note B to our consolidated financial statements). Hence, for the 2004 period we had no operating profits from this division.



Interest Expense.Interest expense declined by approximately $1.3 million in the 2004 period compared to the 2003
period, reflecting lower interest rates and reduced amortization of deferred financing costs. Our tax rate was 38.5% in both the 2004 and 2003 periods.



SIX MONTHS ENDED JUNE 30, 2004 AS COMPARED TO PREDECESSORS SIX MONTHS ENDED JUNE 30, 2003



Results of Operations



Readers are directed to Note GBusiness Segments for data on the unaudited financial results of our business segments
for the six months ended June 30, 2004 and the Predecessors six months ended June 30, 2003.



Net Sales.Net sales for the six months ended June 30, 2004 increased $43.2 million, or approximately 7%, to $665.3 million from $622.1 million for
the six months ended June 30, 2003. This increase was primarily attributable to sales growth in the Egg Products Division, which recorded a 32% external net sales increase. External net sales growth of 7% and 13% was recorded by the Potato Products
and Refrigerated Distribution divisions, respectively. The collective sales increases of the continuing business segments more than offset the loss of sales from our Dairy Products Division.



Egg Products Division Net Sales.Egg Products Division external net
sales for the six months ended June 30, 2004 increased $116.9 million, or 32%, to $484.7 million from $367.8 million for the six months ended June 30, 2003. External net sales increased for all egg products lines, with particular strength in
extended shelf-life liquid egg products, egg substitutes, hardcooked products, dried products and short shelf-life liquid eggs. Unit sales for egg products increased by 11% in the 2004 period compared to the 2003 period. Consistent with our strategy
to emphasize value-added egg product sales and diminish commodity sensitive sales, shell egg unit sales declined by 37% in the 2004 period compared to the 2003 period. Egg market prices were strong in the first half of 2004, continuing a trend which
began in mid-2003. During the 2004 period, shell egg prices were approximately 27% higher than in the 2003 period, as reported by Urner Barry Publications, resulting in notably better prices for market-sensitive products such as frozen, dried and
short shelf-life liquid egg products, as well as shell eggs. Sales of higher value-added egg products represented approximately 55% of the Egg Products Divisions external net sales in the 2004 period compared with 58% in the 2003 period. The
increased contribution of lower value-added, or industrial, products reflected the impact of a significantly stronger pricing environment for market-sensitive egg products, whereas higher value-added lines are affected to a lesser extent, if at all,
by egg market prices.



Refrigerated Distribution Division
Net Sales.Refrigerated Distribution Division external net sales for the six months ended June 30, 2004 increased $16.6 million, or 13%, to $141.9 million from $125.3 million for the six months ended June 30, 2003. This increase was due, in
part, to higher unit sales for cheese. Overall, distributed products unit sales were nearly unchanged in the 2004 period compared to the 2003 period. Shell egg unit sales declined due to the closing of a distribution center and the impact of high
retail prices. Inflation contributed to the divisional sales increase, with higher market prices prevailing for cheese and butter. There was an approximate 60% increase in the average selling price of butter compared to the 2003
period.



I-19



---

Potato Products Division Net Sales.Potato Products Division external net sales for the six months
ended June 30, 2004 increased $2.4 million, or 7%, to $38.6 million from $36.2 million for the six months ended June 30, 2003. This increase was primarily attributable to strong unit sales growth for foodservice potato products, which increased
approximately 11% from 2003 period levels. Retail unit sales increased by approximately 3%. Sales to new customers, growth in sales to existing customers and new product introductions all contributed to the sales increase, with mashed potato
products showing the greatest growth in both the foodservice and retail markets. Pricing was stable in the foodservice market and down slightly in the retail market.



Dairy Products Division Net Sales.The Dairy Products Division was sold effective late September 2003 (see Note B to
our consolidated financial statements). Hence, for the 2004 period we had no sales from this division.



Gross Profit.Gross profit for the six months ended June 30, 2004 increased $4.5 million, or approximately 4%, to $112.8 million from $108.3
million for the six months ended June 30, 2003. Dairy Products gross profits were absent due to that divisions sale. Our gross profit margin was 17.0% for the 2004 period, compared with 17.4% for the 2003 period. The decrease in gross profit
margin was due to decreased gross profit margins in all three divisions. Egg and feed costs were higher in the 2004 period than in the 2003 period, reflecting significantly higher open market and market-based contracted egg costs, and higher grain
costs. A reduced national milk supply diminished the supply of cheese and butter, raising prices for these items. Normal delays in passing along increased raw material costs reduced gross profit margins for the Egg Products and Refrigerated
Distribution divisions in the 2004 period. Potato Products gross profit margin declined in the 2004 period as a result of a change in sales mix, with the lower margin foodservice sector contributing a greater portion of sales than in the 2003
period. Additionally, depreciation is higher in the 2004 period compared to the 2003 period due to acquisition accounting valuations of our fixed assets related to the Merger.



Selling, General and Administrative Expenses.Selling, general and administrative expenses for the six months ended
June 30, 2004 increased $4.6 million, or 8%, to $64.9 million from $60.3 million for the six months ended June 30, 2003. Selling, general and administrative expenses increased to 9.8% of net sales in the 2004 period compared with 9.7% for the 2003
period. During the 2004 period we recorded costs associated with our exchange offer on the 8.5% Senior Subordinated Notes. Salaries, wages and employee benefits costs increased year-over-year as well. Additionally, amortization is significantly
higher in the 2004 period compared to the 2003 period due to acquisition accounting valuation of our customer relationship intangible assets related to the Merger.



Operating Profit.Operating profit remained unchanged at $48.0 million for the six months ended June 30, 2004 and
2003. This was due to the absence of Dairy Products operating profit in the 2004 period and the increase in operating expenses noted above. The Dairy Products operations had $6.6 million in operating profits in the 2003 period. The operating profit
margin declined to 7.2% in the 2004 period from 7.7% in the 2003 period, due to the gross profit margin decline and the higher expense level as a percentage of net sales.



Egg Products Division Operating Profit.Egg Products Division operating profit for the six months ended June 30, 2004
increased $11.7 million, or 36%, to $44.3 million from $32.6 million for the six months ended June 30, 2003. Operating profits for higher value-added egg products decreased due to a sharp increase in egg costs. However, operating profits from other
egg products, such as dried and short shelf-life products, rose to significant levels from a collective loss in the 2003 period, reflecting much improved market-driven pricing. Shell egg profitability in the 2004 period rose significantly from 2003
period levels, reflecting significantly higher Urner Barry pricing levels. The 2004 period included approximately $2.0 million related to amounts received under patent infringement settlements and the 2003 period included approximately $1.0 million
related to a partial litigation settlement received. We also had Other Expense of approximately $1.1 million in the 2004 period related to our investment in Belovo S.A.



Refrigerated Distribution Division Operating Profit.Refrigerated Distribution Division operating profit for the six
months ended June 30, 2004 decreased $2.5 million, or 28%, to $6.4 million from $8.9 million for the six months ended June 30, 2003. Operating profits for our key product line, cheese, declined in the 2004 period due to significantly increased
cheese sourcing costs, which were not reflected in our wholesale selling prices. Delays in passing changes in product costs on to customers are common for the Division.



Potato Products Division Operating Profit.Potato Products Division operating profit for the six months ended June
30, 2004 decreased $1.5 million, or 42%, to $2.1 million from $3.6 million for the six months ended June 30, 2003. This decrease reflected a loss in the foodservice business in the 2004 period, compared to break-even levels in the 2003 period. Also,
modest volume growth and higher spending in the retail market resulted in a decrease in that sectors profitability.



Dairy Products Division Operating Profit.The Dairy Products Division was sold effective late September 2003 (see Note B to our consolidated
financial statements). Hence, for the 2004 period we had no operating profits from this division.



Interest Expense.Interest expense declined by approximately $2.4 million in the 2004 period compared to the 2003 period, reflecting lower interest
rates and reduced amortization of deferred financing costs. Our tax rate was 38.5% in the 2004 period compared to 38.6% in the 2003 period.



I-20



---

Liquidity and Capital Resources



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



Cash flow provided by operating activities was $53.3 million for the first six months of 2004, compared to $58.1 million for the Predecessor in the comparable 2003 period. The decrease in cash flow provided by
operating activities relates primarily to increased working capital in the 2004 period, with higher accounts receivable and inventories recorded as of June 30, 2004 as compared to such levels at June 30, 2003. Our cash flows used in investment
activities increased to $21.4 million for the first six months of 2004 from $16.4 million for the Predecessor in the comparable 2003 period mainly as a result of increased capital expenditures. Cash flows used in financing activities declined to
$2.0 million from $38.2 million year-over-year as a result of changes in our debt repayments arising from the refinancing undertaken in connection the Merger in November 2003.



In connection with the Merger, we incurred approximately $780.0 million of long-term debt, including $495.0 million of
borrowings under our senior credit facility, $135.0 million of borrowings under a senior unsecured term loan facility and $150.0 million from the issuance of 8% senior subordinated notes due 2013. The senior credit facility that we entered into in
connection with the Merger currently provides a $100.0 million revolving credit facility maturing in 2009 and a $495.0 million term loan facility maturing in 2010. The senior unsecured term loan facility of $135.0 million matures in 2011.



As a result of the Merger, we continue to have substantial
annual cash interest expense. Our senior credit facility requires us to meet a minimum interest coverage ratio and a maximum leverage ratio. In addition, the senior credit facility, the senior unsecured term loan facility and the indenture relating
to the 8% senior subordinated notes due 2013 contain certain restrictive covenants which, among other things, limit the incurrence of additional indebtedness, investments, dividends, transactions with affiliates, asset sales, acquisitions, mergers
and consolidations, prepayments of other indebtedness, liens and encumbrances and other matters customarily restricted in these agreements. Our failure to comply with these covenants could result in an event of default, which if not cured or waived
could have a material adverse effect on our results of operations, financial position and cash flow. In general, the debt covenants limit our discretion in the operation of our businesses. We were in compliance with all of the covenants under the
senior credit facility, the senior unsecured term loan agreement, and the indenture as of June 30, 2004.



The following is a calculation of our minimum interest coverage and maximum leverage ratios under our senior credit facility for the twelve-month period
ended June 30, 2004. The terms and related calculations are defined in our senior credit facility, which agreement was included as Exhibit 10.1 of our registration statement on Form S-4 (Registration No. 333-112714) filed on February 11, 2004 (in
thousands, except ratios).



|                                          |  |   |         |  
|----------------------------------------- |  | - | ------- | -
|Calculation of Interest Coverage Ratio:   |  |   |         |  
|Consolidated EBITDA(1)                    |  | $ | 175,881 |  
|Consolidated cash interest expense(2)     |  |   | 41,634  |  
|Actual Interest Coverage Ratio(3)         |  |   | 4.22x   |  
|Minimum Permitted Interest Coverage Ratio |  |   | 2.10x   |  
|Calculation of Leverage Ratio:            |  |   |         |  
|Consolidated Funded Indebtedness          |  | $ | 800,983 |  
|Less: Cash and equivalents                |  |   | (75,492 | )
|                                          |  |   |         |  
|                                          |  |   | 725,491 |  
|Consolidated EBITDA(1)                    |  |   | 175,881 |  
|Actual Leverage Ratio(4)                  |  |   | 4.12x   |  
|Maximum Permitted Leverage Ratio          |  |   | 5.95x   |  



I-21



---

---

|(1) | Consolidated EBITDA, as defined in our senior credit facility, for the twelve-month period
ended June 30, 2004, was as follows (in thousands):
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------



|                                                                 |  |   |         |  
|---------------------------------------------------------------- |  | - | ------- | -
|Net earnings (loss)                                              |  | $ | (21,856 | )
|Interest expense, excluding amortization of debt issuance costs  |  |   | 37,322  |  
|Amortization of debt issuance costs                              |  |   | 6,112   |  
|Income tax expense                                               |  |   | (13,742 | )
|Depreciation and amortization                                    |  |   | 60,024  |  
|Equity sponsor management fee(a)                                 |  |   | 1,429   |  
|Industrial revenue bonds related expenses(b)                     |  |   | 815     |  
|Other non-recurring charges related to acquisition accounting(c) |  |   | 7,643   |  
|Transaction expenses(d)                                          |  |   | 22,838  |  
|Loss on early extinguishment of debt                             |  |   | 61,226  |  
|Loss on Dairy Division disposition                               |  |   | 16,288  |  
|Dairy Division net earnings                                      |  |   | (2,814  | )
|Income tax expense related to Dairy Division                     |  |   | (1,770  | )
|Corporate costs allocated to the Dairy Division                  |  |   | (775    | )
|Other(e)                                                         |  |   | 3,141   |  
|                                                                 |  |   |         |  
|Consolidated EBITDA, as defined in our senior credit facility    |  | $ | 175,881 |  
|                                                                 |  |   |         |  

---

|(a) | Reflects management fees paid to our equity sponsor, THL Managers V, LLC from the completion of the Merger in November 2003 through June 30, 2004 and to our former
equity sponsors, Vestar Capital Partners and Goldner, Hawn, Johnson and Morrison Incorporated, prior to the Merger.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Reflects fees associated with industrial revenue bonds guaranteed by our M. G. Waldbaum
subsidiary.
|--- | ---------------------------------------------------------------------------------------------------



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



|(d) | Reflects expenses incurred in connection with the Merger.
|--- | ---------------------------------------------------------



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



|                                                        |  |   |      
|------------------------------------------------------- |  | - | -----
|Equity (earnings) losses of unconsolidated subsidiaries |  | $ | 1,566
|Preferred return on deferred compensation               |  |   | 1,215
|Letter of credit fees                                   |  |   | 162  
|Other                                                   |  |   | 198  
|                                                        |  |   |      
|                                                        |  | $ | 3,141
|                                                        |  |   |      



|(2) | Consolidated cash interest expense for the twelve-month period ended June 30, 2004, as
calculated in our senior credit facility, was as follows (in thousands):
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                                      |  |   |       
|--------------------------------------------------------------------- |  | - | ------
|Interest expense, net (six months ended June 30, 2004)                |  | $ | 21,561
|Interest income                                                       |  |   | 276   
|                                                                      |  |   |       
|Gross interest expense                                                |  |   | 21,837
|Minus:                                                                |  |   |       
|Fees and expenses associated with the consummation of the transaction |  |   | 1,020 
|                                                                      |  |   |       
|                                                                      |  | $ | 20,817
|                                                                      |  |   |       
|                                                                      |  |   | X 2   
|                                                                      |  |   |       
|Consolidated cash interest expense                                    |  | $ | 41,634
|                                                                      |  |   |       



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



|(4) | Represents ratio of consolidated funded indebtedness, less cash and equivalents, to
consolidated EBITDA.
|--- | --------------------------------------------------------------------------------------------------------



I-22



---

As of June 30, 2004, (i) approximately $492.5 million was outstanding under the senior credit facility,
and additional capacity of approximately $6.5 million was used under the revolving line of credit for letters of credit, and (ii) a $135.0 million senior unsecured term loan was outstanding. The weighted average interest rate for our borrowings
under the senior credit facility and the unsecured term loan was approximately 4.0% at June 30, 2004. Given our business trends and cash flow forecast, we do not anticipate any use of the revolving line of credit in 2004, except for letters of
credit purposes. However, it is possible that one or more acquisitions could arise, which could result in much of the revolving line of credit being utilized at some point.



We have guaranteed, through our Waldbaum subsidiary, the repayment of three industrial revenue bonds used for expansions of
wastewater treatment facilities of three municipalities where we operate food processing plants. The repayment of these bonds is funded through the wastewater treatment fees we pay. Should such fees be insufficient to fund the bond payments as they
become due, we have agreed to pay any shortfall. The principal balance of these bonds as of June 30, 2004 was approximately $6.3 million.



Our ability to make payments on and to refinance our debt, including the notes, and to fund planned capital expenditures will depend on our ability to
generate sufficient cash in the future. This, to some extent, is subject to general economic, financial, competitive and other factors that are beyond our control. We believe that, based on current levels of operations, we will be able to meet our
debt service obligations when due. Significant assumptions underlie this belief, including, among other things, that we will continue to be successful in implementing our business strategy and that there will be no material adverse developments in
our business, liquidity or capital requirements. If our future cash flows from operations and other capital resources are insufficient to pay our obligations as they mature or to fund our liquidity needs, we may be forced to reduce or delay our
business activities and capital expenditures, sell assets, obtain additional debt or equity capital or restructure or refinance all or a portion of our debt, including the notes, on or before maturity. We cannot assure our investors that we would be
able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all. In addition, the terms of our existing and future indebtedness, including the notes, our senior credit facility and our senior unsecured term loan
may limit our ability to pursue any of these alternatives.



We
invested approximately $21.7 million in capital expenditures in the first half of 2004. We plan to spend approximately $40.0 million in total capital expenditures for 2004, which will be used to expand our value-added egg products capacity
(approximately $15.0 million), maintain existing production facilities and expand production capacity for certain other products, such as potato and cheese products. We expect to fund this spending from operating cash flows.



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



Seasonality



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



Forward-looking Statements



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



I-23



---

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



There were no material changes in our market risk during the six months
ended June 30, 2004. For additional information regarding our market risk, please refer to Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our 2003 annual report on Form 10-K for the year ended December 31, 2003.



ITEM 4. CONTROLS AND PROCEDURES



a. Evaluation of disclosure controls and procedures.



Our management evaluated, with the participation of our principal executive
and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of June 30, 2004.
Based on these evaluations, our principal executive and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2004.



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 June 30, 2004, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



I-24



---

PART IIOTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



None.



ITEM 2. CHANGES IN 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 AND REPORTS ON FORM 8-K



(a) Exhibits and Exhibit Index.



The following exhibits are filed as part of this report:



EXHIBIT INDEX



|            |  |                                                                                                   
|----------- |  | --------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                       
|31.1        |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|            | 
|31.2        |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|            | 
|32.1        |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|            | 
|32.2        |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

---

(b) Reports on Form 8-K



Reference is made to a report filed on Form 8-K dated May 6, 2004 pertaining to our financial
results for the three months ended March 31, 2004.



Reference is made to a
report filed on Form 8-K dated August 2, 2004 pertaining to our financial results for the three months and six months ended June 30, 2004.



II-1



---

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: August 3, 2004 |  |  |  | By:                 |  | /s/    GREGG A. OSTRANDER
|                     |  |  |  |                     |  |                           |  | Gregg A. Ostrander                                    
|                     |  |  |  |                     |  |                           |  | (Chairman, Chief Executive Officer and President)     
|                     |  |  | 
|                     |  |  |  | By:                 |  | /s/     JOHN D. REEDY    
|                     |  |  |  |                     |  |                           |  | John D. Reedy                                         
|                     |  |  |  |                     |  |                           |  | (Executive Vice President and Chief Financial Officer)



II-2