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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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(Mark One)

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



For the quarterly period ended June 30, 2005



or



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



For the transition period  from
 to



Commission File Number: 333-112714



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MICHAEL FOODS, INC.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 13-4151741                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|301 Carlson Parkway Suite 400 Minnetonka, MN                   |  | 55305                               
|(Address of principal executive offices)                       |  | (Zip code)                          



(952) 258-4000

(Registrants telephone number, including area code)



None

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



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



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



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



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PART IFINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



MICHAEL FOODS, INC.

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



CONDENSED
CONSOLIDATED BALANCE SHEETS

(in thousands, except share information)



|                                                                                                                      |  |               |           |                  |   |           |  
|--------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ---------------- | - | --------- | -
|                                                                                                                      |  | June 30, 2005 |           | December 31,2004 |  
|                                                                                                                      |  | (Unaudited)   |           |                  |  
|ASSETS                                                                                                                |  |               |           |                  |   |           |  
|CURRENT ASSETS                                                                                                        |  |               |           |                  |   |           |  
|Cash and equivalents                                                                                                  |  | $             | 58,179    |                  | $ | 31,816    |  
|Accounts receivable, less allowances                                                                                  |  |               | 88,892    |                  |   | 101,552   |  
|Inventories                                                                                                           |  |               | 97,976    |                  |   | 91,044    |  
|Prepaid expenses and other                                                                                            |  |               | 7,308     |                  |   | 7,492     |  
|                                                                                                                      |  |               |           |                  |   |           |  
|Total current assets                                                                                                  |  |               | 252,355   |                  |   | 231,904   |  
|                                                                                                                      |  |              
|PROPERTY, PLANT AND EQUIPMENT                                                                                         |  |               |           |                  |   |           |  
|Land                                                                                                                  |  |               | 4,044     |                  |   | 4,044     |  
|Buildings and improvements                                                                                            |  |               | 113,965   |                  |   | 112,856   |  
|Machinery and equipment                                                                                               |  |               | 256,223   |                  |   | 238,888   |  
|                                                                                                                      |  |               |           |                  |   |           |  
|                                                                                                                      |  |               | 374,232   |                  |   | 355,788   |  
|Less accumulated depreciation                                                                                         |  |               | 82,379    |                  |   | 55,227    |  
|                                                                                                                      |  |               |           |                  |   |           |  
|                                                                                                                      |  |               | 291,853   |                  |   | 300,561   |  
|                                                                                                                      |  |              
|OTHER ASSETS                                                                                                          |  |               |           |                  |   |           |  
|Goodwill                                                                                                              |  |               | 525,035   |                  |   | 525,035   |  
|Intangible assets, net                                                                                                |  |               | 240,014   |                  |   | 246,794   |  
|Other assets                                                                                                          |  |               | 35,167    |                  |   | 37,261    |  
|                                                                                                                      |  |               |           |                  |   |           |  
|                                                                                                                      |  |               | 800,216   |                  |   | 809,090   |  
|                                                                                                                      |  |               |           |                  |   |           |  
|                                                                                                                      |  | $             | 1,344,424 |                  | $ | 1,341,555 |  
|                                                                                                                      |  |               |           |                  |   |           |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                  |  |               |           |                  |   |           |  
|CURRENT LIABILITIES                                                                                                   |  |               |           |                  |   |           |  
|Current maturities of long-term debt                                                                                  |  | $             | 714       |                  | $ | 651       |  
|Accounts payable                                                                                                      |  |               | 57,742    |                  |   | 65,725    |  
|Accrued liabilities                                                                                                   |  |               |           |                  |   |           |  
|Compensation                                                                                                          |  |               | 14,745    |                  |   | 21,761    |  
|Customer programs                                                                                                     |  |               | 44,225    |                  |   | 40,062    |  
|Interest                                                                                                              |  |               | 5,003     |                  |   | 5,144     |  
|Income taxes                                                                                                          |  |               | 12,593    |                  |   | 13,910    |  
|Other                                                                                                                 |  |               | 26,468    |                  |   | 24,107    |  
|                                                                                                                      |  |               |           |                  |   |           |  
|Total current liabilities                                                                                             |  |               | 161,490   |                  |   | 171,360   |  
|LONG-TERM DEBT, less current maturities                                                                               |  |               | 746,070   |                  |   | 750,132   |  
|DEFERRED INCOME TAXES                                                                                                 |  |               | 145,839   |                  |   | 148,590   |  
|DEFERRED COMPENSATION                                                                                                 |  |               | 14,564    |                  |   | 14,080    |  
|COMMITMENTS AND CONTINGENCIES                                                                                         |  |               |          |                  |   |          |  
|SHAREHOLDERS EQUITY                                                                                                  |  |               |           |                  |   |           |  
|Common stock, $0.01 par value, 3,000 shares authorized, issued and outstanding at June 30, 2005 and December 31, 2004 |  |               |          |                  |   |          |  
|Additional paid-in capital                                                                                            |  |               | 254,618   |                  |   | 254,618   |  
|Retained earnings                                                                                                     |  |               | 21,826    |                  |   | 6,751     |  
|Accumulated other comprehensive income (loss)                                                                         |  |               | 17        |                  |   | (3,976    | )
|                                                                                                                      |  |               |           |                  |   |           |  
|                                                                                                                      |  |               | 276,461   |                  |   | 257,393   |  
|                                                                                                                      |  |               |           |                  |   |           |  
|                                                                                                                      |  | $             | 1,344,424 |                  | $ | 1,341,555 |  
|                                                                                                                      |  |               |           |                  |   |           |  



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



2



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MICHAEL FOODS, INC.

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



CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

For the three months ended June 30,

(Unaudited, in thousands)



|                                             |  |      |         |      |   |        
|-------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                             |  | 2005 |         | 2004
|Net sales                                    |  | $    | 301,125 |      | $ | 324,684
|Cost of sales                                |  |      | 242,396 |      |   | 267,128
|                                             |  |      |         |      |   |        
|Gross profit                                 |  |      | 58,729  |      |   | 57,556 
|Selling, general and administrative expenses |  |      | 33,865  |      |   | 33,577 
|                                             |  |      |         |      |   |        
|Operating profit                             |  |      | 24,864  |      |   | 23,979 
|Interest expense, net                        |  |      | 11,637  |      |   | 10,781 
|Other expense                                |  |      | 59      |      |   | 1,178  
|                                             |  |      |         |      |   |        
|Earnings before income taxes                 |  |      | 13,168  |      |   | 12,020 
|Income tax expense                           |  |      | 4,937   |      |   | 4,631  
|                                             |  |      |         |      |   |        
|Net earnings                                 |  | $    | 8,231   |      | $ | 7,389  
|                                             |  |      |         |      |   |        



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



3



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MICHAEL FOODS, INC.

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



CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

For the six months ended June 30,

(Unaudited, in thousands)



|                                             |  |      |         |      |   |        
|-------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                             |  | 2005 |         | 2004
|Net sales                                    |  | $    | 606,089 |      | $ | 665,296
|Cost of sales                                |  |      | 490,058 |      |   | 552,474
|                                             |  |      |         |      |   |        
|Gross profit                                 |  |      | 116,031 |      |   | 112,822
|Selling, general and administrative expenses |  |      | 67,612  |      |   | 64,869 
|                                             |  |      |         |      |   |        
|Operating profit                             |  |      | 48,419  |      |   | 47,953 
|Interest expense, net                        |  |      | 23,615  |      |   | 21,561 
|Other expense                                |  |      | 688     |      |   | 1,072  
|                                             |  |      |         |      |   |        
|Earnings before income taxes                 |  |      | 24,116  |      |   | 25,320 
|Income tax expense                           |  |      | 9,041   |      |   | 9,750  
|                                             |  |      |         |      |   |        
|Net earnings                                 |  | $    | 15,075  |      | $ | 15,570 
|                                             |  |      |         |      |   |        



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



4



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MICHAEL FOODS, INC.

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



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30,

(Unaudited, in thousands)



|                                            |  |      |         |   |      |   |         |  
|------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                            |  | 2005 |         |   | 2004 |  
|Net cash provided by operating activities   |  | $    | 48,602  |   |      | $ | 53,335  |  
|Cash flows from investing activities:       |  |      |         |   |      |   |         |  
|Capital expenditures                        |  |      | (19,311 | ) |      |   | (21,715 | )
|Other assets                                |  |      | 62      |   |      |   | 283     |  
|                                            |  |      |         |   |      |   |         |  
|Net cash used in investing activities       |  |      | (19,249 | ) |      |   | (21,432 | )
|Cash flows from financing activities:       |  |      |         |   |      |   |         |  
|Payments on long-term debt                  |  |      | (3,646  | ) |      |   | (2,849  | )
|Proceeds from long-term debt                |  |      | 705     |   |      |   | 835     |  
|                                            |  |      |         |   |      |   |         |  
|Net cash used in financing activities       |  |      | (2,941  | ) |      |   | (2,014  | )
|Effect of exchange rate changes on cash     |  |      | (49     | ) |      |   | 9       |  
|                                            |  |      |         |   |      |   |         |  
|Net increase in cash and equivalents        |  |      | 26,363  |   |      |   | 29,898  |  
|Cash and equivalents at beginning of period |  |      | 31,816  |   |      |   | 45,594  |  
|                                            |  |      |         |   |      |   |         |  
|Cash and equivalents at end of period       |  | $    | 58,179  |   |      | $ | 75,492  |  
|                                            |  |      |         |   |      |   |         |  



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



5



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MICHAEL FOODS, INC.

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

(Unaudited)



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



NOTE ABASIS OF PRESENTATION AND RECENT ACCOUNTING PRONOUNCEMENTS



The accompanying condensed consolidated financial statements have been
prepared in accordance with Regulation S-X of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading.



We utilize a fifty-two/fifty-three week fiscal year ending on the Saturday
nearest to December 31 each year. The quarter ended June 30, 2005 was a 13 week period ended July 2, 2005 and the quarter ended June 30, 2004 was a 13 week period ended July 3, 2004. 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, 2005 are not necessarily indicative of the results expected for the full
year.



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



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



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



Goodwill and Intangible Assets with Indefinite Lives



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



Other Intangibles



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



6



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



|                          |  |               |         |                   |   |        
|------------------------- |  | ------------- | ------- | ----------------- | - | -------
|                          |  | June 30, 2005 |         | December 31, 2004
|Egg Products              |  | $             | 431,891 |                   | $ | 431,891
|Refrigerated Distribution |  |               | 32,507  |                   |   | 32,507 
|Potato Products           |  |               | 60,637  |                   |   | 60,637 
|                          |  |               |         |                   |   |        
|                          |  | $             | 525,035 |                   | $ | 525,035
|                          |  |               |         |                   |   |        



Our intangible assets
were as follows (in thousands):



|                                                                          |  |               |         |   |                  |   |         |  
|------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                          |  | June 30, 2005 |         |   | December 31,2004 |  
|Amortized intangible assets (various, principally customer relationships) |  | $             | 230,615 |   |                  | $ | 230,615 |  
|Accumulated amortization                                                  |  |               | (24,626 | ) |                  |   | (16,846 | )
|                                                                          |  |               |         |   |                  |   |         |  
|                                                                          |  |               | 205,989 |   |                  |   | 213,769 |  
|Unamortized intangible assets (trademarks)                                |  |               | 34,025  |   |                  |   | 33,025  |  
|                                                                          |  |               |         |   |                  |   |         |  
|                                                                          |  | $             | 240,014 |   |                  | $ | 246,794 |  
|                                                                          |  |               |         |   |                  |   |         |  



The aggregate
amortization expense for the six months ended June 30, 2005 and 2004 was $7,780,000 and $7,766,000, respectively. The estimated amortization expense for the years ended December 31, 2005 through December 31, 2009 is as follows (in thousands):



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



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



Deferred Financing Costs



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



|                         |  |               |        |   |                   |   |        |  
|------------------------ |  | ------------- | ------ | - | ----------------- | - | ------ | -
|                         |  | June 30, 2005 |        |   | December 31, 2004 |  
|Deferred financing costs |  | $             | 35,030 |   |                   | $ | 35,030 |  
|Accumulated amortization |  |               | (3,248 | ) |                   |   | (2,216 | )
|                         |  |               |        |   |                   |   |        |  
|                         |  | $             | 31,782 |   |                   | $ | 32,814 |  
|                         |  |               |        |   |                   |   |        |  



NOTE BOTHER FINANCIAL
STATEMENT DATA



Inventories



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



Inventories consisted of the
following (in thousands):



|                                   |  |              |        |                   |   |       
|---------------------------------- |  | ------------ | ------ | ----------------- | - | ------
|                                   |  | June 30,2005 |        | December 31, 2004
|Raw materials and supplies         |  | $            | 15,670 |                   | $ | 13,661
|Work in process and finished goods |  |              | 59,965 |                   |   | 54,222
|Flocks                             |  |              | 22,341 |                   |   | 23,161
|                                   |  |              |        |                   |   |       
|                                   |  | $            | 97,976 |                   | $ | 91,044
|                                   |  |              |        |                   |   |       



7



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NOTE CCOMMITMENTS AND CONTINGENCIES



Patent Litigation



On April 15, 2005, we were notified that the United States Court of Appeals for the Federal Circuit rejected our appeal of a jury verdict of
non-infringement of our patented extended shelf-life liquid egg technology in our long standing litigation with Sunny Fresh Foods, Inc., a subsidiary of Cargill, Inc. While our failure to overturn the jury verdict is not expected to be material to
our business, increased competition in this key product line could result. The primary patent licensed to us expires in 2006.



Other Litigation



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



Other
Matters



In March 2003, Belovo S.A., our egg products
joint venture company in Belgium, of which we own 35.63%, notified the Belgian governmental health authorities of a potential processed egg powder contamination issue. Following the notification, production ceased for a month and the egg powders
were recalled. The Belgian health authority placed the egg powder in quarantine. As of June 2005, nearly all of the inventory that had been quarantined has been released and has been sold. Belovos 2003 financial statements included provisions
to cover approximately $5 million of identified risks from the contamination matter. We recorded other expenses of $1.2 million related to this matter in mid 2004. Belovo is pursuing a settlement with its insurance company regarding claims from
customers for returned product. The final loss related to this matter has not been determined. Belovos sales decreased for the five months ended May 31, 2005 by $2.4 million, or 14%, to $14.2 million, compared to $16.6 million in the same
period of 2004. Our investment in Belovo is approximately $2.7 million as of June 30, 2005.



NOTE DCOMPREHENSIVE INCOME



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



|                                        |  |                 |        |   |                            |   |        |                      |  |   |       |   |  |   |        |  
|--------------------------------------- |  | --------------- | ------ | - | -------------------------- | - | ------ | -------------------- |  | - | ----- | - |  | - | ------ | -
|                                        |  | Cash FlowHedges |        |   | ForeignCurrencyTranslation |   |        | Interest Rate Caplet |  |   | Total |  
|Balance at December 31, 2004            |  | $               | (6,166 | ) |                            | $ | 2,814  |                      |  | $ | (624  | ) |  | $ | (3,976 | )
|Foreign currency translation adjustment |  |                 |       |   |                            |   | (1,794 | )                    |  |   |      |   |  |   | (1,794 | )
|Interest rate caplet                    |  |                 |       |   |                            |   |       |                      |  |   | (41   | ) |  |   | (41    | )
|Change due to cash flow hedges          |  |                 | 5,828  |   |                            |   |       |                      |  |   |      |   |  |   | 5,828  |  
|                                        |  |                 |        |   |                            |   |        |                      |  |   |       |   |  |   |        |  
|Balance at June 30, 2005                |  | $               | (338   | ) |                            | $ | 1,020  |                      |  | $ | (665  | ) |  | $ | 17     |  
|                                        |  |                 |        |   |                            |   |        |                      |  |   |       |   |  |   |        |  



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



|                                                            |  |        |   |  |   |        |  
|----------------------------------------------------------- |  | ------ | - |  | - | ------ | -
|Net earnings for the six months ended June 30, 2005         |  |        |   |  | $ | 15,075 |  
|Net gains (losses) arising during the period:               |  |        |   |  |   |        |  
|Change due to cash flow hedges                              |  | 5,828  |   |  |   |        |  
|Interest rate caplet                                        |  | (41    | ) |  |   |        |  
|Foreign currency translation adjustment                     |  | (1,794 | ) |  |   |        |  
|                                                            |  |        |   |  |   |        |  
|Other comprehensive income                                  |  |        |   |  |   | 3,993  |  
|                                                            |  |        |   |  |   |        |  
|Comprehensive income for the six months ended June 30, 2005 |  |        |   |  | $ | 19,068 |  
|                                                            |  |        |   |  |   |        |  
|Net earnings for the six months ended June 30, 2004         |  |        |   |  | $ | 15,570 |  
|Net losses arising during the period:                       |  |        |   |  |   |        |  
|Change due to 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 |  
|                                                            |  |        |   |  |   |        |  



8



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NOTE EBUSINESS SEGMENTS



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



|                                  |  |              |         |                           |   |                 |  |           |        |  |       |        |   |  |   |        
|--------------------------------- |  | ------------ | ------- | ------------------------- | - | --------------- |  | --------- | ------ |  | ----- | ------ | - |  | - | -------
|                                  |  | EGG PRODUCTS |         | REFRIGERATED DISTRIBUTION |   | POTATO PRODUCTS |  | CORPORATE |        |  | TOTAL
|Three months ended June 30, 2005: |  |              |         |                           |   |                 |  |           |        |  |       |        |   |  |   |        
|External net sales                |  | $            | 211,823 |                           | $ | 65,043          |  | $         | 24,259 |  | $     |       |   |  | $ | 301,125
|Intersegment sales                |  |              | 1,921   |                           |   |                |  |           | 1,006  |  |       |       |   |  |   | 2,927  
|Operating profit (loss)           |  |              | 19,532  |                           |   | 3,557           |  |           | 4,103  |  |       | (2,328 | ) |  |   | 24,864 
|Depreciation and amortization     |  |              | 14,810  |                           |   | 1,151           |  |           | 1,593  |  |       | 1      |   |  |   | 17,555 
|                                  |  |              |         |                           |  
|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, 2005:   |  |              |         |                           |   |                 |  |           |        |  |       |        |   |  |   |        
|External net sales                |  | $            | 427,085 |                           | $ | 130,908         |  | $         | 48,096 |  | $     |       |   |  | $ | 606,089
|Intersegment sales                |  |              | 3,844   |                           |   |                |  |           | 2,090  |  |       |       |   |  |   | 5,934  
|Operating profit (loss)           |  |              | 39,030  |                           |   | 7,105           |  |           | 7,329  |  |       | (5,045 | ) |  |   | 48,419 
|Depreciation and amortization     |  |              | 29,629  |                           |   | 2,276           |  |           | 3,188  |  |       | 2      |   |  |   | 35,095 
|                                  |  |              |         |                           |  
|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 



NOTE FSUPPLEMENTAL GUARANTOR
FINANCIAL INFORMATION



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



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



9



---

Condensed Consolidating Balance Sheets

June 30, 2005

(Unaudited, in thousands)



|                                           |  |        |           |   |                       |   |                         |  |   |              |   |  |              |          |   |  |   |          
|------------------------------------------ |  | ------ | --------- | - | --------------------- | - | ----------------------- |  | - | ------------ | - |  | ------------ | -------- | - |  | - | ---------
|                                           |  | Parent |           |   | GuarantorSubsidiaries |   | Non-GuarantorSubsidiary |  |   | Eliminations |   |  | Consolidated
|Assets                                     |  |        |           |   |                       |   |                         |  |   |              |   |  |              |          |   |  |   |          
|Current assets                             |  |        |           |   |                       |   |                         |  |   |              |   |  |              |          |   |  |   |          
|Cash and equivalents                       |  | $      | 56,475    |   |                       | $ | 477                     |  | $ | 1,227        |   |  | $            |         |   |  | $ | 58,179   
|Accounts receivable, less allowances       |  |        | 258       |   |                       |   | 84,681                  |  |   | 7,085        |   |  |              | (3,132   | ) |  |   | 88,892   
|Inventories                                |  |        |          |   |                       |   | 91,982                  |  |   | 5,994        |   |  |              |         |   |  |   | 97,976   
|Prepaid expenses and other                 |  |        | 701       |   |                       |   | 6,303                   |  |   | 304          |   |  |              |         |   |  |   | 7,308    
|                                           |  |        |           |   |                       |   |                         |  |   |              |   |  |              |          |   |  |   |          
|Total current assets                       |  |        | 57,434    |   |                       |   | 183,443                 |  |   | 14,610       |   |  |              | (3,132   | ) |  |   | 252,355  
|                                           |  |        |           |   |                       |   |                         |  |   |              |   |  |              |          |   |  |   |          
|Property, plant and equipmentnet          |  |        | 25        |   |                       |   | 272,095                 |  |   | 19,733       |   |  |              |         |   |  |   | 291,853  
|Other assets                               |  |        |           |   |                       |   |                         |  |   |              |   |  |              |          |   |  |   |          
|Goodwill                                   |  |        |          |   |                       |   | 522,009                 |  |   | 3,026        |   |  |              |         |   |  |   | 525,035  
|Other assets                               |  |        | 34,826    |   |                       |   | 258,796                 |  |   |             |   |  |              | (18,441  | ) |  |   | 275,181  
|Investment in subsidiaries                 |  |        | 927,706   |   |                       |   | 3,156                   |  |   |             |   |  |              | (930,862 | ) |  |   |         
|                                           |  |        |           |   |                       |   |                         |  |   |              |   |  |              |          |   |  |   |          
|                                           |  |        | 962,532   |   |                       |   | 783,961                 |  |   | 3,026        |   |  |              | (949,303 | ) |  |   | 800,216  
|                                           |  |        |           |   |                       |   |                         |  |   |              |   |  |              |          |   |  |   |          
|Total assets                               |  | $      | 1,019,991 |   |                       | $ | 1,239,499               |  | $ | 37,369       |   |  | $            | (952,435 | ) |  | $ | 1,344,424
|                                           |  |        |           |   |                       |   |                         |  |   |              |   |  |              |          |   |  |   |          
|Liabilities and Shareholders Equity       |  |        |           |   |                       |   |                         |  |   |              |   |  |              |          |   |  |   |          
|Current liabilities                        |  |        |           |   |                       |   |                         |  |   |              |   |  |              |          |   |  |   |          
|Current maturities of long-term debt       |  | $      |          |   |                       | $ |                        |  | $ | 714          |   |  | $            |         |   |  | $ | 714      
|Accounts payable                           |  |        | 195       |   |                       |   | 55,761                  |  |   | 4,378        |   |  |              | (2,592   | ) |  |   | 57,742   
|Accrued liabilities                        |  |        | 26,034    |   |                       |   | 76,375                  |  |   | 625          |   |  |              |         |   |  |   | 103,034  
|                                           |  |        |           |   |                       |   |                         |  |   |              |   |  |              |          |   |  |   |          
|Total current liabilities                  |  |        | 26,229    |   |                       |   | 132,136                 |  |   | 5,717        |   |  |              | (2,592   | ) |  |   | 161,490  
|                                           |  |        |           |   |                       |   |                         |  |   |              |   |  |              |          |   |  |   |          
|Long-term debt, less current maturities    |  |        | 736,862   |   |                       |   | 185                     |  |   | 29,134       |   |  |              | (20,111  | ) |  |   | 746,070  
|Deferred income taxes                      |  |        | (34,125   | ) |                       |   | 180,159                 |  |   | (195         | ) |  |              |         |   |  |   | 145,839  
|Deferred compensation                      |  |        | 14,564    |   |                       |   |                        |  |   |             |   |  |              |         |   |  |   | 14,564   
|Shareholders equity                       |  |        | 276,461   |   |                       |   | 927,019                 |  |   | 2,713        |   |  |              | (929,732 | ) |  |   | 276,461  
|                                           |  |        |           |   |                       |   |                         |  |   |              |   |  |              |          |   |  |   |          
|Total liabilities and shareholders equity |  | $      | 1,019,991 |   |                       | $ | 1,239,499               |  | $ | 37,369       |   |  | $            | (952,435 | ) |  | $ | 1,344,424
|                                           |  |        |           |   |                       |   |                         |  |   |              |   |  |              |          |   |  |   |          



10



---

Condensed Consolidating Balance Sheets

December 31, 2004

(in thousands)



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



11



---

Condensed Consolidating Statements of Earnings

Three months ended June 30, 2005

(Unaudited, in thousands)



|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|--------------------------------------------------------------------------------- |  | ------ | ------- | - | ---------------------- | - | ------- | ----------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | -------
|                                                                                  |  | Parent |         |   | Guarantor Subsidiaries |   |         | Non-GuarantorSubsidiary |  |   | Eliminations |   |  | Consolidated
|Net sales                                                                         |  | $      |        |   |                        | $ | 291,241 |                         |  | $ | 14,610       |   |  | $            | (4,726  | ) |  | $ | 301,125
|Cost of sales                                                                     |  |        |        |   |                        |   | 232,972 |                         |  |   | 14,150       |   |  |              | (4,726  | ) |  |   | 242,396
|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Gross profit                                                                      |  |        |        |   |                        |   | 58,269  |                         |  |   | 460          |   |  |              |        |   |  |   | 58,729 
|Selling, general and administrative expenses                                      |  |        | 2,328   |   |                        |   | 31,519  |                         |  |   | 1,397        |   |  |              | (1,379  | ) |  |   | 33,865 
|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Operating profit (loss)                                                           |  |        | (2,328  | ) |                        |   | 26,750  |                         |  |   | (937         | ) |  |              | 1,379   |   |  |   | 24,864 
|Interest expense, net                                                             |  |        | 11,109  |   |                        |   | 113     |                         |  |   | 415          |   |  |              |        |   |  |   | 11,637 
|Other expense (income)                                                            |  |        | (1,379  | ) |                        |   | 59      |                         |  |   |             |   |  |              | 1,379   |   |  |   | 59     
|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before equity in earnings (loss) of subsidiaries and income taxes |  |        | (12,058 | ) |                        |   | 26,578  |                         |  |   | (1,352       | ) |  |              |        |   |  |   | 13,168 
|Equity in earnings (loss) of subsidiaries                                         |  |        | 15,947  |   |                        |   | (752    | )                       |  |   |             |   |  |              | (15,195 | ) |  |   |       
|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before income taxes                                               |  |        | 3,889   |   |                        |   | 25,826  |                         |  |   | (1,352       | ) |  |              | (15,195 | ) |  |   | 13,168 
|Income tax expense (benefit)                                                      |  |        | (4,342  | ) |                        |   | 9,879   |                         |  |   | (600         | ) |  |              |        |   |  |   | 4,937  
|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Net earnings (loss)                                                               |  | $      | 8,231   |   |                        | $ | 15,947  |                         |  | $ | (752         | ) |  | $            | (15,195 | ) |  | $ | 8,231  
|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        



12



---

Condensed Consolidating Statements of Earnings

Six months ended June 30, 2005

(Unaudited, in thousands)



|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|--------------------------------------------------------------------------------- |  | ------ | ------- | - | ---------------------- | - | ------- | ----------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | -------
|                                                                                  |  | Parent |         |   | Guarantor Subsidiaries |   |         | Non-GuarantorSubsidiary |  |   | Eliminations |   |  | Consolidated
|Net sales                                                                         |  | $      |        |   |                        | $ | 585,821 |                         |  | $ | 29,295       |   |  | $            | (9,027  | ) |  | $ | 606,089
|Cost of sales                                                                     |  |        |        |   |                        |   | 471,134 |                         |  |   | 27,951       |   |  |              | (9,027  | ) |  |   | 490,058
|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Gross profit                                                                      |  |        |        |   |                        |   | 114,687 |                         |  |   | 1,344        |   |  |              |        |   |  |   | 116,031
|Selling, general and administrative expenses                                      |  |        | 5,045   |   |                        |   | 62,708  |                         |  |   | 2,681        |   |  |              | (2,822  | ) |  |   | 67,612 
|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Operating profit (loss)                                                           |  |        | (5,045  | ) |                        |   | 51,979  |                         |  |   | (1,337       | ) |  |              | 2,822   |   |  |   | 48,419 
|Interest expense, net                                                             |  |        | 22,485  |   |                        |   | 255     |                         |  |   | 875          |   |  |              |        |   |  |   | 23,615 
|Other expense (income)                                                            |  |        | (2,822  | ) |                        |   | 688     |                         |  |   |             |   |  |              | 2,822   |   |  |   | 688    
|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before equity in earnings (loss) of subsidiaries and income taxes |  |        | (24,708 | ) |                        |   | 51,036  |                         |  |   | (2,212       | ) |  |              |        |   |  |   | 24,116 
|Equity in earnings (loss) of subsidiaries                                         |  |        | 30,740  |   |                        |   | (1,199  | )                       |  |   |             |   |  |              | (29,541 | ) |  |   |       
|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Earnings (loss) before income taxes                                               |  |        | 6,032   |   |                        |   | 49,837  |                         |  |   | (2,212       | ) |  |              | (29,541 | ) |  |   | 24,116 
|Income tax expense (benefit)                                                      |  |        | (9,043  | ) |                        |   | 19,097  |                         |  |   | (1,013       | ) |  |              |        |   |  |   | 9,041  
|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|Net earnings (loss)                                                               |  | $      | 15,075  |   |                        | $ | 30,740  |                         |  | $ | (1,199       | ) |  | $            | (29,541 | ) |  | $ | 15,075 
|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        





13



---

Condensed Consolidating Statements of Earnings

Three months ended June 30, 2004

(Unaudited, in thousands)



|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|--------------------------------------------------------------------------------- |  | ------ | ------- | - | ---------------------- | - | ------- | ----------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | -------
|                                                                                  |  | Parent |         |   | Guarantor Subsidiaries |   |         | 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 expense (income)                                                            |  |        | (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  
|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        



14



---

Condensed Consolidating Statements of Earnings

Six months ended June 30, 2004

(Unaudited, in thousands)



|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        
|--------------------------------------------------------------------------------- |  | ------ | ------- | - | ---------------------- | - | ------- | ----------------------- |  | - | ------------ | - |  | ------------ | ------- | - |  | - | -------
|                                                                                  |  | Parent |         |   | Guarantor Subsidiaries |   |         | 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 expense (income)                                                            |  |        | (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 
|                                                                                  |  |        |         |   |                        |   |         |                         |  |   |              |   |  |              |         |   |  |   |        





15



---

Condensed Consolidating Statements of Cash Flows

Six months ended June 30, 2005

(Unaudited, in thousands)



|                                                    |  |        |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|--------------------------------------------------- |  | ------ | ------ | - | --------------------- | - | ------- | ----------------------- |  | - | ------------ | - |  | - | ------- | -
|                                                    |  | Parent |        |   | GuarantorSubsidiaries |   |         | Non-GuarantorSubsidiary |  |   | Consolidated |  
|Net cash provided by operating activities           |  | $      | 10,049 |   |                       | $ | 37,908  |                         |  | $ | 645          |   |  | $ | 48,602  |  
|Cash flows from investing activities:               |  |        |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Capital expenditures                                |  |        |       |   |                       |   | (18,579 | )                       |  |   | (732         | ) |  |   | (19,311 | )
|Other assets                                        |  |        | 7      |   |                       |   | 55      |                         |  |   |             |   |  |   | 62      |  
|                                                    |  |        |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Net cash provided by (used in) investing activities |  |        | 7      |   |                       |   | (18,524 | )                       |  |   | (732         | ) |  |   | (19,249 | )
|Cash flows from financing activities:               |  |        |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Payments on long-term debt                          |  |        | (3,238 | ) |                       |   | (17     | )                       |  |   | (391         | ) |  |   | (3,646  | )
|Proceeds from long-term debt                        |  |        |       |   |                       |   | 813     |                         |  |   | (108         | ) |  |   | 705     |  
|Investment in subsidiaries                          |  |        | 19,703 |   |                       |   | (19,703 | )                       |  |   |             |   |  |   |        |  
|                                                    |  |        |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Net cash provided by (used in) financing activities |  |        | 16,465 |   |                       |   | (18,907 | )                       |  |   | (499         | ) |  |   | (2,941  | )
|Effect of exchange rate changes on cash             |  |        |       |   |                       |   |        |                         |  |   | (49          | ) |  |   | (49     | )
|                                                    |  |        |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Net increase (decrease) in cash and equivalents     |  |        | 26,521 |   |                       |   | 477     |                         |  |   | (635         | ) |  |   | 26,363  |  
|Cash and equivalents at beginning of period         |  |        | 29,954 |   |                       |   |        |                         |  |   | 1,862        |   |  |   | 31,816  |  
|                                                    |  |        |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  
|Cash and equivalents at end of period               |  | $      | 56,475 |   |                       | $ | 477     |                         |  | $ | 1,227        |   |  | $ | 58,179  |  
|                                                    |  |        |        |   |                       |   |         |                         |  |   |              |   |  |   |         |  



16



---

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  |  
|                                                    |  |        |         |   |                       |   |         |                         |  |   |              |   |  |   |         |  



17



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



General



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



Commodities and Product Pricing



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



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



The Potato Products Division purchases approximately 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 the Potato Products Divisions operating results.



Results of Operations



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



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



Net Sales.Net sales for the three months ended June 30, 2005
decreased $23.6 million, or approximately 7%, to $301.1 million from $324.7 million for the three months ended June 30, 2004, reflecting substantial egg market deflation, which reduced selling prices within both the Egg Products and
Refrigerated Distribution divisions.



Egg Products Division
Net Sales.Egg Products Division external net sales for the three months ended June 30, 2005 decreased $23.2 million, or 10%, to $211.8 million from $235.0 million for the three months ended June 30, 2004. External net sales decreased for
most product lines. Sales decreased notably for dried and short shelf-life egg products, with pricing down over 30% for each. Sales increased for egg substitutes and precooked egg products. Divisional unit sales increased 4% in the 2005 period
compared to the 2004 period, with precooked unit sales showing the strongest gains at approximately 20%, due to strong foodservice results driven, in part, by customers promotional activities and product introductions. Egg market pricing in
the 2005 period fell to below-normal levels, relative to historical pricing, after being significantly above historical levels in the first half of 2004. During the 2005 period, shell egg prices were approximately 28% lower than in the 2004 period
(as reported by Urner Barry Publications), resulting in significantly lower pricing for market-sensitive egg products and shell eggs.Sales of higher value-added egg products represented approximately 65% of the Egg Products
Divisions external net sales in the 2005 period and 58% in the 2004 period.



18



---

Refrigerated Distribution Division Net Sales.Refrigerated Distribution Division external net
sales for the three months ended June 30, 2005 decreased $5.6 million, or 8%, to $65.0 million from $70.6 million for the three months ended June 30, 2004. This decrease was due primarily to much lower pricing for shell eggs. However, overall
distributed products (i.e., excluding shell eggs) unit and net sales increased in the 2005 period compared to the 2004 period, as several product lines showed volume growth, particularly cheese, butter and bagels. Our most important product line,
branded cheese, saw a 6% increase in unit sales in the 2005 period as compared to the 2004 period.



Potato Products Division Net Sales.Potato Products Division external net sales for the three months ended June 30, 2005 increased $5.2 million, or
27%, to $24.3 million from $19.1 million for the three months ended June 30, 2004. This increase was attributable to strong unit sales growth for both foodservice and retail potato products, with the latter increasing 20% from 2004 period levels. As
a category, retail refrigerated potato products have shown notable growth in 2005 and our late 2004 activities to enhance and relaunch our Simply Potatoes® brand have proven successful. Retail mashed items continued to show notable sales growth. Pricing of our potato products increased
year-over-year.



Gross Profit.Gross profit for the
three months ended June 30, 2005 increased $1.1 million, or 2%, to $58.7 million from $57.6 million for the three months ended June 30, 2004. Our gross profit margin increased to 19.5% compared to the 2004 period at 17.7%. The higher gross profit
margin reflected an increased gross profit margin from all divisions, with particular strength seen from our Potato Products Division. Reduced raw material costs, particularly related to external egg purchases, and generally favorable sales mix
shifts, combined with improved pricing for certain products, caused the rise in gross profit margin.



Selling, General and Administrative Expenses.Selling, general and administrative expenses for the three months ended June 30, 2005 increased $0.3
million, or 1%, to $33.9 million from $33.6 million for the three months ended June 30, 2004. Selling, general and administrative expenses increased to 11.2% of net sales in the 2005 period compared with 10.3% for the 2004 period. The 2004 period
included costs associated with an exchange offer for our senior subordinated notes. Salaries, wages and employee benefits costs increased year-over-year in the 2005 period, while deflationary pressures caused a reduction in net sales. These factors
resulted in the operating expense ratio increase.



Operating
Profit.Operating profit for the three months ended June 30, 2005 increased $0.9 million, or approximately 4%, to $24.9 million from $24.0 million for the three months ended June 30, 2004. This increase is attributable to increased gross
profits. Our operating profit margin increased to 8.3% in the 2005 period from 7.4% in the 2004 period due to notable gross profit margin improvement.



Egg Products Division Operating Profit.Egg Products Division operating profit for the three months ended June 30, 2005 decreased $3.0 million, or
13%, to $19.5 million from $22.5 million for the three months ended June 30, 2004. Operating profits for higher value-added egg products increased significantly in the 2005 period due primarily to volume growth and a decline in both external and
internal egg costs. However, lower value-added egg products and shell eggs had an operating loss in the 2005 period, as a result of depressed market-driven egg pricing levels. This compares to notable profitability in the 2004 period.



Refrigerated Distribution Division Operating Profit.Refrigerated
Distribution Division operating profit for the three months ended June 30, 2005 increased $0.6 million, or 22%, to $3.6 million from $2.9 million for the three months ended June 30, 2004. Operating profits for our key product lines, branded cheese
and butter, increased in the 2005 period due to sales volume growth and lower raw material costs. These increases were somewhat offset by reduced operating profits from our private label cheese and other distributed product lines.



Potato Products Division Operating Profit.Potato Products Division
operating profit for the three months ended June 30, 2005 increased to $4.1 million from $0.9 million for the three months ended June 30, 2004. This increase reflected a notable improvement, from a small loss to a meaningful profit, from the
foodservice business in the 2005 period, while operating profits from our retail potato products sales increased significantly. The profit improvements resulted from strong volume growth, improved pricing and higher processing yields, related, in
part, to improved raw material quality.



Other Expense
(Income). Insignificant other expense was recorded in the 2005 period as compared to $1.2 million in the 2004 period. The decrease related to a reduction in net losses from our Belgium joint venture (see Note C to the condensed consolidated
financial statements).



Interest Expense and Income Taxes.Interest expense increased by approximately $0.8 million in the 2005 period compared to the 2004 period, reflecting higher interest rates. Our effective tax rate was 37.5% in the 2005 period compared to 38.5% in the 2004 period. The reduction of
the effective tax rate for the second quarter of 2005 is related to the domestic manufacturers deduction, which was enacted as part of the American Jobs Creation Act of 2004.



19



---

Six Months Ended June 30, 2005 as Compared to Six Months Ended June 30, 2004



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



Net Sales.Net sales for the six months ended June 30, 2005 decreased $59.2 million, or 9%, to $606.1 million from $665.3 million for the
six months ended June 30, 2004, reflecting substantial egg market deflation, which reduced selling prices within both the Egg Products and Refrigerated Distribution divisions.



Egg Products Division Net Sales.Egg Products Division external net sales for the six months ended June 30, 2005
decreased $57.6 million, or 12%, to $427.1 million from $484.7 million for the six months ended June 30, 2004. External net sales decreased for most product lines. Sales decreased notably for dried and short shelf-life egg products, with
pricing down over 30% for each. Sales increased for egg substitutes and precooked egg products. Divisional unit sales increased 3% in the 2005 period compared to the 2004 period, with precooked unit sales showing the strongest gains at approximately
25%, due to strong foodservice results driven, in part, by customers promotional activities and product introductions. Egg market pricing in the 2005 period fell to below-normal levels, relative to historical pricing, after being significantly
above historical levels in the first half of 2004. During the 2005 period, shell egg prices were approximately 45% lower than in the 2004 period (as reported by Urner Barry Publications), resulting in significantly lower pricing for market-sensitive
egg products and shell eggs.Sales of higher value-added egg products represented approximately 65% of the Egg Products Divisions external net sales in the 2005 period and 56% in the 2004 period.



Refrigerated Distribution Division Net Sales.Refrigerated
Distribution Division external net sales for the six months ended June 30, 2005 decreased $11.0 million, or 8%, to $130.9 million from $141.9 million for the six months ended June 30, 2004. This decrease was primarily due to much lower pricing for
shell eggs. However, overall distributed products (i.e., excluding shell eggs) unit and net sales increased in the 2005 period compared to the 2004 period, as several product lines showed volume growth, particularly cheese, butter and bagels. Our
most important product line, branded cheese, saw a 6% increase in unit sales in the 2005 period as compared to the 2004 period.



Potato Products Division Net Sales.Potato Products Division external net sales for the six months ended June 30, 2005 increased $9.5 million, or
24%, to $48.1 million from $38.6 million for the six months ended June 30, 2004. This increase was attributable to strong unit sales growth for both foodservice and retail potato products, with the latter increasing 21% from 2004 period levels. As a
category, retail refrigerated potato products have shown notable growth in 2005 and our late 2004 activities to enhance and relaunch our Simply Potatoes® brand have proven successful. Retail mashed items continued to show notable sales growth. Pricing of our potato products increased
year-over-year.



Gross Profit.Gross profit for the six
months ended June 30, 2005 increased $3.2 million, or 3%, to $116.0 million from $112.8 million for the six months ended June 30, 2004. Our gross profit margin increased to 19.1% in the 2005 period compared to the 2004 period at 17.0%. The higher
gross profit margin reflected an increased gross profit margin from all divisions, with particular strength seen from our Potato Products Division. Reduced raw material costs, particularly related to external egg purchases, and generally favorable
sales mix shifts, combined with improved pricing for certain products, caused the rise in gross profit margin.



Selling, General and Administrative Expenses.Selling, general and administrative expenses for the six months ended June 30, 2005 increased $2.7
million, or 4%, to $67.6 million from $64.9 million for the six months ended June 30, 2004. Selling, general and administrative expenses increased to 11.1% of net sales in the 2005 period compared with 9.8% for the 2004 period. The 2004 period
included a $2.0 million expense reduction related to litigation settlements and costs associated with an exchange offer for our senior subordinated notes. Salaries, wages and employee benefits costs increased year-over-year in the 2005 period, while
deflationary pressures caused a reduction in net sales. These factors resulted in the operating expense ratio increase.



Operating Profit.Operating profit for the six months ended June 30, 2005 increased $0.4 million, or approximately 1%, to $48.4 million from $48.0
million for the six months ended June 30, 2004. This increase is attributable to increased gross profits. Our operating profit margin increased to 8.0% in the 2005 period from 7.2% in the 2004 period due to notable gross profit margin improvement.



Egg Products Division Operating Profit.Egg Products
Division operating profit for the six months ended June 30, 2005 decreased $5.3 million, or 12%, to $39.0 million from $44.3 million for the six months ended June 30, 2004. Operating profits for higher value-added egg products increased
significantly in the 2005 period due primarily to volume growth and a decline in external egg costs. However, lower value-added egg products and shell eggs had an operating loss in the 2005 period, as a result of depressed market-driven egg pricing
levels. This compares to notable profitability in the 2004 period.



20



---

Refrigerated Distribution Division Operating Profit.Refrigerated Distribution Division operating
profit for the six months ended June 30, 2005 increased $0.7 million, or 11%, to $7.1 million from $6.4 million for the six months ended June 30, 2004. Operating profits for our key product lines, branded cheese and butter, increased in the 2005
period due to sales volume growth and lower raw material costs. These increases were somewhat offset by reduced operating profits from our private label cheese and other distributed product lines.



Potato Products Division Operating Profit.Potato Products Division
operating profit for the six months ended June 30, 2005 increased to $7.3 million from $2.1 million for the six months ended June 30, 2004. This increase reflected a notable improvement from a small loss to a meaningful profit from the foodservice
business in the 2005 period, while operating profits from our retail potato products sales increased significantly. The profit improvements resulted from strong volume growth, improved pricing and higher processing yields, related, in part, to
improved raw material quality.



Other Expense (Income).
Other expense of $0.7 million was recorded in the 2005 period as compared to $1.1 million in the 2004 period, This decrease related to a reduction in net losses from our Belgium joint venture (see Note C to the condensed consolidated financial
statements).



Interest Expense and Income Taxes.Interest expense increased by approximately $2.1 million in the 2005 period compared to the 2004 period, reflecting higher interest rates. Our effective tax rate was 37.5% in the 2005 period compared to 38.5% in the 2004 period. The reduction of
the effective tax rate for 2005 is related to the domestic manufacturers deduction, which was enacted as part of the American Jobs Creation Act of 2004.



Liquidity and Capital Resources



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



Cash flow provided by operating activities was $48.6 million for the six months ended June 30, 2005, compared to $53.3 million in the 2004 period. The decrease in cash flow provided by operating activities relates to reduced net earnings
and increased working capital in the 2005 period. Our cash flows used in investing activities decreased to $19.2 million for the six months ended June 30, 2005 from $21.4 million for the 2004 period. Cash flows used by financing activities were $3.0
million for the six months ended June 30, 2005, compared to $2.0 million in the 2004 period.



During the second quarter of 2005 we amended our senior credit facility to redefine certain working capital terms, and to amend and restate a portion of the excess cash flow definition therein. The substance of these
changes provides us with greater benefit from any voluntary prepayments of borrowings we may make under the facility.



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, 2005.



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



21



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|                                          |  |                |         |   |      |   |         |  
|----------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                          |  | 2005           |         |   | 2004 |  
|                                          |  | (in thousands) |        
|Calculation of Interest Coverage Ratio:   |  |                |         |   |      |   |         |  
|Consolidated EBITDA (1)                   |  | $              | 171,532 |   |      | $ | 175,881 |  
|Consolidated Cash Interest Expense (2)    |  |                | 44,152  |   |      |   | 41,634  |  
|Actual Interest Coverage Ratio (3)        |  |                | 3.89    | x |      |   | 4.22    | x
|Minimum Permitted Interest Coverage Ratio |  |                | 2.15    | x |      |   | 2.10    | x
|Calculation of Leverage Ratio:            |  |                |         |   |      |   |         |  
|Funded Indebtedness (4)                   |  | $              | 760,182 |   |      | $ | 800,983 |  
|Less: Cash and equivalents                |  |                | (58,179 | ) |      |   | (75,492 | )
|                                          |  |                |         |   |      |   |         |  
|                                          |  |                | 702,003 |   |      |   | 725,491 |  
|Consolidated EBITDA (1)                   |  |                | 171,532 |   |      |   | 175,881 |  
|Actual Leverage Ratio (5)                 |  |                | 4.08    | x |      |   | 4.12    | x
|Maximum Permitted Leverage Ratio          |  |                | 5.75    | x |      |   | 5.95    | x

---

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



|                                                                  |  |                                  |         |      |   |         |  
|----------------------------------------------------------------- |  | -------------------------------- | ------- | ---- | - | ------- | -
|                                                                  |  | Last Twelve Months EndedJune 30, |        
|                                                                  |  | 2005                             |         | 2004 |  
|                                                                  |  | (in thousands)                   |        
|Net earnings (loss)                                               |  | $                                | 33,019  |      | $ | (21,856 | )
|Interest expense, excluding amortization of debt issuance costs   |  |                                  | 42,736  |      |   | 37,322  |  
|Amortization of debt issuance costs                               |  |                                  | 2,058   |      |   | 6,112   |  
|Income tax expense (benefit)                                      |  |                                  | 20,272  |      |   | (13,742 | )
|Depreciation and amortization                                     |  |                                  | 67,989  |      |   | 60,024  |  
|Equity sponsor management fee (a)                                 |  |                                  | 1,857   |      |   | 1,429   |  
|Industrial revenue bonds related expenses (b)                     |  |                                  | 910     |      |   | 815     |  
|Other non-recurring charges related to acquisition accounting (c) |  |                                  | 380     |      |   | 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)                                                         |  |                                  | 3,104   |      |   | 3,141   |  
|                                                                  |  |                                  |         |      |   |         |  
|                                                                  |  |                                  | 172,325 |      |   | 175,881 |  
|Unrealized gains (losses) on swap contracts                       |  |                                  | 793     |      |   |        |  
|                                                                  |  |                                  |         |      |   |         |  
|Consolidated EBITDA, as defined in our senior credit facility     |  | $                                | 171,532 |      | $ | 175,881 |  
|                                                                  |  |                                  |         |      |   |         |  

---

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

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

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

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

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



|                                                                                                        |  |      |       |      |   |      
|------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                                                                                        |  | 2005 |       | 2004
|Equity losses of unconsolidated subsidiaries                                                            |  | $    | 77    |      | $ | 1,566
|Losses from the sale of assets not in the ordinary course of business                                   |  |      | 1,058 |      |   |     
|Preferred return on deferred compensation                                                               |  |      | 1,272 |      |   | 1,215
|Letter of credit fees                                                                                   |  |      | 140   |      |   | 162  
|Fees and expenses in connection with the exchange of the Senior Subordinated Notes for registered notes |  |      | 102   |      |   |     
|Other non-recurring charges                                                                             |  |      | 455   |      |   | 198  
|                                                                                                        |  |      |       |      |   |      
|                                                                                                        |  | $    | 3,104 |      | $ | 3,141
|                                                                                                        |  |      |       |      |   |      



22



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



|                                          |  |                                  |        |                               |   |       
|----------------------------------------- |  | -------------------------------- | ------ | ----------------------------- | - | ------
|                                          |  | Twelve MonthsEnded June 30, 2005 |        | Six MonthsEnded June 30, 2004
|Interest expense, net                     |  | $                                | 45,339 |                               | $ | 21,561
|Interest income                           |  |                                  | 871    |                               |   | 276   
|                                          |  |                                  |        |                               |   |       
|Gross interest expense                    |  |                                  | 46,210 |                               |   | 21,837
|Less: Amortization of debt issuance costs |  |                                  | 2,058  |                               |   | 1,020 
|                                          |  |                                  |        |                               |   |       
|                                          |  |                                  | 44,152 |                               |   | 20,817
|                                          |  |                                  | X 1    |                               |   | X 2   
|                                          |  |                                  |        |                               |   |       
|Consolidated cash interest expense        |  | $                                | 44,152 |                               | $ | 41,634
|                                          |  |                                  |        |                               |   |       

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

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



|                                                                          |  |      |         |      |   |        
|------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                                                          |  | 2005 |         | 2004
|Term loan facility                                                        |  | $    | 451,812 |      | $ | 492,525
|Senior unsecured term loan facility                                       |  |      | 135,000 |      |   | 135,000
|8% senior subordinated notes                                              |  |      | 150,000 |      |   | 150,000
|Insurance bonds                                                           |  |      | 878     |      |   | 878    
|Guarantee obligations (see Debt Guarantees described below)               |  |      | 6,031   |      |   | 6,319  
|Capital leases                                                            |  |      | 6,318   |      |   | 6,523  
|Standby letters of credit (primarily with our casualty insurance carrier) |  |      | 6,489   |      |   | 6,489  
|Funded indebtedness of Trilogy Egg Products, Inc.                         |  |      | 3,420   |      |   | 2,980  
|Other                                                                     |  |      | 234     |      |   | 269    
|                                                                          |  |      |         |      |   |        
|                                                                          |  | $    | 760,182 |      | $ | 800,983
|                                                                          |  |      |         |      |   |        

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



As of June 30, 2005, (i) approximately $451.8 million was outstanding under the senior credit facility, and additional
capacity of approximately $6.5 million was used under the revolving line of credit for letters of credit, and (ii) a $135.0 million senior unsecured term loan was outstanding. The weighted average interest rate for our borrowings under the senior
credit facility and the unsecured term loan was approximately 5.6% at June 30, 2005. Given our business trends and cash flow forecast, we do not anticipate any use of the revolving line of credit in the near future, except for letters of credit
purposes. However, it is possible that one or more acquisitions could arise, which could result in much 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, 2005 was approximately $6.0 million. In addition, our parent, M-Foods Holdings, Inc., has outstanding 9.75% Senior Discount Notes due October 1,
2013. The accreted balance of these notes as of June 30, 2005 was $107.8 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.



23



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We invested approximately $19.3 million in capital expenditures in the six months ended June 30, 2005. We
plan to spend approximately $45.6 million in total capital expenditures for 2005, which has been, or will be, used to maintain existing production facilities, expand refrigerated warehouse capacity, and to expand our value-added egg products
capacity. We expect to fund this spending from operating cash flows.



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



Seasonality



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



Forward-looking Statements



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



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



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



ITEM 4. CONTROLS AND PROCEDURES



a. Evaluation of disclosure controls and procedures.



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



b. Changes in internal controls



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



PART IIOTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



On April 15, 2005, we were notified that the United States Court of Appeals for the Federal Circuit rejected our appeal of a jury verdict of
non-infringement of our patented extended shelf-life liquid egg technology in our long standing litigation with Sunny Fresh Foods, Inc., a subsidiary of Cargill, Inc. While our failure to overturn the jury verdict is not expected to be material to
our business, increased competition in this key product line could result. The primary patent licensed to us expires in 2006.



24



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



None.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None.



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



None.



ITEM 5. OTHER INFORMATION



None.



ITEM 6. EXHIBITS



25



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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



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 8, 2005 |  | By:                 |  | /s/ GREGG A. OSTRANDER                                              
|                     |  |                     |  | Gregg A. Ostrander (Chairman, Chief Executive Officer and President)
|                     |  |                    
|                     |  | By:                 |  | /s/ JOHN D. REEDY                                                   
|                     |  |                     |  | John D. Reedy (Executive Vice President and Chief Financial Officer)



26