UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2012

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: 333-173400

MICHAEL FOODS GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-0344222
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
301 Carlson Parkway, Suite 400 Minnetonka, Minnesota	55305
(Address of principal executive offices)	(Zip Code)

(952) 258-4000

(Registrant’s telephone number, including area code)

None

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

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

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

The registrant’s Common Stock is not publicly traded. The Registrant had 100 shares of $0.01 par value common stock outstanding as of August 14, 2012.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MICHAEL FOODS GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share data)

	June 30,		December 31,
	2012		2011
	(Unaudited)
ASSETS
Current Assets
Cash and equivalents	$	100,611	$	68,118
Accounts receivable, less allowances		148,239		153,059
Inventories		154,054		149,507
Income taxes		13,602		1,420
Prepaid expenses and other		8,788		10,596
Total Current Assets		425,294		382,700
Property, Plant and Equipment
Land		9,073		9,073
Buildings and improvements		118,647		118,096
Machinery and equipment		271,248		260,015
Total Property, Plant and Equipment		398,968		387,184
Less accumulated depreciation		131,873		98,220
Property, Plant and Equipment, net		267,095		288,964
Goodwill		829,812		829,846
Intangible assets, net		569,808		585,208
Deferred financing costs		42,270		46,027
Other assets		8,720		9,084
Total Assets	$	2,142,999	$	2,141,829
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Current maturities of long-term debt	$	7,785	$	10,096
Accounts payable		78,889		90,906
Accrued liabilities
Compensation		15,698		10,234
Customer programs		32,915		35,686
Interest		20,501		20,420
Other		33,420		22,446
Total Current Liabilities		189,208		189,788
Long-term debt, less current maturities		1,238,806		1,240,993
Deferred income taxes		270,574		276,464
Other long-term liabilities		10,105		10,621
Commitments and contingencies		—		—
Shareholder’s Equity
Common stock, $0.01 par value, 5,000 shares authorized and 100 shares issued and outstanding as of June 30, 2012 and December 31, 2011		0		0
Additional paid-in capital		412,429		411,162
Retained earnings		19,215		12,338
Accumulated other comprehensive income		2,662		463
Total Shareholder’s Equity		434,306		423,963
Total Liabilities and Shareholder’s Equity	$	2,142,999	$	2,141,829

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

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MICHAEL FOODS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

For the three and six months ended June 30, 2012 and July 2, 2011

(Unaudited, in thousands)

	Three Months Ended						Six Months Ended
	June 30,			July 2,			June 30,		July 2,
	2012			2011			2012		2011
Net sales	$	436,661		$	420,019		$	881,487	$	837,120
Cost of sales		363,096			361,937			728,521		706,425
Gross profit		73,565			58,082			152,966		130,695
Selling, general and administrative expenses		52,036			40,504			94,716		85,525
Operating profit		21,529			17,578			58,250		45,170
Interest expense, net		22,956			25,551			45,725		50,756
Unrealized (gain) loss on currency transactions		487			(98	)		84		(677	)
Loss on early extinguishment of debt		0			0			0		3,527
Earnings (loss) before income taxes and equity in losses of unconsolidated subsidiary		(1,914	)		(7,875	)		12,441		(8,436	)
Income tax expense (benefit)		(381	)		(2,783	)		4,429		(3,028	)
Equity in losses of unconsolidated subsidiary		173			74			366		193
Net earnings (loss)		(1,706	)		(5,166	)		7,646		(5,601	)
Other comprehensive income (loss)
Change in fair value of derivatives, net of tax		1,678			(3,444	)		2,088		(2,893	)
Foreign currency translation adjustment		(111	)		15			111		(54	)
Other comprehensive income (loss)		1,567			(3,429	)		2,199		(2,947	)
Comprehensive income (loss)	$	(139	)	$	(8,595	)	$	9,845	$	(8,548	)

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

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MICHAEL FOODS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY

For the six months ended June 30, 2012

(Unaudited, in thousands, except shares)

										Accumulated
					Additional					Other		Total
	Shares				Paid-In		Retained			Comprehensive		Shareholder's’
	Issued		Amount		Capital		Earnings			Income		Equity
Balance at December 31, 2011		100	$	0	$	411,162	$	12,338		$	463	$	423,963
Stock option compensation						1,053							1,053
Capital invested by parent						214							214
Dividend to parent								(769	)				(769	)
Net earnings								7,646					7,646
Foreign currency translation adjustment											111		111
Change in fair value of derivatives, net of tax											2,088		2,088
Balance at June 30, 2012		100	$	0	$	412,429	$	19,215		$	2,662	$	434,306

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

4

MICHAEL FOODS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2012 and July 2, 2011

(Unaudited, in thousands)

	2012			2011
Cash flows from operating activities:
Net earnings (loss)	$	7,646		$	(5,601	)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization		33,880			33,693
Amortization of intangibles		15,400			15,400
Amortization of deferred financing costs		3,840			3,978
Write-off of deferred financing costs		0			1,845
Amortization of original issue discount on long-term debt		1,016			1,105
Write-off of original issue discount on long-term debt		0			1,123
Deferred income taxes		(8,225	)		331
Non-cash stock option compensation		1,053			889
Changes in operating assets and liabilities:
Accounts receivable		4,804			(5,152	)
Inventories		(4,581	)		(26,168	)
Prepaid expenses, income taxes and other		(8,283	)		(4,912	)
Accounts payable		(11,968	)		2,774
Accrued liabilities		16,319			(8,822	)
Net cash provided by operating activities		50,901			10,483
Cash flows from investing activities:
Capital expenditures		(12,019	)		(18,670	)
Investments in and equity adjustments of joint ventures and other		0			(350	)
Net cash used in investing activities		(12,019	)		(19,020	)
Cash flows from financing activities:
Payments on long-term debt		(5,528	)		(786,448	)
Proceeds from long-term debt		0			840,000
Dividend to parent		(769	)		(65,000	)
Deferred financing costs		(81	)		(7,198	)
Net cash used in financing activities		(6,378	)		(18,646	)
Effect of exchange rate changes on cash		(11	)		(6	)
Net increase (decrease) in cash and equivalents		32,493			(27,189	)
Cash and equivalents at beginning of period		68,118			44,805
Cash and equivalents at end of period	$	100,611		$	17,616
Supplemental disclosures of cash flow information:
Non-cash capital investment by parent (see Note D)	$	214		$	265

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

5

MICHAEL FOODS GROUP, INC.

(Unaudited)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A—GENERAL

Basis of Presentation

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.

The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

We utilize a 52/53 week fiscal year ending on the Saturday nearest to December 31 each year. The three and six-month periods ended June 30, 2012 and July 2, 2011 were 13 and 26-week periods.

In the opinion of management, the unaudited financial statements contain all adjustments necessary to present fairly the results of operations for the periods indicated and are of normal, recurring nature. Our results of operations for the three and six-month periods and cash flows for the six-month periods ended June 30, 2012 and July 2, 2011 are not necessarily indicative of the results expected for the full year, primarily due to the impacts of seasonality on our fourth quarter resulting from increased holiday demand.

Recently Adopted Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (“FASB”) issued an update to accounting guidance for improved fair value measurement and disclosures. The update represents converged guidance between U.S. GAAP and International Financial Reporting Standards (IFRS) resulting in common requirements for measuring fair value and for disclosing information about fair value measurements. This new guidance was effective for our fiscal year beginning January 1, 2012 and the adoption of this guidance did not have an impact on our financial position, results of operations or cash flows.

In September 2011, the FASB issued guidance on goodwill impairment testing that gives companies the option to perform a qualitative assessment that may allow them to skip the annual two-step test. The assessment examines qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is or is not less than its carrying amount. This new guidance was effective for our fiscal year beginning January 1, 2012 and the adoption of this guidance could impact our assessment process over goodwill but is not expected to have an impact on our financial position, results of operations or cash flows.

In June 2011, the FASB issued guidance on presentation of comprehensive income that requires us to present components of other comprehensive income and of net income in one continuous statement of comprehensive income, or in two separate but consecutive statements. In December 2011, the FASB issued a deferral of the effective date for presentations of reclassifications of items out of accumulated other comprehensive income (loss). The option to report other comprehensive income within the statement of equity has been removed. This new presentation of comprehensive income was effective for our fiscal year beginning January 1, 2012 and we have presented in one continuous statement of comprehensive income. The adoption of this guidance did not have an impact on our financial position, results of operations or cash flows.

There was no other accounting pronouncement adopted during the six-month period ended June 30, 2012 that had a material impact on our financial position, operating results or disclosures.

Recent Accounting Pronouncements to be Adopted

In July 2012, the FASB issued new accounting guidance, which amends the existing guidance, related to impairment testing of indefinite-lived intangible assets. The amendments allow the option of performing a qualitative impairment assessment before calculating the fair value of the intangible assets, which could, depending on the results of the assessment, eliminate the need for further impairment testing. The guidance is effective for interim and annual periods beginning after September 15, 2012 with early adoption permitted. We do not expect the adoption of this guidance to have an impact on our financial position, results of operations or cash flows.

There were no other new accounting pronouncements issued during the six-month period ended June 30, 2012 that are expected to have material impacts on our financial position, operating results or disclosures.

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Financial Instruments and Fair Value Measurements

We are exposed to market risks from changes in commodity prices, which may adversely affect our operating results and financial position. When appropriate, we seek to minimize our risks from commodity price fluctuations through the use of derivative financial instruments, such as commodity purchase contracts, which are classified as derivatives, along with other instruments relating primarily to corn, soybean meal, cheese and energy-related needs. We estimate fair values based on exchange-quoted prices, adjusted as appropriate for differences in local markets. These differences are generally valued using inputs from broker or dealer quotations, or market transactions in either the listed or over-the-counter commodity markets. In such cases, these derivative contracts are classified within Level 2 of the fair value hierarchy. Changes in the fair values of these contracts are recognized in the consolidated financial statements as a component of cost of sales or other comprehensive income (loss). The hedging-related financial instruments measured at fair value on a recurring basis are included in current assets, under prepaid expenses and other.

In addition, we seek to minimize our risks from interest rate fluctuations through the use of interest rate swap contracts. These instruments are valued using standard calculations and models with inputs other than quoted market prices provided by our banking partners. The fair value of instruments may be impacted by the Company’s nonperformance risk, which is estimated based upon the unsecured borrowing rates available to the Company. The borrowing rates available to the Company are considered a significant unobservable input used in the fair value measurement of such instruments. As such, they were included in the Level 3 fair value measurements as of June 30, 2012 and December 31, 2011. A 1% change in the unobservable input would have an approximately $120,000 effect on interest expense. Management has elected to not account for these instruments as hedges so changes in the fair values of these instruments are recognized in the consolidated financial statements as a component of interest expense. The interest rate swap contract liability is measured at fair value on a recurring basis and the current portion of the liability is included in other accrued liabilities and the long-term portion is included in other long-term liabilities.

The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis that used Level 3, significant unobservable inputs (in thousands):

	Interest Rate Swap Contracts
Balance at December 31, 2011	$	6,500
Unrealized loss included in interest expense		1,649
Balance at June 30, 2012	$	8,149

The following tables set forth our hedging-related financial assets and liabilities measured on a recurring basis as of the periods ended June 30, 2012 and December 31, 2011 (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Derivatives:
Assets:
As of June 30, 2012
Commodity contracts - Grain	$	4,545	$	0	$	4,545	$	0
As of December 31, 2011
Commodity contracts - Grain	$	2,906	$	0	$	2,906	$	0
Liabilities:
As of June 30, 2012
Commodity contracts - Energy	$	472	$	0	$	472	$	0
Interest rate swap contracts		8,149		0		0		8,149
Total liabilities	$	8,621	$	0	$	472	$	8,149
As of December 31, 2011
Commodity contracts - Energy	$	618	$	0	$	618	$	0
Interest rate swap contracts		6,500		0		0		6,500
Total liabilities	$	7,118	$	0	$	618	$	6,500

We have six financial debt instruments, two of which are traded in the public debt securities market. For the two traded instruments, we utilize Level 1 valuation inputs (based upon each instrument’s market trading price) to compute the fair value of

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financial debt owed to our lenders. The first debt instrument is our credit agreement facility that includes a term B loan. The fair value of the term B loan was $794 million compared to its carrying value of $794.3 million (outstanding balance of $805.7 million, less $11.4 million of unamortized original issue discount). The second debt instrument is our senior notes. The fair value of our senior notes was $470.3 million compared to the carrying value of $430 million. Our other debt instruments are not available for trading and fair value approximates their carrying value.

Accounting for Hedging Activities

Certain of our operating segments enter into derivative instruments, such as corn and soybean meal futures, which we believe provide an economic hedge on future transactions and are designated as cash flow hedges. As the commodities being hedged are grain ingredients fed to our flocks, the changes in the market value of such contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price movements of these items.

We actively monitor exposure to commodity price risks and use derivative commodity instruments to manage the impact of certain of these risks. We use derivatives, primarily futures contracts, only for the purpose of managing risks associated with underlying commodity exposures. Our futures contracts for grains are cash flow hedges of firm purchase commitments and anticipated production requirements, as they reduce our exposure to changes in the cash price of the respective items and generally extend for less than one year. We expect that within the next twelve months we will reclassify, as earnings or losses, substantially all of the amount recorded in accumulated other comprehensive income.

In addition, we use derivative instruments to mitigate some of the risk associated with our energy-related needs and interest costs. We do not treat those futures contracts as hedging instruments and, therefore, record the gains or losses related to them as a component of earnings in the period of change. We do not trade or use instruments with the objective of earning financial gains on the commodity price, nor do we use instruments where there is no underlying exposure. All derivatives are recognized at their fair value. For derivative instruments designated and qualifying as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income or (loss) (“AOCI” or “AOCL”) in the equity section of our balance sheet and a corresponding amount is recorded in “prepaid expenses and other current assets”, “other accrued liabilities” or “other long-term liabilities,” as appropriate. The amounts carried in cash, when appropriate, represent the fair value of our positions in excess of the margin requirements. We offset certain derivative asset and liability amounts where a legal right of offset exists. The amounts deferred are subsequently recognized in cost of sales when the associated products are sold. The cost or benefit of contracts closed prior to the execution of the underlying purchase is deferred until the anticipated purchase occurs. As a result of the volatility of the markets, deferred gains and losses in AOCI or AOCL may fluctuate until the related contract is closed. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current earnings. We do not exclude any items from our assessment of ineffectiveness. During the six-month period ended June 30, 2012, we did not discontinue any cash flow hedges; therefore no reclassification of gains or losses into earnings was made during the period related to such items.

We had the following outstanding commodity-forward contracts for hedging of forecasted purchases of grain, as of the periods ended:

	June 30,		December 31,
Commodity	2012		2011
Corn (bushels)		3,805,000		6,375,000
Soybean Meal (tons)		40,000		71,800

Information on location and amounts of derivative fair values in the condensed consolidated balance sheets is presented below (in thousands):

		Fair Value (1)
		June 30, 2012					December 31, 2011
	Balance Sheet Location	Asset		Liability			Asset		Liability
Derivatives designated as hedging instruments:
Commodity contracts – Grain	Prepaid expenses and other	$	4,545	$	0		$	3,788	$	(882	)
Derivatives not designated as hedging instruments:
Commodity contracts – Energy	Prepaid expenses and other	$	24	$	(496	)	$	30	$	(648	)
Interest rate swap contracts	Other accrued liabilities and other long-term liabilities	$	0	$	(8,149	)	$	0	$	(6,500	)

(1) Amounts represent the gross fair value of derivative assets and liabilities. The Company nets the derivative assets and liabilities for each of its hedging programs, including cash collateral, when a master netting arrangement exists between the Company and the counterparty to the derivative contract. The amount or timing of cash collateral balances may impact the classification of the

8

derivative in the condensed consolidated balance sheets. The gross fair value of the commodity grain contracts is exclusive of cash collateral receivable of $0 and $223 as of June 30, 2012 and December 31, 2011. The gross fair value of the commodity energy contracts is exclusive of cash collateral receivable of $1,190 and $925 as of June 30, 2012 and December 31, 2011.

The following tables represent the effect of derivative instruments on our Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six-month periods ended June 30, 2012 and July 2, 2011 (in thousands):

Derivatives in Cash Flow Hedging Relationships, net of tax:

	(Effective Portion)					(Ineffective Portion)
	Gain (Loss) Recognized in AOCI on Derivative		Location of Gain (Loss) Reclassified from AOCI into Earnings	Gain (Loss) Reclassified from AOCI into Earnings		Location of Gain (Loss) Recognized in Earnings on Derivative	Gain (Loss) Recognized in Earnings on Derivative
	For the three months ended June 30, 2012
Commodity contracts – Grain	$	3,427	Cost of sales	$	1,749	Cost of sales	$	(419)
	For the three months ended July 2, 2011
Commodity contracts – Grain	$	(2,025)	Cost of sales	$	1,419	Cost of sales	$	(1)
	For the six months ended June 30, 2012
Commodity contracts – Grain	$	3,499	Cost of sales	$	1,411	Cost of sales	$	(561)
	For the six months ended July 2, 2011
Commodity contracts – Grain	$	(1,430)	Cost of sales	$	1,463	Cost of sales	$	(11)

Derivatives not designated as hedging instruments for the three and six-month periods ended June 30, 2012 and July 2, 2011 (in thousands):

	Locations of Gain (Loss) Recognized in Earnings on Derivative	Three Months Ended,						Six Months Ended,
		2012			2011			2012			2011
		Gain (Loss) Recognized in Earnings on Derivative
Commodity contracts – Energy	Cost of sales	$	(521	)	$	46		$	(393	)	$	67
Interest rate swap contracts	Interest expense	$	(955	)	$	(2,971	)	$	(1,649	)	$	(3,649	)

Currency Translation

Our Egg Products Division includes a subsidiary in Canada (MFI Food Canada Ltd.). Its financial statements are included in our consolidated financial statements. The financial statements for the Canadian entity are measured in the local currency and then translated into U.S. dollars. The balance sheet accounts, with the exception of retained earnings accounts, are translated using the current exchange rate at the balance sheet date and the operating results are translated using the average rates prevailing throughout the reporting period. The retained earnings equity accounts are translated at historical average rates. Accumulated translation gains or losses are recorded in AOCI or AOCL and are included as a component of comprehensive income. Transactional gains and losses are reported in the statements of operations and comprehensive income. Michael Foods, Inc. holds a Canadian dollar-denominated note receivable from the Canadian subsidiary. As a result, we record the exchange-rate impact on that note as a component of earnings (loss) in the period of change.

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Joint Venture

In 2010, we funded $1.5 million, our 50% share of the initial capital funding of a joint venture, to MFOSI, LLC, a Delaware LLC (“MFOSI”). MFOSI owns 100% of its subsidiary, Lang Fang MK Food Company Ltd., a Chinese egg products company. In November 2011, we and our joint venture partner each invested an additional $500,000. The Chinese company began producing product samples in late 2011 with production for customer sales beginning in early 2012. Under the equity method of accounting, losses were recorded for the unconsolidated subsidiary in an amount of $173,000 and $74,000 during the three-month periods ended June 30, 2012 and July 2, 2011 and $366,000 and $193,000 during six-month periods ended June 30, 2012 and July 2, 2011.

2011 Debt Refinancing

On February 25, 2011, we completed a refinancing of our credit agreement. The new amended and restated credit agreement, with Bank of America, N.A. as administrative agent, provided availability of up to $915 million, in the form of an $840 million term B loan and $75 million revolving line of credit. In accordance with the provisions of the June 29, 2010 credit agreement, we paid a 1% soft-call premium of approximately $8 million to term B loan lenders. We capitalized approximately $7 million of the premium paid to lenders, whose term debt was modified, which is being amortized using the effective interest rate method over the term of the credit agreement. We incurred debt issuance costs of approximately $4.6 million paid to third parties related to the term B loan refinancing, including arranger fees, attorney fees and rating agency fees which were expensed during the six-month period ended July 2, 2011 as the term B loan refinancing was determined to be a modification and not a debt extinguishment. Also, included in early extinguishment of debt costs of $3.5 million for the six-month period ended July 2, 2011 were approximately $600,000 of the 1% soft-call costs, the non-cash write-off of approximately $1.8 million of unamortized deferred financing costs and approximately $1.1 million original issue discount associated with the extinguishment of debt owed to those lenders who did not participate in the amended and restated credit agreement.

NOTE B—INVENTORIES

Inventories, other than flocks, are stated at the lower of cost (determined on a first-in, first-out basis) or market. Flock inventory represents the cost of purchasing and raising flocks to laying maturity. The costs included in our flock inventory include the costs of the chicks, the feed fed to the birds, and the labor and overhead costs incurred to operate the pullet facilities until the birds are transferred into the laying facilities, at which time their cost is amortized to operations over their expected useful lives.

Inventories consisted of the following as of the periods ended (in thousands):

	June 30, 2012		December 31, 2011
Raw materials and supplies	$	25,006	$	25,488
Work in process and finished goods		96,187		90,590
Flocks		32,861		33,429
Total inventories	$	154,054	$	149,507

NOTE C—COMMITMENTS AND CONTINGENCIES

Legal Matters

Antitrust claims: In late 2008 and early 2009, some 22 class-action lawsuits were filed in various federal courts against Michael Foods, Inc. and approximately 20 other defendants (producers of shell eggs, manufacturers of processed egg products, and egg industry organizations), alleging violations of federal and state antitrust laws in connection with the production and sale of shell eggs and processed-egg products, and seeking unspecified damages. Plaintiffs seek to represent nationwide classes of direct and indirect purchasers, and allege that defendants conspired to reduce the supply of eggs by participating in animal husbandry, egg-export and other programs of various egg-industry associations. In December 2008, the Judicial Panel on Multidistrict Litigation ordered the transfer of all cases to the Eastern District of Pennsylvania for coordinated and/or consolidated pretrial proceedings. Between late 2010 and early 2012, a number of companies, each of which would be part of the purported class in the antitrust action, brought separate actions against defendants. These “tag-along” cases, brought primarily by various grocery chains and food companies, assert essentially the same allegations as the Second Consolidated Amended Complaint in the main action. All but one of the tag-along cases were either filed in or transferred to the Eastern District of Pennsylvania where they are being treated as related to the main action; the one tag-along case where pretrial proceedings are not under the jurisdiction of the Eastern District of Pennsylvania was brought by a retail grocery chain in Kansas state court. Discovery is underway in these matters.

We received a Civil Investigative Demand (“CID”) issued by the Florida Attorney General on November 17, 2008, regarding an investigation of possible anticompetitive activities “relating to the production and sale of eggs or egg products.” The CID requested information and documents related to the pricing and supply of shell eggs and egg products, as well as our participation in various programs of United Egg Producers. We have fully cooperated with the Florida Attorney General’s Office to date. Further compliance was suspended pending discovery in the civil antitrust litigation referenced above.

10

Patent infringement litigation: On October 27, 2010, National Pasteurized Eggs, Inc. and National Pasteurized Eggs, LLC (collectively “NPE”) commenced litigation against Michael Foods, Inc. and several of its subsidiaries in U.S. District Court for the Western District of Wisconsin. NPE alleged that our pasteurized shell eggs infringe on patents and trademarks that NPE owns or licenses. On April 15, 2011, Michael Foods, Inc. commenced litigation against National Pasteurized Eggs, Inc. in U.S. District Court for the District of Minnesota, alleging that National Pasteurized Eggs, Inc.’s production and sale of pasteurized shell eggs infringed three patents exclusively licensed to Michael Foods, Inc. The cases were consolidated before the U.S. District Court for the Western District of Wisconsin. A jury trial took place in June, 2012; the jury returned a verdict of patent infringement against Michael Foods and awarded $5.8 million in damages. The verdict does not affect Michael Foods’ ability to continue producing pasteurized shell eggs, but in response to the jury verdict, we returned to process parameters that were in place prior to April, 2010. Several post-trial motions are pending before the trial court, including a motion for reduction of the damages award. In June 2012, we recorded a liability of $5.8 million for the damages award; it is included in other current liabilities and selling, general and administrative expenses.

Lawsuit against the City of Elizabeth and Liberty Water Co.: On January 28, 2010, our subsidiary Papetti’s Hygrade Egg Products, Inc. commenced suit in New Jersey Superior Court against the City of Elizabeth, N.J. and Liberty Water Company. The suit alleges that City sewer charges, which are billed by Liberty Water, are arbitrary and inequitable. Papetti’s seeks a declaration that its sewer bills have been inaccurate at least since 2002, and seeks invalidation of certain sewer-related charges and surcharges. In responding to the suit, the City of Elizabeth counterclaimed on May 7, 2010 that Papetti’s “has not been charged the full and proper amount of sewage charges due to billing mistakes of Defendant Liberty Water Company,” but did not allege any undercharged amount. On June 1, 2011, Liberty Water gave notice of its belief that from 2004 to present, it underbilled Papetti’s by some $6.5 million. In November of 2011, Liberty Water issued invoices totaling $6.2 million to Papetti’s in connection with the alleged underbilling. We have not recorded a liability for the alleged underbilling as we believe there is no merit in this claim.

We do not believe it is possible to estimate any possible loss in connection with these litigated matters. Accordingly, we cannot predict what impact, if any, these matters and any results from such matters could have on our future results of operations.

Other: In addition, we are from time to time party to litigation, administrative proceedings and union grievances that arise in the ordinary course of business, and occasionally pay non-material amounts to resolve claims and alleged violations of regulatory requirements. There are no pending “ordinary course” matters that, separately or in the aggregate, would, in the opinion of management, have a material adverse effect on our operations, financial condition or cash flow.

NOTE D—SHAREHOLDER’S EQUITY

Additional Paid-in Capital

We recorded non-cash capital investments from our parent, MFI Midco Corporation (“Midco”), of $214,000 and $265,000 in the six-month periods ended June 30, 2012 and July 2, 2011 related to the tax benefit the Company receives on Midco’s tax amortization deduction due to filing a consolidated Federal tax return.

Dividend

During March 2012, the Company issued a dividend to its ultimate parent, MFI Holding Corporation, to repurchase certain of its shares of a terminated employee.

11

NOTE E—BUSINESS SEGMENTS

We are a diversified producer and distributor of food products in three segments — egg products, refrigerated potato products and cheese and other dairy case products. We produce and distribute egg products to the foodservice, retail and food ingredient markets. We process and distribute refrigerated potato products to the foodservice and retail grocery markets in North America. We market a broad line of refrigerated grocery products to U.S. retail grocery outlets, including branded and private-label cheese, bagels, butter, muffins and ethnic foods. Beginning January 1, 2012, we changed our internal reporting of segment information reported to our President and Chief Executive Officer who is our Chief Operating Decision Maker (“CODM”). We now report all sales of shell egg and egg products and refrigerated potato products in their respective segments and the balance of our retail distributed products, cheese and other dairy-case products, as our third segment. This change increased the amount of external net sales and operating profit reported for prior periods for both the egg products and refrigerated potato products segments as we reclassified the egg and refrigerated potato products previously reported under the Crystal Farms segment. The July 2, 2011 three and six month periods have been restated to reflect the new internal reporting to the CODM. This change had no impact on the assets of the segments as none of the underlying business unit operations were affected by this reporting change.

Certain financial information on operating segments is as follows (in thousands):

	Egg Products		Refrigerated Potato Products		Cheese & Other Dairy-Case Products		Corporate & Eliminations			Total
Three months ended June 30, 2012
External net sales	$	310,291	$	35,009	$	91,361	$	0		$	436,661
Operating profit (loss)		25,898		2,668		4,774		(11,811	)		21,529
Depreciation and amortization		20,004		2,817		1,811		1			24,633
Three months ended July 2, 2011
External net sales	$	295,967	$	32,626	$	91,426	$	0		$	420,019
Operating profit (loss)		17,202		1,879		4,230		(5,733	)		17,578
Depreciation and amortization		19,783		2,851		1,981		2			24,617
Six months ended June 30, 2012
External net sales	$	620,906	$	71,829	$	188,752	$	0		$	881,487
Operating profit (loss)		55,833		7,904		10,427		(15,914	)		58,250
Depreciation and amortization		40,022		5,634		3,621		3			49,280
Six months ended July 2, 2011
External net sales	$	593,413	$	65,520	$	178,187	$	0		$	837,120
Operating profit (loss)		45,237		5,139		8,785		(13,991	)		45,170
Depreciation and amortization		39,424		5,702		3,963		4			49,093

NOTE F—SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

We and our 100% owned domestic subsidiaries, jointly and severally, and fully and unconditionally, guarantee the amended and restated credit agreement and senior notes.

The following condensed consolidating financial information presents our consolidated balance sheets as of June 30, 2012 and as of December 31, 2011, and the condensed consolidating statements of operations and comprehensive income for the three and six-month periods ended June 30, 2012 and July 2, 2011 and cash flows for the six-month periods ended June 30, 2012 and July 2, 2011. The financial statements reflect Michael Foods Group, Inc. (Corporate), the wholly owned guarantor subsidiaries (on a combined basis), the non-guarantor subsidiary (MFI Food Canada Ltd.), and elimination entries necessary to combine such entities on a consolidated basis.

12

Condensed Consolidating Balance Sheets

June 30, 2012

(Unaudited, in thousands)

	Corporate			Guarantor Subsidiaries		Non-Guarantor Subsidiary			Eliminations			Consolidated
Assets
Current Assets
Cash and equivalents	$	0		$	100,312	$	299		$	0		$	100,611
Accounts receivable, less allowances		0			142,585		5,654			0			148,239
Intercompany receivable (payable)		(22,669	)		25,963		(3,294	)		0			0
Inventories		0			146,447		7,607			0			154,054
Income taxes		10,866			2,736		0			0			13,602
Prepaid expenses and other		0			8,652		136			0			8,788
Total current assets		(11,803	)		426,695		10,402			0			425,294
Property, Plant and Equipment—net		0			261,022		6,073			0			267,095
Goodwill		0			822,960		6,852			0			829,812
Intangibles and other assets		847,993			595,994		0			(823,189	)		620,798
Investment in subsidiaries		862,114			495		0			(862,609	)		0
Total assets	$	1,698,304		$	2,107,166	$	23,327		$	(1,685,798	)	$	2,142,999
Liabilities and Shareholder’s Equity
Current Liabilities
Current maturities of long-term debt	$	0		$	7,098	$	687		$	0		$	7,785
Accounts payable		0			76,712		2,177			0			78,889
Accrued liabilities		22,005			78,515		2,014			0			102,534
Total current liabilities		22,005			162,325		4,878			0			189,208
Long-term debt, less current maturities		1,224,305			819,689		18,001			(823,189	)		1,238,806
Deferred income taxes		7,583			262,893		98			0			270,574
Other long-term liabilities		10,105			0		0			0			10,105
Shareholder’s equity		434,306			862,259		350			(862,609	)		434,306
Total liabilities and shareholder’s equity	$	1,698,304		$	2,107,166	$	23,327		$	(1,685,798	)	$	2,142,999

13

Condensed Consolidating Balance Sheets

December 31, 2011

(In thousands)

	Corporate		Guarantor Subsidiaries		Non-Guarantor Subsidiary		Eliminations			Consolidated
Assets
Current Assets
Cash and equivalents	$	0	$	68,118	$	0	$	0		$	68,118
Accounts receivable, less allowances		0		149,089		4,977		(1,007	)		153,059
Inventories		0		141,990		7,517		0			149,507
Income taxes		774		646		0		0			1,420
Prepaid expenses and other		0		10,485		111		0			10,596
Total current assets		774		370,328		12,605		(1,007	)		382,700
Property, Plant and Equipment—net		0		281,214		7,750		0			288,964
Goodwill		0		822,960		6,886		0			829,846
Intangibles and other assets		852,828		612,040		0		(824,549	)		640,319
Investment in subsidiaries		834,643		2,644		0		(837,287	)		0
Total assets	$	1,688,245	$	2,089,186	$	27,241	$	(1,662,843	)	$	2,141,829
Liabilities and Shareholder’s Equity
Current Liabilities
Current maturities of long-term debt	$	2,000	$	6,959	$	1,137	$	0		$	10,096
Accounts payable		0		88,825		3,088		(1,007	)		90,906
Accrued liabilities		20,212		66,864		1,710		0			88,786
Total current liabilities		22,212		162,648		5,935		(1,007	)		189,788
Long-term debt, less current maturities		1,222,365		824,351		18,826		(824,549	)		1,240,993
Deferred income taxes		9,084		267,380		0		0			276,464
Other long-term liabilities		10,621		0		0		0			10,621
Shareholder’s equity		423,963		834,807		2,480		(837,287	)		423,963
Total liabilities and shareholder’s equity	$	1,688,245	$	2,089,186	$	27,241	$	(1,662,843	)	$	2,141,829

14

Condensed Consolidating Statements of Operations

And Comprehensive Income

Three months ended June 30, 2012

(Unaudited, in thousands)

	Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiary			Eliminations			Consolidated
Net sales	$	0		$	425,497		$	12,578		$	(1,414	)	$	436,661
Cost of sales		0			352,020			12,490			(1,414	)		363,096
Gross profit		0			73,477			88			0			73,565
Selling, general and administrative expenses		0			51,200			836			0			52,036
Operating profit (loss)		0			22,277			(748	)		0			21,529
Interest expense, net		14,064			8,533			359			0			22,956
Unrealized loss on currency transactions		0			487			0			0			487
Earnings (loss) before equity in earnings (loss) of subsidiaries, income taxes and equity in losses of unconsolidated subsidiary		(14,064	)		13,257			(1,107	)		0			(1,914	)
Equity in earnings (loss) of subsidiaries		7,190			(1,118	)		0			(6,072	)		0
Income tax expense (benefit)		(5,168	)		4,776			11			0			(381	)
Equity in losses of unconsolidated subsidiary		0			173			0			0			173
Net earnings (loss)	$	(1,706	)	$	7,190		$	(1,118	)	$	(6,072	)	$	(1,706	)
Comprehensive income (loss)	$	(1,706	)	$	8,625		$	(986	)	$	(6,072	)	$	(139	)

15

Condensed Consolidating Statements of Operations

And Comprehensive Income

Three months ended July 2, 2011

(Unaudited, in thousands)

	Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiary			Eliminations			Consolidated
Net sales	$	0		$	410,315		$	13,926		$	(4,222	)	$	420,019
Cost of sales		0			352,960			13,199			(4,222	)		361,937
Gross profit		0			57,355			727			0			58,082
Selling, general and administrative expenses		462			39,348			694			0			40,504
Operating profit (loss)		(462	)		18,007			33			0			17,578
Interest expense, net		25,158			55			338			0			25,551
Unrealized gain on currency transactions		0			(98	)		0			0			(98	)
Earnings (loss) before equity in earnings (loss) of subsidiaries, income taxes and equity in losses of unconsolidated subsidiary		(25,620	)		18,050			(305	)		0			(7,875	)
Equity in earnings (loss) of subsidiaries		10,808			(308	)		0			(10,500	)		0
Income tax expense (benefit)		(9,646	)		6,860			3			0			(2,783	)
Equity in losses of unconsolidated subsidiary		0			74			0			0			74
Net earnings (loss)	$	(5,166	)	$	10,808		$	(308	)	$	(10,500	)	$	(5,166	)
Comprehensive income (loss)	$	(5,166	)	$	7,418		$	(347	)	$	(10,500	)	$	(8,595	)

16

Condensed Consolidating Statements of Operations

And Comprehensive Income

Six months ended June 30, 2012

(Unaudited, in thousands)

	Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiary			Eliminations			Consolidated
Net sales	$	0		$	860,824		$	23,222		$	(2,559	)	$	881,487
Cost of sales		0			708,049			23,031			(2,559	)		728,521
Gross profit		0			152,775			191			0			152,966
Selling, general and administrative expenses		0			93,156			1,560			0			94,716
Operating profit (loss)		0			59,619			(1,369	)		0			58,250
Interest expense, net		27,867			17,130			728			0			45,725
Unrealized loss on currency transactions		0			84			0			0			84
Earnings (loss) before equity in earnings (loss) of subsidiaries, income taxes and equity in losses of unconsolidated subsidiary		(27,867	)		42,405			(2,097	)		0			12,441
Equity in earnings (loss) of subsidiaries		25,272			(2,120	)		0			(23,152	)		0
Income tax expense (benefit)		(10,241	)		14,647			23			0			4,429
Equity in losses of unconsolidated subsidiary		0			366			0			0			366
Net earnings (loss)	$	7,646		$	25,272		$	(2,120	)	$	(23,152	)	$	7,646
Comprehensive income (loss)	$	7,646		$	27,453		$	(2,102	)	$	(23,152	)	$	9,845

17

Condensed Consolidating Statements of Operations

And Comprehensive Income

Six months ended July 2, 2011

(Unaudited, in thousands)

	Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiary			Eliminations			Consolidated
Net sales	$	0		$	819,161		$	25,714		$	(7,755	)	$	837,120
Cost of sales		0			690,078			24,102			(7,755	)		706,425
Gross profit		0			129,083			1,612			0			130,695
Selling, general and administrative expenses		5,007			78,954			1,564			0			85,525
Operating profit (loss)		(5,007	)		50,129			48			0			45,170
Interest expense, net		49,947			75			734			0			50,756
Unrealized gain on currency transactions		0			(677	)		0			0			(677	)
Loss on early extinguishment of debt		3,527			0			0			0			3,527
Earnings (loss) before equity in earnings (loss) of subsidiaries, income taxes and equity in losses of unconsolidated subsidiary		(58,481	)		50,731			(686	)		0			(8,436	)
Equity in earnings (loss) of subsidiaries		30,862			(682	)		0			(30,180	)		0
Income tax expense (benefit)		(22,018	)		18,994			(4	)		0			(3,028	)
Equity in losses of unconsolidated subsidiary		0			193			0			0			193
Net earnings (loss)	$	(5,601	)	$	30,862		$	(682	)	$	(30,180	)	$	(5,601	)
Comprehensive income (loss)	$	(5,601	)	$	28,074		$	(841	)	$	(30,180	)	$	(8,548	)

18

Condensed Consolidating Statements of Cash Flows

Six months ended June 30, 2012

(Unaudited, in thousands)

	Corporate			Guarantor Subsidiaries			Non- Guarantor Subsidiary			Consolidated
Net cash provided by (used in) operating activities	$	(21,818	)	$	71,455		$	1,264		$	50,901
Cash flows from investing activities:
Capital expenditures		0			(11,926	)		(93	)		(12,019	)
Net cash used in investing activities		0			(11,926	)		(93	)		(12,019	)
Cash flows from financing activities:
Payments on long-term debt		(1,077	)		(3,446	)		(1,005	)		(5,528	)
Proceeds from issuance of debt		0			0			0			0
Deferred financing costs		(81	)		0			0			(81	)
Dividend to parent		(769	)		0			0			(769	)
Dividend from subsidiaries		23,745			(23,889	)		144			0
Net cash provided by (used in) financing activities		21,818			(27,335	)		(861	)		(6,378	)
Effect of exchange rate changes on cash		0			0			(11	)		(11	)
Net increase in cash and equivalents		0			32,194			299			32,493
Cash and equivalents at beginning of period		0			68,118			0			68,118
Cash and equivalents at end of period	$	0		$	100,312		$	299		$	100,611

19

Condensed Consolidating Statements of Cash Flows

Six months ended July 2, 2011

(Unaudited, in thousands)

	Corporate			Guarantor Subsidiaries			Non- Guarantor Subsidiary			Consolidated
Net cash provided by (used in) operating activities	$	(29,006	)	$	39,552		$	(63	)	$	10,483
Cash flows from investing activities:
Capital expenditures		0			(18,555	)		(115	)		(18,670	)
Investment in and equity adjustments of joint ventures and other		0			(350	)		0			(350	)
Net cash used in investing activities		0			(18,905	)		(115	)		(19,020	)
Cash flows from financing activities:
Payments on long-term debt		(782,125	)		(3,312	)		(1,011	)		(786,448	)
Proceeds from issuance of debt		840,000			0			0			840,000
Deferred financing costs		(7,198	)		0			0			(7,198	)
Dividend to parent		(65,000	)		0			0			(65,000	)
Dividend from subsidiaries		43,329			(43,329	)		0			0
Net cash provided by (used in) financing activities		29,006			(46,641	)		(1,011	)		(18,646	)
Effect of exchange rate changes on cash		0			0			(6	)		(6	)
Net decrease in cash and equivalents		0			(25,994	)		(1,195	)		(27,189	)
Cash and equivalents at beginning of period		0			43,610			1,195			44,805
Cash and equivalents at end of period	$	0		$	17,616		$	0		$	17,616

20

ITEM 2— MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

We are a producer and distributor of egg products to the foodservice, retail and food ingredient markets. We are also a producer and distributor of refrigerated potato products to the foodservice and retail grocery markets. Additionally, we distribute refrigerated food items, primarily cheese and other products sold in the dairy case 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 efficient 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 long-term trend toward food consumption away from home, which continues to be slowed somewhat by the recent economic conditions. We believe our operational scale, product breadth and geographic scope make us an attractive and important strategic partner for our customers, which include foodservice distributors, major restaurant chains, food ingredient companies and the retail grocery market.

Commodities and Product Pricing

Our principal exposure to market risks that may adversely affect our results of operations and financial position include changes in future commodity prices and interest rates. We seek to minimize or manage these market risks through normal operating and financing activities and through the use of commodity futures contracts, when appropriate. We do not trade or use instruments with the objective of earning financial gains on commodity prices, nor do we use instruments where there are not underlying exposures.

The profit margins we earn on many of our products are sensitive to changes in commodity prices. Generally, approximately 70% of the Egg Products Division’s annual net sales come from higher value-added egg products, such as extended shelf-life liquid and precooked products, with the remainder coming from products mainly used in the food ingredients market or shell eggs. Gross profit margins for certain higher value-added egg products are generally less sensitive to commodity price fluctuations, which impact the input costs of our egg supply, than are other egg products or shell eggs; however, because of agreements with customers we are sometimes unable to adjust product pricing for value-added products as quickly as we are for other egg products and shell eggs when our costs change. Margins for our food ingredient egg products and shell eggs are more commodity price-sensitive than are higher value-added product sales. Gross profit from shell eggs is primarily dependent upon the relationship between shell egg prices and the cost of feed, both of which can fluctuate significantly. Shell egg market costs were approximately 3% lower in the first six months of 2012 than in the comparable 2011 period (as measured by Urner Barry Publications). Prices (as measured by the Chicago Board of Trade) for corn and soybean meal used in our feed, decreased approximately 11% and increased approximately 4%, respectively, in the first six months of 2012 as compared to the comparable 2011 period.

The Cheese & Other Dairy-Case Products Division derives a majority of its net sales from refrigerated products produced by others. A majority of those sales are represented by cheese and butter, for which the costs fluctuate with national dairy markets. Time lags between cost changes for these lines and wholesale/retail pricing changes can result in significant margin changes. Commodity block cheese prices in the first six months of 2012 were down 13% year-over-year.

The Refrigerated Potato Products Division typically purchases approximately 90% of its annual raw potato requirements from contract producers. 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 Refrigerated Potato Products Division’s operating results.

Results of Operations

Beginning January 1, 2012, we changed our internal reporting of segment information reported to our President and Chief Executive Officer who is our Chief Operating Decision Maker (“CODM”). We now report all sales of shell egg and egg products and refrigerated potato products in their respective segments and the balance of our retail distributed products, cheese and other dairy-case products, as our third segment. This change increased the amount of external net sales and operating profit reported for prior periods for both the egg products and refrigerated potato products segments as we reclassified the egg and refrigerated potato products previously reported under the Crystal Farms segment. The comparative discussion below reflects, and the amounts for the July 2, 2011 three and six month periods have been restated to reflect, the new internal reporting to the CODM. This change had no impact on the assets of the segments as none of the underlying business unit operations were affected by this reporting change. Readers are directed to “Note E—Business Segments” for data on the unaudited financial results of our business segments for the three and six-month periods ended June 30, 2012 and July 2, 2011.

21

Three Months Ended June 30, 2012 as Compared to Three Months Ended July 2, 2011

Net Sales. Net sales for 2012 increased approximately $16.6 million, or 4%, to $436.7 million from $420 million in 2011. The increased net sales reflected volume increases of 5.2%. Increases were seen across all of our business segments.

Egg Products Division Net Sales. External net sales for 2012 increased approximately $14.3 million, or 4.8%. The net sales increase is primarily due to a 4.8% increase in volume, which came from all three distribution channels.

Refrigerated Potato Products Division Net Sales. External net sales for 2012 increased approximately $2.4 million, or 7.3%. The net sales increase is primarily due to an 8.5% increase in volume.

Cheese & Other Dairy-Case Products Division Net Sales. External net sales for 2012 were flat compared to 2011. Net sales were flat, despite improved volumes which were up 3.1%, primarily due to lower cheese and butter markets which drove lower pricing levels.

Gross Profit. Gross profit for 2012 increased $15.5 million, or 26.7%, to $73.6 million from $58.1 million in 2011. Our gross profit margin increased to 16.8% in 2012 as compared to 13.8% in 2011. The main driver for the increase was an improved alignment of pricing with our input costs for the quarter.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for 2012 increased $11.5 million, or 28.4%, to $52 million from $40.5 million in 2011. The main reason for the increase was the $5.8 million in damages awarded by a jury in the National Pasteurized Eggs, Inc. litigation described in Note C to the Condensed Consolidated Financial Statements. Also up year-over-year were legal costs and compensation costs, primarily incentive compensation accruals.

Operating Profit. Operating profit for 2012 increased approximately $3.9 million or 22.5% to $21.5 million from $17.6 million in 2011. The increase in operating profit for 2012 is due to the factors described above.

Egg Products Division Operating Profit. Operating profit for 2012 increased approximately $8.7 million, or 50.6%, to $25.9 million from $17.2 million in 2011. The increase was mainly a result of volume growth and the improved alignment of pricing with input costs.

Refrigerated Potato Products Division Operating Profit. Operating profit for 2012 increased approximately $0.8 million, or 42%, to $2.7 million from $1.9 million in 2011. The increase was mainly a result of volume growth and improved plant operations.

Cheese & Other Dairy-Case Products Division Operating Profit. Operating profit for 2012 increased approximately $0.6 million, or 12.9%, to $4.8 million from $4.2 million in 2011. The increase was mainly a result of volume growth and improved alignment of pricing with input costs.

Interest Expense. Interest expense decreased to $23 million in 2012 from approximately $25.6 million in 2011 mainly due to unrealized losses related to interest rate swaps of $1 million compared to $3 million in 2011 and a reduction in interest due to the December 2011 payment on our term B loan of $29 million.

Unrealized (gain) loss on currency transactions. We recorded the change in exchange rates impacting an intercompany Canadian currency-denominated note receivable due from our Canadian subsidiary, MFI Food Canada Ltd.

Income Taxes. Our effective tax rate on earnings (losses) before income taxes was approximately 19.9% for 2012 compared to approximately 35.3% in 2011. The effective tax rate was affected by the level of income and losses between periods, the amount of permanent differences (primarily the qualified production activities deduction) between book and taxable income, actual tax expense payable at the state level and by the results in our Canadian subsidiary, which impacted the valuation allowance against its deferred tax assets and effective rate.

Six Months Ended June 30, 2012 as Compared to Six Months Ended July 2, 2011

Net Sales. Net sales for 2012 increased approximately $44.4 million, or 5.3%, to $881.5 million from $837.1 million in 2011. The increased net sales reflected volume increases of 4.5%. Increases were seen across all of our business segments. A lag in pricing pass-through of commodity cost changes in the first quarter contributed to the net sales increases exceeding volume growth.

Egg Products Division Net Sales. External net sales for 2012 increased approximately $27.5 million, or 4.6%. The net sales increase is primarily due to a 3.3% increase in volume, the larger sales dollar percentage increase was due to a lag in pricing pass-through of commodity cost changes in the first quarter.

Refrigerated Potato Products Division Net Sales. External net sales for 2012 increased approximately $6.3 million, or 9.6%. The net sales increase is primarily due to a 9.6% increase in volume.

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Cheese & Other Dairy-Case Products Division Net Sales. External net sales for 2012 increased approximately $10.6 million, or 5.9%. The net sales increase is primarily due to a 6.2% increase in volume as we continue to expand distribution.

Gross Profit. Gross profit for 2012 increased $22.3 million, or 17%, to $153 million from $130.7 million in 2011. Our gross profit margin increased to 17.4% in 2012 as compared to 15.6% in 2011. The main driver for the increase was improved alignment of pricing with our input costs.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for 2012 increased $9.2 million, or 10.7%, to $94.7 million from $85.5 million in 2011. The main reason for the increase was the $5.8 million in damages awarded by a jury in the National Pasteurized Eggs, Inc. litigation described in Note C to the Condensed Consolidated Financial Statements. Also up year-over-year were legal costs and compensation costs, primarily incentive compensation accruals.

Operating Profit. Operating profit for 2012 increased approximately $13.1 million or 29% to $58.3 million from $45.2 million in 2011. The increase in operating profit for 2012 is due to the factors described above.

Egg Products Division Operating Profit. Operating profit for 2012 increased approximately $10.6 million, or 23.4%, to $55.8 million from $45.2 million in 2011. The increase was mainly a result of volume growth and the improved alignment of pricing with input costs.

Refrigerated Potato Products Division Operating Profit. Operating profit for 2012 increased approximately $2.8 million, or 53.8%, to $7.9 million from $5.1 million in 2011. The increase was mainly a result of volume growth and improved plant operations.

Cheese & Other Dairy-Case Products Division Operating Profit. Operating profit for 2012 increased approximately $1.6 million, or 18.7%, to $10.4 million from $8.8 million in 2011. The increase was mainly a result of volume growth and improved alignment of pricing with input costs.

Interest Expense. Interest expense decreased to $45.7 million in 2012 from approximately $50.8 million in 2011 mainly due to the reduced interest rates resulting from the late February 2011 refinancing and reduced amortization of deferred financing costs and original issue discount. Also, in 2012 we recorded $1.6 million of unrealized losses related to interest rate swaps compared to $3.6 million in 2011.

Unrealized (gain) loss on currency transactions. We recorded the change in exchange rates impacting an intercompany Canadian currency-denominated note receivable due from our Canadian subsidiary, MFI Food Canada Ltd.

Loss on early extinguishment of debt. In conjunction with the February 2011 refinancing of our credit agreement, we recorded a $3.5 million loss on extinguishment of debt for those lenders who did not participate in the amended and restated credit agreement.

Income Taxes. Our effective tax rate on earnings (losses) before income taxes was approximately 35.6% for 2012 compared to approximately 35.9% in 2011. The effective tax rate was affected by the level of income and losses between periods, the amount of permanent differences (primarily the qualified production activities deduction) between book and taxable income, actual tax expense payable at the state level and by the results in our Canadian subsidiary, which impacted the valuation allowance against its deferred tax assets and effective rate.

Liquidity and Capital Resources

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

The cash flow of approximately $50.9 million provided by operating activities in the six-month period ended June 30, 2012 reflects cash earnings generation and a decrease in the use of working capital due to the lower commodity cost impacts on accounts receivable and inventory values and the lower payout of incentive compensation. The cash flow of approximately $10.5 million provided by operating activities in the six-month period ended July 2, 2011 primarily reflects increased working capital due to higher commodity costs in that period and costs associated with the February 2011 refinancing.

The cash flow of approximately $12 million and $19 million used in investing activities in the six-month periods ended June 30, 2012 and July 2, 2011 is substantially all capital expenditures. The investments in capital spending were lower in the six-month period ended June 30, 2012 compared to 2011 due to the timing of projects between years.

The cash flow of approximately $6.4 million used in financing activities for the six-month period ended June 30, 2012 reflects debt payments and a cash dividend to our parent for the repurchase of certain of its shares of a terminated employee. The cash flow of approximately $18.6 million used in financing activities for the six-month period ended July 2, 2011 reflects proceeds of the February 2011 refinancing, payment of the associated deferred financing costs, and a dividend paid to our parent.

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On June 29, 2010, the Company was acquired by MFI Holding Corporation (“MFI Holding”), which is owned by GS Capital Partners VI Fund, L.P. and its affiliates (approximately 74%); affiliates and co-investors of Thomas H. Lee Partners, L.P. (approximately 21%); and certain current and former members of management (approximately 5%). As a result of the $1.675 billion 2010 merger, Michael Foods Group, Inc. entered into a credit agreement, with Bank of America, N.A. as administrative agent, which provided for availability up to $865 million and consisted of a $75 million revolving line of credit and a $790 million term B loan. On February 25, 2011, the Company completed a refinancing of the credit agreement. The amended and restated credit agreement, with Bank of America, N.A. as administrative agent, provides availability up to $915 million and consists of the following:

• $75 million revolving line of credit, of which approximately $17.5 million matures June 29, 2015 with the remaining $57.5 million expiring February 25, 2016. The line bears interest at the greater of LIBOR or 1.75%, plus 4.5% margin for Eurodollar loans and the greater of base rate or 2.75%, plus 3.5% margin for base rate loans; and

• $840 million term B loan maturing February 25, 2018, amortizing at 1% per year, and bearing interest at the greater of LIBOR or 1.25%, plus 3% margin for Eurodollar loans and the greater of base rate or 2.25%, plus 2% margin for base rate loans; and

• In addition, the credit agreement permits us to incur incremental term and revolving loans in an aggregate amount not to exceed $200 million, subject to certain conditions.

On March 3, 2011, the Company used the proceeds from the expansion of the term B loan to pay a cash dividend of $65 million to its parent MFI Midco Corporation, which paid a dividend to its parent, MFI Holding, which subsequently distributed the dividend to its shareholders.

Concurrently with the June 2010 merger, the Company issued $430 million of 9.75% senior notes maturing on July 15, 2018, with Wells Fargo Bank, National Association as Trustee.

The amended and restated credit agreement requires the Company to meet a minimum interest coverage ratio and a maximum leverage ratio. In addition, the credit agreement and the indenture relating to the 9.75% senior notes due 2018, 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. 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 discretion in the operation of our businesses. We were in compliance with all of the covenants under the credit agreement and senior notes as of June 30, 2012.

We use Adjusted EBITDA (earnings before interest expense, taxes, depreciation, amortization and other adjustments) as a measurement of our financial results because we believe it is indicative of the relative strength of our operating performance; it is used to determine incentive compensation levels and it is a key measurement contained in the financial covenants of our indebtedness.

The last twelve months Adjusted EBITDA as calculated under the amended and restated credit agreement follows. The following is a calculation of the minimum interest coverage and maximum leverage ratios under the amended and restated credit agreement:

	Twelve Months Ended
	June 30, 2012			July 2, 2011
	(Unaudited, in thousands)
Calculation of Interest Coverage Ratio:
Adjusted EBITDA (2)	$	240,693		$	228,934
Consolidated Interest Charges (3)		79,273			89,593
Interest Coverage Ratio		3.04x			2.56x
Minimum Permitted Interest Coverage Ratio		1.90x			1.80x
Calculation of Leverage Ratio:
Funded Indebtedness (4)	$	1,262,164		$	1,304,329
Less: Cash and equivalents (Maximum $75,000) (1)		(75,000	)		(17,616	)
	$	1,187,164		$	1,286,713
Adjusted EBITDA (2)		240,693			228,934
Leverage Ratio		4.93x			5.62x
Maximum Permitted Leverage Ratio		7.00x			7.00x

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(1) The credit agreement limits the cash and equivalent offset to $75 million. Our actual net debt is $1,161,553 (reduced by cash and equivalents of $100,611) and the actual leverage ratio is 4.83x as of June 30, 2012.

(2) Adjusted EBITDA (earnings before interest expense, taxes, depreciation, amortization and other adjustments) is defined in the credit agreement as follows:

	Twelve Months Ended
	June 30, 2012		July 2, 2011
	(Unaudited, in thousands)
Net earnings (loss)	$	27,536	$	(2,325	)
Unrealized (gain) loss on currency transactions (a)		1,151		(1,415	)
Consolidated net earnings (loss)		28,687		(3,740	)
Interest expense		93,235		103,675
Income tax expense (benefit)		6,742		(3,277	)
Depreciation and amortization		97,433		98,855
Non-cash and stock option compensation		2,111		1,931
Unusual charges (b)		5,842		0
Cash expenses incurred in connection with the transaction		0		4,760
Business optimization project expense		0		2,830
Realized (gain) loss upon the disposition of property not in the ordinary course of business		324		(977	)
Equity sponsor management fee		2,352		2,305
Non-cash purchase accounting adjustments		0		17,928
Fees and expenses in connection with the exchange of the 9.75% senior notes		104		247
Expenses related to industrial revenue bonds guaranteed by certain of our subsidiaries		563		693
Non-cash other expenses (c)		3,275		0
Unrealized (gain) loss on swap contracts		25		177
Loss attributable to the early extinguishment of indebtedness		0		3,527
Adjusted EBITDA, as defined in the credit agreement	$	240,693	$	228,934

(a) The unrealized (gain) loss on currency transactions relates to an intercompany note receivable denominated in Canadian currency and due from our Canadian subsidiary, MFI Food Canada Ltd.

(b) The unusual charges relate to the jury award in the National Pasteurized Eggs, Inc. trial (see Note C to the Condensed Consolidated Financial Statements).

(c) The non-cash other expenses reflects an adjustment of inventory related to prior period activity, which was recorded in December 2011 as it was not material to any prior period impacted or to the 2011 period.

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(3) Consolidated interest charges, as calculated in the credit agreement, were as follows:

	Twelve Months Ended June 30, 2012		Twelve Months Ended July 2, 2011
	(Unaudited, in thousands)
Gross interest expense	$	93,625	$	104,021
Minus:
Amortization of financing costs		9,852		10,779
Non-cash mark-to-market on interest rate swaps		4,500		3,649
Consolidated interest charges	$	79,273	$	89,593

(4) Funded Indebtedness was as follows:

	June 30, 2012			July 2, 2011
	(Unaudited, in thousands)
Revolving line of credit	$	0		$	0
Term loans		805,723			837,900
Senior notes		430,000			430,000
Insurance bonds		1,275			1,949
Guarantee obligations (see discussion below)		11,798			14,222
Capital leases		7,934			12,833
Standby letters of credit		350			350
MFI Food Canada Ltd. note payable		1,071			1,712
Northern Star Co. note payable		4,013			5,363
	$	1,262,164		$	1,304,329
Reconciling items to
Long-term debt, including current maturities:
Insurance bonds	$	(1,275	)	$	(1,949	)
Guarantee obligations (see discussion below)		(2,530	)		(3,440	)
Standby letters of credit		(350	)		(350	)
Original issue discount on term B loan		(11,418	)		(13,495	)
		(15,573	)		(19,234	)
Long-term debt, including current maturities	$	1,246,591		$	1,285,095

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We have guaranteed, through our M.G. Waldbaum Company subsidiary, the repayment of certain industrial revenue bonds used for the expansion of the wastewater treatment facilities of three municipalities where we have food processing facilities. In May 2007, a $6.0 million bond financing was completed by one of the three municipalities, the City of Wakefield, Nebraska, at an annual interest rate of 8.22%, with such proceeds used for the construction of the wastewater treatment facility. The wastewater treatment facility became operational in early 2008. We are required to pay the principal and interest payments related to these bonds, which mature September 15, 2017. These bonds, along with the original $10.25 million (annual rate of interest of 7.6%) guaranteed in September 2005, are included in current maturities of long-term debt and long-term debt. The remaining principal balance for all guaranteed bonds at June 30, 2012 was approximately $11.8 million.

In December 2008, we entered into a $15.6 million variable-rate lease agreement to fund a portion of the equipment purchases at our new refrigerated potato products facility. The lease agreement matures on December 30, 2014. As of June 30, 2012, the outstanding balance was $7.8 million and the lease had an effective interest rate of 3.8%. On November 25, 2009, we entered into a variable-rate note for up to $7.5 million for additional financing for equipment for the new refrigerated potato products facility. The $7.5 million note is due November 25, 2014. As of June 30, 2012, the outstanding balance was $4.0 million and it had an effective interest rate of 3.7%.

Our ability to make payments on and to refinance our debt, including the senior notes, to fund planned capital expenditures and otherwise satisfy our obligations 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 and other 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 senior notes, on or before maturity. We cannot assure our investors that we would be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all. In addition, the terms of our existing and future indebtedness, including the senior notes and the credit agreement, may limit our ability to pursue any of these alternatives.

To manage exposure to counterparty credit risk, we enter into agreements with highly rated institutions that can be expected to fully perform under the terms of such agreements. Frequently, these institutions are members of the lender group providing our credit facility, which management believes further minimizes the risk of non-performance.

Our longer-term planning is focused on growing our sales, earnings and cash flows primarily by focusing on our existing business lines, 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. At June 30, 2012, we had $75 million of funds available on our revolving line of credit.

We invested approximately $12 million in capital expenditures in the six-month period ended June 30, 2012. Our spending continues to be focused on expanding capacity for higher value-added egg products, maintaining existing production facilities, and replacing tractors and trailers, among other projects. Further capital spending in the remainder of 2012 is expected to be funded by operating cash flows. We expect these investments to improve manufacturing efficiencies, customer service and product quality.

Seasonality

Our consolidated quarterly operating results are affected by the seasonal fluctuations of net sales. For example, shell 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. Generally, the Cheese & Other Dairy-Case Products Division has higher net sales and operating profits in the fourth quarter, coinciding with incremental consumer demand during the holiday season. Operating profits from the Refrigerated Potato Products Division are less seasonal, but tend to be higher in the second half of the year, coinciding with the potato harvest and incremental consumer demand.

Recent Accounting Pronouncements

See Note A to the condensed consolidated financial statements for discussion on recently issued accounting pronouncements.

Forward-looking Statements

Certain items in this Form 10-Q are “forward-looking statements.” Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future sales or performance, capital expenditures, financing needs, ability to fund our operations, intentions relating to acquisitions, our competitive strengths and weaknesses, our business strategy and the trends we anticipate in the industries and economies in which we operate and other information that is not historical information and, in particular, appear under the heading, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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When used herein, the words “may,” “should,” “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes” and variations of such words or similar expressions are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance. All forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them, but there can be no assurance that our expectations, beliefs and projections will be realized.

There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this Form 10-Q, including the factors described under “Risk Factors” in our Form 10-K filed with the SEC on March 30, 2012. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Form 10-Q include changes in national or global economic conditions. Additional risks and uncertainties include variances in the demand for our products due to consumer and industry developments, as well as variances in the costs to produce such products, including normal volatility in egg, feed, potato and cheese costs. You should not place undue reliance on our forward-looking statements. If any of these risks or uncertainties materialize, or if any of our underlying assumptions are incorrect, our actual results may differ significantly from the results that we express in or imply by any of our forward-looking statements. We do not undertake any obligation to publicly update or revise these forward-looking statements to reflect future events or circumstances except as required by law.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There was no material change in our market risk during the six-month period ended June 30, 2012.

ITEM 4. CONTROLS AND PROCEDURES

a. Evaluation of disclosure controls and procedures.

Our management evaluated, with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of June 30, 2012. Based on these evaluations, our principal executive and principal financial officers concluded that our disclosure controls and procedures were effective as of June 30, 2012.

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, 2012, 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

Legal Matters

Antitrust claims: In late 2008 and early 2009, some 22 class-action lawsuits were filed in various federal courts against Michael Foods, Inc. and approximately 20 other defendants (producers of shell eggs, manufacturers of processed egg products, and egg industry organizations), alleging violations of federal and state antitrust laws in connection with the production and sale of shell eggs and processed-egg products, and seeking unspecified damages. Plaintiffs seek to represent nationwide classes of direct and indirect purchasers, and allege that defendants conspired to reduce the supply of eggs by participating in animal husbandry, egg-export and other programs of various egg-industry associations. In December 2008, the Judicial Panel on Multidistrict Litigation ordered the transfer of all cases to the Eastern District of Pennsylvania for coordinated and/or consolidated pretrial proceedings. Between late 2010 and early 2012, a number of companies, each of which would be part of the purported class in the antitrust action, brought separate actions against defendants. These “tag-along” cases, brought primarily by various grocery chains and food companies, assert essentially the same allegations as the Second Consolidated Amended Complaint in the main action. All but one of the tag-along cases were either filed in or transferred to the Eastern District of Pennsylvania where they are being treated as related to the main action; the one tag-along case where pretrial proceedings are not under the jurisdiction of the Eastern District of Pennsylvania was brought by a retail grocery chain in Kansas state court. Discovery is underway in these matters.

We received a Civil Investigative Demand (“CID”) issued by the Florida Attorney General on November 17, 2008, regarding an investigation of possible anticompetitive activities “relating to the production and sale of eggs or egg products.” The CID requested information and documents related to the pricing and supply of shell eggs and egg products, as well as our participation in various programs of United Egg Producers. We have fully cooperated with the Florida Attorney General’s Office to date. Further compliance was suspended pending discovery in the civil antitrust litigation referenced above.

Patent infringement litigation: On October 27, 2010, National Pasteurized Eggs, Inc. and National Pasteurized Eggs, LLC (collectively “NPE”) commenced litigation against Michael Foods, Inc. and several of its subsidiaries in U.S. District Court for the Western District of Wisconsin. NPE alleged that our pasteurized shell eggs infringe on patents and trademarks that NPE owns or licenses. On April 15, 2011, Michael Foods, Inc. commenced litigation against National Pasteurized Eggs, Inc. in U.S. District Court for the District of Minnesota, alleging that National Pasteurized Eggs, Inc.’s production and sale of pasteurized shell eggs infringed three patents exclusively licensed to Michael Foods, Inc. The cases were consolidated before the U.S. District Court for the Western

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District of Wisconsin. A jury trial took place in June, 2012; the jury returned a verdict of patent infringement against Michael Foods and awarded $5.8 million in damages. The verdict does not affect Michael Foods’ ability to continue producing pasteurized shell eggs, but in response to the jury verdict, we returned to process parameters that were in place prior to April, 2010. Several post-trial motions are pending before the trial court, including a motion for reduction of the damages award. In June 2012, we recorded a liability of $5.8 million for the damages award; it is included in other current liabilities and selling, general and administrative expenses.

Lawsuit against the City of Elizabeth and Liberty Water Co.: On January 28, 2010, our subsidiary Papetti’s Hygrade Egg Products, Inc. commenced suit in New Jersey Superior Court against the City of Elizabeth, N.J. and Liberty Water Company. The suit alleges that City sewer charges, which are billed by Liberty Water, are arbitrary and inequitable. Papetti’s seeks a declaration that its sewer bills have been inaccurate at least since 2002, and seeks invalidation of certain sewer-related charges and surcharges. In responding to the suit, the City of Elizabeth counterclaimed on May 7, 2010 that Papetti’s “has not been charged the full and proper amount of sewage charges due to billing mistakes of Defendant Liberty Water Company,” but did not allege any undercharged amount. On June 1, 2011, Liberty Water gave notice of its belief that from 2004 to present, it underbilled Papetti’s by some $6.5 million. In November of 2011, Liberty Water issued invoices totaling $6.2 million to Papetti’s in connection with the alleged underbilling. We have not recorded a liability for the alleged underbilling as we believe there is no merit in this claim.

We do not believe it is possible to estimate any possible loss in connection with these litigated matters. Accordingly, we cannot predict what impact, if any, these matters and any results from such matters could have on our future results of operations.

Other: In addition, we are from time to time party to litigation, administrative proceedings and union grievances that arise in the ordinary course of business, and occasionally pay non-material amounts to resolve claims and alleged violations of regulatory requirements. There are no pending “ordinary course” matters that, separately or in the aggregate, would, in the opinion of management, have a material adverse effect on our operations, financial condition or cash flow.

ITEM 1A. RISK FACTORS

Readers are directed to our Annual Report on Form 10-K filed March 30, 2012, for a discussion of Risk Factors. We do not believe there have been any material changes to our Risk Factors.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

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EXHIBIT INDEX

Exhibit No.	Description
31.1	Certification of Chief Executive Officer
31.2	Certification of Chief Financial Officer
32.1	Certification of Chief Executive Officer
32.2	Certification of Chief Financial Officer
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MICHAEL FOODS GROUP, INC.
Date: August 14, 2012	By:	/s/    James E. Dwyer, Jr.
		James E. Dwyer, Jr. (Chief Executive Officer and President)
	By:	/s/    Mark W. Westphal
		Mark W. Westphal (Chief Financial Officer and Senior Vice President)

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