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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2004

Commission file number 333-112714

MICHAEL FOODS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (952) 258-4000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by checkmark whether the Registrant is an accelerated filer (as defined in exchange Act Rule 12b-2).    ¨  Yes    x  No

The Registrant’s common stock is not publicly traded. There were 3,000 shares of the Registrant’s common stock outstanding as of March 15, 2005.

PART I

ITEM 1—BUSINESS

Forward-looking Statements

Certain items herein 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, 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.” When used herein, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes” and variations of such words or similar expressions are intended to identify forward-looking statements. 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 report. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Form 10-K include changes in domestic and international 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, butter and cheese costs. 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 revise these forward-looking statements to reflect future events or circumstances.

General

Michael Foods, Inc. and its subsidiaries (the “Company,” “we” “us” and “our”) is a diversified producer and distributor of food products in three areas—egg products, refrigerated distribution, and potato products. We believe, through our Egg Products Division, we are the largest producer of processed egg products in North America. The Refrigerated Distribution Division distributes a broad line of refrigerated grocery products to retail grocery outlets, including cheese, shell eggs, bagels, butter, margarine, muffins, potato products and ethnic foods. The Potato Products Division processes and distributes refrigerated potato products sold to the foodservice and retail grocery markets in the United States. Please see Note K to our consolidated financial statements for additional information about our business segments.

Our strategy is to grow value-added food product sales, primarily in the foodservice market, by focusing on developing, marketing and distributing innovative, refrigerated products. The key to this strategy is “value-added,” whether that is in the product, the distribution channel or the service provided to customers.

In November 2003, we were acquired by an investor group comprised of a private equity firm and a management group through the merger of THL Food Products Co. with and into M-Foods Holdings, Inc. (the “Merger”), with M-Foods Holdings, Inc. being the continuing entity. M-Foods Holdings, Inc. then merged with and into Michael Foods, Inc. (Minn.). M-Foods Holdings, Inc. continued as the surviving corporation and was immediately thereafter renamed Michael Foods, Inc. (Del.) (the “Company”). The “Predecessor” refers to Michael Foods, Inc. prior to the Merger. In April 2001, the Company was acquired (the “2001 Merger”) by an investor group comprised of two equity sponsors, members of senior management and affiliates of the Michael family. The “2001 Predecessor” refers to Michael Foods, Inc. prior to the 2001 Merger.

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Egg Products Division

The Egg Products Division, comprised of M. G. Waldbaum Company (“Waldbaum”), Papetti’s Hygrade Egg Products, Inc. (“Papetti’s”), MFI Food Canada, Ltd., and Trilogy Egg Products, Inc., produces, processes and distributes numerous egg products and shell eggs. Collectively, the entities are also known as the Michael Foods Egg Products Company. We believe that the Egg Products Division is the largest egg products producer and the fourth largest egg producer in North America. Principal value-added egg products are ultrapasteurized, extended shelf-life liquid eggs (“Easy Eggs^®”, “Table Ready^™”, “Excell”), egg white-based egg substitutes (“Better ‘n Eggs^™”, “Table Ready^™”, “All Whites^™”), hardcooked and precooked egg products. Other egg products include frozen, liquid and dried egg whites, yolks and whole eggs. We believe the Division is the largest supplier of extended shelf-life liquid eggs, precooked egg patties and omelets, dried and hardcooked eggs in North America and is a leading supplier of frozen and liquid whole eggs, whites and yolks.

The Division distributes its egg products to food processors and foodservice customers primarily throughout North America, with some international sales in the Far East, South America and Europe. The largest selling product line within the Division, extended shelf-life liquid eggs, and other egg products are marketed nationally to a wide variety of foodservice and industrial customers. The Division also is a leading supplier of egg white-based egg substitutes sold in the U.S. retail and foodservice markets. Most of the Division’s annual shell egg sales are made to our Refrigerated Distribution Division, which, in turn, distributes them throughout its 42-state territory.

In 2004, the Division derived approximately 98% of net sales from egg products, with 2% of net sales coming from shell eggs. Pricing for shell eggs and certain egg products in the United States and Canada reflects levels reported by Urner Barry Spot Egg Market Quotations (“Urner Barry”), a recognized industry publication. Prices of certain valued-added products, such as extended shelf-life liquid eggs, egg substitutes, and hardcooked and pre-cooked egg products, typically are not significantly affected by Urner Barry quoted price levels. Such products accounted for approximately 58% of the Division’s 2004 sales. Prices for the Division’s other products, including frozen, short shelf-life liquid, certain dried products and, particularly, shell eggs, are significantly affected by market prices as reported by Urner Barry.

In 2004, approximately 30% of the Division’s egg needs were satisfied by production from our owned hens, with the balance being purchased under third-party egg procurement contracts and in the spot market. The cost of eggs from our owned facilities is largely dependent upon the cost of feed. Additionally, for an increasing proportion of eggs purchased under third-party egg procurement contracts, the egg cost is determined by the cost of feed, as the contracts are priced using a formula based upon the underlying feed costs. For the remaining portion of eggs purchased under third-party egg procurement contracts and for eggs purchased in the spot market, the egg cost is determined by normal market forces. Such costs are largely determined by reference to Urner Barry quotations. Historically, feed costs have generally been less volatile than have egg market prices, and internally produced eggs generally are lower in cost than are externally sourced eggs. Key feed costs, such as corn and soybean meal costs, are partially hedged through the use of futures and other purchase contracts. There is no market mechanism for hedging egg prices.

The Division has endeavored to moderate the effects of egg market commodity factors through an emphasis on value-added products and the internal production of eggs, where the egg cost is somewhat controllable. Further, the Division attempts to match market-affected egg sourcing with the production of egg products whose selling prices are also market-affected, and cost-affected egg sourcing, as best can be managed, with higher value-added products priced over longer terms, generally 6-12 months. The former allows the Division to typically realize a modest processing margin on such sales, even though there are notable commodity influences on both the egg sourcing cost and the egg products pricing, with each changing as frequently as daily. Shell eggs are essentially a commodity and are sold based upon reported egg prices. Egg prices are significantly influenced by modest shifts in supply and demand. Pricing of shell eggs is also typically affected by seasonal demand related to increased consumption during holiday periods.

The Division’s principal egg processing plants are located in New Jersey, Minnesota, Nebraska, Pennsylvania, Iowa, Manitoba and Ontario. Certain of the Division’s facilities are fully integrated from the production and maintenance of laying flocks through the processing of egg products. Fully automated

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laying barns, housing approximately 13,500,000 producing hens, are located in Nebraska, Minnesota and South Dakota. Approximately 1,700,000 of these hens are housed in contract facilities. Major laying facilities also maintain their own grain and feed storage facilities. Further, the production of approximately 14,000,000 hens is under long-term supply agreements, with an additional 18,500,000 hens under shorter-term agreements. The Division also maintains facilities with approximately 3,000,000 pullets located in Nebraska and Minnesota.

Refrigerated Distribution Division

The Refrigerated Distribution Division, comprised of Crystal Farms Refrigerated Distribution Company (“Crystal Farms”) and Wisco Farm Cooperative, distributes a wide range of refrigerated grocery products directly to retailers and wholesale warehouses. The Division believes that its strategy of offering quality branded products at a good value relative to national brands has contributed to its growth. These distributed refrigerated products, which consist principally of cheese, eggs, bagels, butter, margarine, muffins, potato products, and ethnic foods, are supplied by vendors, or our other divisions, to the Division’s specifications. Cheese accounted for approximately 64% of the Division’s 2004 sales. While we do not produce cheese, we operate a cheese packaging facility in Lake Mills, Wisconsin, which processes and packages various cheese products for our Crystal Farms brand cheese business and for private label customers.

The Division has expanded its market area using both company-owned and leased resources and independent distributors. The Division’s market area includes 42 states primarily in the central United States. Retail locations carrying the Division’s products exceed 5,000 stores. A majority of these retail stores are served via customers’ warehouses. In 2004, sales to the warehouse operations of SUPERVALU, Inc. (“SUPERVALU”) and to its owned and franchised stores, represented approximately 45% of divisional sales. The Division maintains a fleet of refrigerated tractor-trailers to deliver products daily to its retail customers from ten distribution centers centrally located in its key marketing areas.

Potato Products Division

Refrigerated potato products are produced and sold by Northern Star Co. (“Northern Star”) and Farm Fresh Foods, Inc. (“Farm Fresh”) to both the foodservice and retail markets. Products consist of shredded hash browns and diced, sliced, mashed and other specialty potato products. In 2004, approximately 61% of the Potato Products Division’s net sales were to the foodservice market, with the balance to the retail market.

The Division maintains its main processing facility in Minnesota, with a smaller facility located in Nevada. The Division typically purchases approximately 90%-95% of its annual potato requirements from contract producers. The balance of potato requirements are purchased on the spot market. The Division maintains a high percentage of its contracted supply from irrigated fields and also has geographical diversification of its potato sources. However, weather remains an important factor in determining raw potato prices and quality. Variations in the purchase price and/or quality of potatoes can affect the Potato Products Division’s operating results.

Dairy Products Division

We had a Dairy Products Division, which was sold to Dean Foods Company effective as of September 30, 2003, which processed and sold soft-serve mix, ice cream mix, frozen yogurt mix, creamers, milk and specialty dairy products, many of which were ultra-high temperature (“UHT”) pasteurized products. The Division sold its products throughout much of the United States from processing facilities in Minnesota, Texas and Connecticut.

Sales, Marketing and Customer Service

Each of our three divisions has developed a marketing strategy, which emphasizes high quality products and customer service. Michael Foods Sales, an internal sales group, coordinates the foodservice and retail sales of the Egg Products and Potato Products Divisions, primarily for national and regional accounts, and is supported by a centralized order entry and customer service staff. A group of foodservice

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brokers is used by Michael Foods Sales to supplement its internal sales efforts. Further, the Egg Products Division utilizes a separate broker group for the retail market and maintains a small sales group which handles certain industrial egg product sales. Our marketing staff executes egg products and potato products marketing plans in the foodservice market and for related national retail brands, while the Refrigerated Distribution Division has a small marketing staff which handles that division’s retail marketing plans, along with additional resources available from outside agencies and consultants as needed.

The Refrigerated Distribution Division’s internal and external sales personnel obtain orders from retail stores which are usually placed no more than one day ahead of the requested delivery date. The Division’s marketing efforts are primarily focused on in-store and co-op advertising programs, which are executed with grocers on a market-by-market basis.

Acquisitions

We have made acquisitions in the past and anticipate that we will continue to make acquisitions as part of our strategic plan. There were no acquisitions in 2004 or 2003 and one acquisition in 2002 of the egg products division of Canadian Inovatech, Inc.

Customers

The Egg Products Division has long-standing preferred supplier relationships with many of its customers. Our customers include many of the major broad-line foodservice distributors and many national restaurant chains that serve breakfast. As the largest processed egg producer in the industry, we offer our customers a broad product selection, large-scale manufacturing capabilities and specialized service. The Egg Products Division’s major customers in each of its market channels include leading foodservice distributors, such as Sysco and U.S. Foodservice, national restaurant chains, such as Burger King, International House of Pancakes, Sonic Corp. and Dunkin’ Donuts, major retail grocery store chains, such as Costco, Wal-Mart and Ahold group stores, and major industrial ingredient customers, such as General Mills, Inc. and Unilever Bestfoods North America Foodservice.

The Refrigerated Distribution Division has customer relationships with large food store chains that rely on the Company to deliver a variety of dairy case products in a timely and efficient manner. For the year ended December 31, 2004, the Division served 5,000 retail locations, inclusive of stores receiving products through warehouse delivery. SUPERVALU, the food industry’s largest distributor, is the Refrigerated Distribution Division’s largest customer. For the year ended December 31, 2004, sales to warehouse operations of SUPERVALU and SUPERVALU-owned and franchised stores, including Cub Foods Stores, bigg’s, Shopper’s Food Warehouse and Farm Fresh, accounted for approximately 45% of the Division’s net sales. Other principal customers include Roundy’s, Inc., Coborn’s Inc., Nash Finch Company and Wal-Mart Stores, Inc.

The Potato Products Division leverages existing relationships with national foodservice distributor customers of the Egg Products Division. Many of the top Potato Products Division’s customers are also long-standing customers of the Egg Products Division. The Company provides foodservice distributors the convenience of centrally sourcing many different types of refrigerated potato and egg products. The Potato Products Division’s largest customers include major foodservice distributors, such as Sysco and U.S. Foodservice and major retail grocery store chains, such as Kroger, Publix and Food Lion.

Competition

All aspects of our businesses are extremely competitive. In general, food products are price sensitive and affected by many factors beyond our control, including changes in consumer tastes, fluctuating commodity prices, changes in supply due to weather, production variances and feed costs.

The egg processing industry is heavily concentrated, especially when compared to the shell egg industry. Sunny Fresh Foods, a subsidiary of Cargill, is the Company’s largest higher value-added egg products competitor. The Company also competes with other egg products processors including Sonstegard Foods Company, Rose Acre Farms, Inc., Echo Lake Farm Produce, Cutler Egg Products, Inc. and ConAgra Foods, Inc.

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The Refrigerated Distribution Division competes with the refrigerated products of larger suppliers such as Kraft Foods, Inc., Dairy Farmers of America, Sargento Foods, Inc., and Sorrento Lactalis, Inc. We position Crystal Farms as an alternative mid-priced brand, operating at price points below national brands and above retail store brands. The Refrigerated Distribution Division’s emphasis on a high level of service and lower-priced branded products has enabled it to compete effectively with much larger national brand companies.

Our Company’s Potato Products Division was the first to introduce nationally branded refrigerated potato products in the late 1980s to the United States’ foodservice and retail markets. We believe we are the largest processor and distributor of refrigerated potato products in the U. S. The Potato Products Division’s largest competitor is Reser’s Fine Foods Inc., a national producer of refrigerated products. Other competitors include Bob Evans Farms Inc. and smaller local and regional processors, including I&K Distributors, Inc. (Yoder’s) and Naturally Potatoes. Certain companies, such as Ore-Ida Foods, Inc. (a subsidiary of H. J. Heinz Co.) and Lamb-Weston, Inc. (a subsidiary of ConAgra Foods, Inc.), sell frozen versions of potato products which are sold by the Division in refrigerated form.

Proprietary Technologies and Trademarks

We use a combination of patent, trademark and trade secrets laws to protect the intellectual property for our products. We own patents and have exclusive license agreements for several patents and technologies. In 1988, we obtained an exclusive license agreement to use patented processes developed and owned by North Carolina State University involving the ultrapasteurization of liquid eggs. Four of the five patents licensed to us under this agreement expire in 2006. Our license to use these four patents will continue until the expiration of the patents. The patented technology produces liquid eggs that are salmonella and listeria-negative, as defined by federal law, and extends the shelf-life of liquid eggs from less than two weeks to over ten weeks.

We also own an exclusive license to use a patented process, owned and developed by the University of Missouri, to eliminate salmonella from shell eggs. The licensed patents are set to expire in 2014. Our license to use these patents will also continue until the expiration of the patents. We currently use this technology for processing in-shell pasteurized eggs sold through our refrigerated distribution division. We also have acquired licenses to other patents and technology from other third parties, including the University of Nebraska.

We believe that certain of our competitors infringe upon some of our patents and the patents licensed to us. We, along with North Carolina State University, have initiated litigation against several processors of competing liquid egg products claiming infringement of the original and subsequent related process patents licensed to us by North Carolina State University relating to ultrapasteurized liquid egg production. In 1992, a jury for the United States District Court for the Middle District of Florida found the original patent to be valid and that a processor, Bartow Food Co., willfully and deliberately infringed one of the patents. In another action, the United States District Court for the District of New Jersey found in 1992 and 1993 that Papetti’s (prior to our acquisition of the company) had infringed certain of the patents and that the licensed patents are valid and enforceable. In 1994, the Court of Appeals for the Federal Circuit upheld this judgment. In 1993, Nulaid Foods Inc., or Nulaid Foods, sought a declaratory judgment that the licensed patents are invalid. This action was subsequently settled, and Nulaid Foods agreed that it would not contest the validity and enforceability of the patents as well as its past infringement of the patents. Nulaid Foods is currently using the patented process by operating under a sublicense agreement. Reissue and re-examination proceedings were initiated by us and our competitors with the U.S. Patent and Trademark Office, or PTO, seeking to determine the scope and validity of some of the patents that we license from North Carolina State University. The PTO ruled that claims in the licensed patents are valid and in full force and effect. For more information, see “Item 3—Legal Proceedings.”

Infringement litigation actions were settled in 2004 with two other egg processors, Rose Acre Farms and Cutler Egg Products. Both parties agreed that the patents are valid and enforceable. Both parties are now operating under sublicense agreements. For more information, see “Item 3 — Legal Proceedings.” Although we believe that our competitors may be deterred from competing with us because of our active enforcement of our patent rights, we do not believe that the expiration of our patent rights will have a material adverse effect on our business or market share within the corresponding product segments because of our processing expertise, strong market position and cost-efficiencies due, in part, to scale.

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The Egg Products Division maintains numerous trademarks and/or trade names for its products, including “Logan Valley,” “Sunny Side Up,” “Michael Foods,” “Deep Chill,” “Simply Eggs Brand,” “Better ‘n Eggs,” “All Whites,” “Chef’s Omelet Brand,” “Express Eggs,” “Quaker State Farms,” “Broke N’ Ready,” “Canadian Inovatech,” “Centromay,” “Emulsa,” and “Inovatech.” Ultrapasteurized liquid eggs are marketed using the “Easy Eggs” and “Table Ready” trade names. Refrigerated Distribution Division products are marketed principally under the “Crystal Farms” trade name.

Within the Potato Products Division, we market our refrigerated potato products to foodservice customers under a variety of brands, including “Northern Star” and “Farm Fresh.” The “Simply Potatoes” and “Diner’s Choice” brands are used for retail refrigerated products.

Food Safety

We believe that we take extensive precautions to ensure the safety of our products. In addition to routine inspections by state and federal regulatory agencies, including continuous United States Department of Agriculture (“USDA”) inspection of many facilities, we have instituted quality systems plans in each of our divisions which address topics such as supplier control, ingredient, packaging and product specifications, preventive maintenance, pest control and sanitation. Each of our facilities also has in place a hazard analysis critical control points plan which identifies critical pathways through which contaminants may enter our facilities and mandates control measures that must be used to prevent, eliminate or reduce all relevant food borne hazards. For example, at our Egg Products Division facilities, sanitization steps are in place to eliminate the risk of microbial contamination of our employees entering certain facilities, including the use of foot baths to reduce the risk of product contamination. Each of our divisions has also instituted a product recall plan, including lot identifiability and traceability measures, that allows us to act quickly to reduce the risk of consumption of any product which we suspect may be a problem.

In 2003, we engaged a third-party food regulatory consulting firm to assess our food regulatory compliance. This firm focused on our ability to ensure the safety of our food products for human consumption. Based on its review of our regulatory reports and documents, as well as site visits, the consulting firm concluded that no significant food safety issues have been found.

In December 2004, our Potato Products Division initiated a voluntary recall of certain hash brown potato products sold in the retail market. The recall was limited and only one consumer claim has been received. However, we recorded an accrual at December 31, 2004 to cover known and estimated costs of this voluntary recall. In February 2005, the recall matter, as it pertains to federal regulatory oversight, was closed.

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 December 2004, inventory valued at approximately $1.1 million was still considered questionable for sale. The remainder of the quarantined inventory had been released and sold. Belovo’s 2003 financial statements included provisions to cover approximately $5 million of identified risks from the contamination matter. 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. Through September 30, 2004, Belovo’s sales had increased 35% from levels for the first nine months of 2003 and profitability had been restored.

We maintain general liability insurance, which includes product liability coverage, which we believe to be sufficient to cover potential product liabilities.

Government Regulation

All of our divisions are subject to federal, state and local government regulations relating to grading,

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quality control, product branding and labeling, waste disposal and other aspects of their operations. Our divisions are also subject to USDA and Food and Drug Administration (“FDA”) regulation regarding grading, quality, labeling and sanitary control. The processing plants of our Egg Products Division that break eggs, and some of our other egg processing operations, are subject to continuous on-site USDA inspection. All of our other processing plants are subject to periodic inspections by the USDA, FDA and state regulatory authorities.

Crystal Farms cheese and butter products are affected by milk price supports established by the USDA. The support price serves as an artificial minimum price for these products, which may not be indicative of market conditions that would prevail if these supports were abolished.

A substantial portion of the egg production operations of our Egg Products Division are located in the State of Nebraska. With certain exceptions, a provision of the Nebraska constitution generally prohibits corporations from engaging in farming or ranching in Nebraska. Although the constitutional provision contains an exemption for agricultural land operated by a corporation for the purpose of raising poultry, the Nebraska Attorney General has, in written opinions, taken the position that facilities devoted primarily to the production of eggs do not fall within such exemption and therefore are subject to the restrictions contained in the constitutional provision. We believe that our egg production facilities in Nebraska are part of integrated facilities for the production, processing and distribution of egg products, and therefore, that any agricultural land presently owned by us in Nebraska is being used for non-farming and non-ranching purposes. The constitution empowers the Nebraska Attorney General, or if the Attorney General fails to act, a Nebraska citizen, to obtain a court order to, among other things, force a divestiture of land held in violation of this constitutional provision. If land subject to such a court order is not divested within a two-year period, the constitutional provision directs the court to declare the land escheated, or forfeited, to the State of Nebraska. We are not aware of any proceedings under this over 75 year-old constitutional provision pending or threatened against us or any other companies engaging in farming or ranching activities in Nebraska. We believe that we have adequate contingency arrangements in place in the event a determination is made that we engage in farming and/or ranching activities proscribed by the Nebraska constitution. Until the scope of such provision has been clarified by further judicial, legislative, or executive action, there can be no assurance as to the effect, if any, that it may have on our Egg Products Division.

Environmental Regulation

We are subject to federal and state environmental regulations and requirements, including those governing discharges to air and water, the management of hazardous substances, the disposal of solid and hazardous wastes, and the remediation of contamination. Our environmental management and compliance programs are led by our Director of Environmental Engineering. Additionally, we have an ongoing relationship with an environmental consulting firm, and we use other consultants as may be required. As a result of our efforts, we believe we are currently in material compliance with all environmental regulations and requirements.

We have made, and will continue to make, expenditures to ensure environmental compliance. For example, we have upgraded the wastewater treatment system at our Klingerstown, Pennsylvania facility, we have paid for construction of a wastewater treatment facility in Lenox, Iowa, and we have updated the wastewater system at our egg production facility in Bloomfield, Nebraska. Additionally, we recently commissioned an engineering study for a new wastewater treatment facility in Wakefield, Nebraska.

Many of our facilities discharge wastewater pursuant to wastewater discharge permits. We dispose of our waste from our internal egg production primarily by providing it to farmers for use as fertilizer. We dispose of our solid waste from potato processing by selling the waste to a processor who converts it to animal feed.

Employees

At December 31, 2004, we had 3,897 employees. The Egg Products Division employed 2,790 full-time

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and 233 part-time employees, none of whom are represented by a union. The Potato Products Division employed 259 persons, 187 of whom were represented by the Bakery, Laundry, Allied Sales Drivers and Warehousemen Union, which is affiliated with the Teamsters. The Refrigerated Distribution Division employed 442 employees, none of whom are represented by a union. Our corporate, sales, distribution and customer service and information systems groups collectively had 173 employees at December 31, 2004. We believe our relations with our employees to be good.

Executive Officers of the Registrant

See Item 10—Directors and Executive Officers of the Registrant.

ITEM 2—PROPERTIES

FACILITIES

Corporate. We maintain leased space for our corporate headquarters in suburban Minneapolis, Minnesota. Leased space within the same building houses the headquarters, financial and administrative service staffs of the egg products and potato products divisions, as well as our customer service, distribution, sales, marketing and information services groups. This lease expires in 2012 and the annual base rent is approximately $750,000.

Egg Products Division. The following table summarizes information relating to the primary facilities of our egg products division:

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The egg products division also owns or leases, primarily for egg production operations, approximately 1,600 acres of land in Nebraska and Minnesota.

Potato Products Division. The potato products division owns a processing plant and land located in Minneapolis, Minnesota, consisting of approximately 175,000 square feet of production area. This division leases a building in North Las Vegas, Nevada, consisting of approximately 31,000 square feet. This lease expires in 2006 and we have the option to extend the lease three successive five year periods. The annual base rent is approximately $330,000.

Refrigerated Distribution Division. The refrigerated distribution division leases administrative and sales offices in suburban Minneapolis and several small warehouses across the United States. The leases expire between 2005 and 2010. The administrative and sales office lease may be extended at our option for five years. The annual base rent for all of the leases is $253,000. The division owns a distribution center located near LeSueur, Minnesota, which is approximately 33,000 square feet. The refrigerated distribution division also owns and operates a 85,000 square foot refrigerated warehouse with offices and a 25,000 square foot cheese packaging facility on a 13 acre site in Lake Mills, Wisconsin.

The total annual base rent of the facilities described above is approximately $4.2 million. The leases for these facilities have varying length terms ranging from month-to-month to 2017. We believe that our owned and leased facilities, together with budgeted capital projects in each of our three operating divisions, are adequate to meet anticipated requirements for our current lines of business for the foreseeable future. All of our owned property is pledged to secure repayment of our senior credit facility.

For additional information on contractual obligations relating to operating leases see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

ITEM 3—LEGAL PROCEEDINGS

In 2000, Sunny Fresh Foods, a division of Cargill, filed a declaratory judgment action in the United States District Court for the District of Minnesota requesting the adjudication of the unenforceability and invalidity of patents exclusively licensed to us by North Carolina State University (see “Item 1—Proprietary Technologies and Trademarks”). The patents cover process and product claims for ultrapasteurized liquid eggs. In August 2003, a jury found the patents to be valid and enforceable, but ruled that Sunny Fresh Foods has not infringed the licensed patents. We have filed an appeal to reverse the non-infringement ruling. The hearing process for the appeal was completed in December 2004. We expect a ruling from the Federal Circuit Court of Appeals in mid-2005, although the timing is uncertain. We also settled litigation regarding infringement of these patents with Rose Acre Farms and Cutler Egg Products in January 2004. These parties are now paying us quarterly royalties for the sub-licensed use of this technology.

On May 11, 2004, the U.S. Environmental Protection Agency (“EPA”) issued “Findings of Violation and Order for Compliance” to the Company in connection with our discharge of wastewater to the municipal treatment facility in Wakefield, Nebraska. The findings alleged that wastewater from our

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Wakefield egg processing operations caused interference or process upset at the City’s facility. EPA ordered us to identify interim measures and a long-term proposal for addressing the issues that it had identified. On June 1, 2004, we provided EPA with a proposal for improving the Wakefield facility’s performance and compliance, and we supplemented the proposal on August 16, 2004. Concurrently, and in connection with the same matter, the Nebraska Department of Environmental Quality (“NDEQ”) issued two enforcement documents to us:

(a) On June 23, 2004, NDEQ issued a Notice of Violation alleging that the our wastewater had contributed to upset, interference and pass-through at the City’s wastewater treatment facility. We responded to the Notice of Violation on August 17, 2004.

(b) On June 24, 2004, NDEQ issued a Complaint and Notice for Opportunity for Hearing alleging that our wastewater was causing interference or process upset at our pretreatment facility. On October 27, 2004, we entered into an Administrative Consent Order with NDEQ under which the Company agreed to land-apply certain egg solids rather than sending them to the City of Wakefield’s wastewater treatment facility.

In addition, we are from time to time party to litigation, administrative proceedings and union grievances that arise in the ordinary course of our business, and we occasionally pay small penalties to resolve alleged minor violations of environmental requirements. We do not have any litigation pending that, separately or in the aggregate, would in the opinion of management have a material adverse effect on our results of operations or financial condition.

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

None.

PART II

ITEM 5—MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

ITEM 6—SELECTED FINANCIAL DATA

The following table sets forth selected consolidated historical financial data with respect to the Company, the Predecessor and the 2001 Predecessor. The data presented below was derived from the Company’s, Predecessor’s and 2001 Predecessor’s Consolidated Financial Statements. Due to the Merger, which was accounted for as a purchase, different bases of accounting have been used to prepare the Company and Predecessor Consolidated Financial Statements. The Merger resulted in additional interest expense for new debt incurred and higher depreciation and amortization of property, plant and equipment and other intangible assets recorded. The accompanying 2001 Predecessor Balance Sheet and Statements of Operations data as of and for the three months ended March 31, 2001 were prepared from the historical books and records of the 2001 Predecessor. This information should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto included elsewhere herein and Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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ITEM 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS APPEARING ELSEWHERE IN THIS FORM 10-K. THIS DISCUSSION MAY CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED IN FORWARD-LOOKING STATEMENTS. SEE “ITEM 1—BUSINESS—FORWARD–LOOKING STATEMENTS.”

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General

Overview. We are a leading producer and distributor of specialty egg and refrigerated potato products to the foodservice, retail and industrial ingredient markets. We also 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 segments within our food categories and strive to be a market leader in product innovation and low-cost production. Our strategic focus on value-added processing of food products is designed to capitalize on key food industry trends, such as the desire for improved safety and convenience, reduced labor and waste, and growth of food consumption away from home. We believe our operational scale, product breadth and geographic scope make us an attractive and important strategic partner for our customers, which include foodservice distributors, major restaurant chains and industrial ingredient companies. In recent years, our net sales and operating profit, excluding transaction expenses, have each increased as a result of our focus on value-added products, combined with favorable food industry trends, such as an increasing percentage of the total annual spending on food in the U.S. being devoted to eating away from home.

Capital Expenditures. From 1998 through 2004, we invested approximately $266 million in capital expenditures, excluding capital expenditures made in the Dairy Products Division, which was sold in late 2003. More than half of this cumulative amount was used for growth investments to expand our manufacturing capacity for value-added egg products, to upgrade our potato products operations, to improve and expand our distribution centers, to install a new company-wide management information system and to otherwise position ourselves for future growth. These expenditures included the installation of new precooked egg production lines, a new dried egg facility, automated packaging machines and quality control systems. We expect these investments to improve manufacturing efficiencies, customer service and product quality. The remainder of capital spending over the past seven years was on routine major equipment and facilities betterment activities.

Acquisitions/Joint Ventures. We have grown both organically and through acquisitions. Since 1988, we have completed 17 acquisitions and three joint ventures, including the $106 million acquisition of Papetti’s in 1997. The acquisition of Papetti’s significantly increased our Egg Products Division’s market share, scale, geographic scope and product offerings. We have focused in recent years on making small acquisitions that expand our current product offerings and/or geographic scope and broaden our technological expertise. For example, in 2002, we bought the egg products division of Canadian Inovatech, Inc., one of the largest providers of processed egg products in Canada, which greatly expanded our presence in international markets, particularly in the industrial ingredients market.

Commodity Risk Management. Our principal exposure to market risks that may adversely affect our results of operations and financial condition 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 contracts and interest rate swap agreements, where practicable. We do not trade or use instruments with the objective of earning financial gains on commodity prices or interest rate fluctuations, nor do we use instruments where there are not underlying exposures. See “—Market Risk —Commodity Hedging—Commodity Risk Management.”

Sale of Dairy Products Division. Effective September 30, 2003, we completed the sale of our Dairy Products Division to Dean Foods Company for approximately $155.0 million. In accordance with a transition services agreement, we were compensated for certain transition services we provided to the buyer through February 2004. These transition services included services such as information technology, sales, customer service and procurement. We determined that the sale did not meet the accounting criteria for “discontinued operations.” Accordingly, the results of operations of the Dairy Products Division are included in the Predecessor’s statements of operations through September 30, 2003.

Mergers and Purchase Accounting Effects. In November 2003, we were acquired by an investor group comprised of a private equity firm and a management group through the merger of THL Food Products Co. with and into M-Foods Holdings, Inc. (the “Merger”), with M-Foods Holdings, Inc. being the continuing entity. M-Foods Holdings, Inc. then merged with and into Michael Foods, Inc. (Minn.).

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M-Foods Holdings, Inc. continued as the surviving corporation and was immediately thereafter renamed Michael Foods, Inc. (Del.) (the “Company”). The “Predecessor” refers to Michael Foods, Inc. prior to the Merger. In April 2001, the Company was acquired (the “2001 Merger”) by an investor group comprised of two equity sponsors, members of senior management and affiliates of the Michael family. The “2001 Predecessor” refers to Michael Foods, Inc. prior to the 2001 Merger.

The 2003 Merger was accounted for using the purchase method of accounting. Accounting for the Merger using this method may affect our results of operations in certain significant respects. The aggregate Merger consideration, including purchase price adjustments, the assumption of liabilities and estimated transaction expenses, of approximately $1.018 billion was allocated to the tangible and intangible assets acquired and liabilities assumed by us, based upon their respective fair values as of the date of the acquisition. The allocation of the purchase price of the assets acquired in the Merger resulted in a significant increase in our annual depreciation and amortization expense.

Results Of Operations

The following table summarizes the historical results of our divisional operations and such data as a percentage of total net sales for the periods indicated. The financial data presented for the periods below include the results of our Dairy Products Division, which the Predecessor sold effective September 30, 2003. The information contained in this table should be read in conjunction with “Item 6—Selected Financial Data” and the consolidated financial statements and related notes included elsewhere in this Form 10-K. The consolidated historical financial data presented below includes our financial data and the financial data of our Predecessor, which was also named Michael Foods, Inc. The financial data presented below for the Predecessor relates to our company and its consolidated subsidiaries for the periods after the 2001 Merger and prior to the acquisition (Merger) of our predecessor in November 2003 by an investor group consisting of affiliates of Thomas H. Lee Partners and members of our management. Due to the Merger, which was accounted for as a purchase, different bases of accounting have been used to prepare our and the Predecessor’s consolidated financial statements. The Merger resulted in additional interest expense for incurred indebtedness and higher depreciation and amortization of fixed assets and other intangible assets recorded.

The financial data below was derived from the Company’s and Predecessor’s audited Consolidated Financial Statements included elsewhere in this document. It is suggested that readers combine 2003 one month (Company) results and 2003 11 months (Predecessor) results for comparability.

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Results for the Year Ended December 31, 2004 Compared to Combined Results for the Year Ended December 31, 2003

Net Sales. Net sales for the year ended December 31, 2004 decreased $11.7 million, or approximately 1%, to $1,313.5 million from $1,325.2 million for the year ended December 31, 2003. Adjusting for the 2003 sale of the Dairy Products Division, net sales increased 11% in 2004. The strongest divisional sales growth occurred in the Egg Products Division, which recorded a 14% external net sales increase. External net sales growth of 10% and 4% was recorded by the Potato Products and Refrigerated Distribution divisions, respectively.

Egg Products Division Net Sales. Egg Products Division external net sales for the year ended December 31, 2004 increased $115.8 million, or 14%, to $941.4 million from $825.6 million for the year ended December 31, 2003. External net sales increased for most products lines, with double-digit unit sales growth in all higher-value-added products and increased pricing in virtually all product lines. Consistent with our strategy to emphasize value-added egg product sales and diminish commodity sensitive sales, shell egg unit sales declined by 26% in 2004. During 2004, shell egg prices decreased by approximately 6%, as reported by Urner Barry, resulting in mixed pricing for market-sensitive products. Sales of higher value-added egg products represented approximately 58% of the Egg Products Division’s external net sales in 2004 compared with 56% in 2003. Sales diminished for our most commodity-sensitive products – short shelf-life liquid and shell eggs. Industrial lines showed relatively flat, or reduced, unit sales in 2004 compared to 2003 levels.

Potato Products Division Net Sales. Potato Products Division external net sales for the year ended December 31, 2004 increased $7.4 million, or 10%, to $83.8 million from $76.4 million for the year ended December 31, 2003. This increase was primarily attributable to strong unit sales growth for foodservice refrigerated potato products, which increased approximately 8% from 2003 levels. Retail unit sales increased approximately 2%. Sales to new customers, growth in sales to existing customers, increased marketing and new product introductions all contributed to the sales increase. Approximately 61% of the Division’s 2004 net sales were to the foodservice market, with 39% to the retail market. Pricing in both market segments was slightly higher in 2004 than in 2003.

Refrigerated Distribution Division Net Sales. Refrigerated Distribution Division external net sales for the year ended December 31, 2004 increased $9.8 million, or 4%, to $288.3 million from $278.5 million for the year ended December 31, 2003. This increase was due, in part, to higher sales for branded cheese. However, overall, the Division’s unit sales declined in 2004 from 2003 levels. Increased product placements and stores served helped moderate the unit sales decrease. Inflation contributed to the divisional sales increase, with significantly higher market prices prevailing for cheese and butter.

Gross Profit. Gross profit for the year ended December 31, 2004 increased $5.7 million, or approximately 2%, to $236.4 million from $230.7 million for the year ended December 31, 2003. Gross profit in 2003 included nine months of Dairy Products results. Our gross profit margin was 18% of net sales for 2004, compared with 17% for 2003. The increase in gross profit margin was due to increased gross profit margins from egg products. Increased 2004 gross profit margins from market-sensitive egg products more than offset egg sourcing costs that were higher in 2004 than in 2003 and significantly higher transportation costs than in 2003.

Selling General and Administrative Expenses. Selling, general and administrative expenses for the year ended December 31, 2004 increased $17.3 million, or 14%, to $138.3 million from $121.0 million for the year ended December 31, 2003. Selling, general and administrative expenses increased to 11% of net sales in 2004 versus 9% for 2003. Salaries, wages and employee benefits costs increased year-over-year as well. Additionally, amortization was approximately $14.3 million higher in the 2004 period compared to the 2003 period due to amortization of our customer relationship intangible assets recorded in purchase accounting related to the Merger.

Operating Profit. Operating profit for the year ended December 31, 2004 increased $10.6 million, or approximately 12%, to $97.8 million from $87.2 million for the year ended December 31, 2003. This

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increase is attributable to a notable increase in Egg Products operating profits and a significant reduction in Corporate expenses, as 2003 included transaction expenses recorded by us and our Predecessor of $22.5 million. These factors more than offset the absence of nearly $12 million of Dairy Products operating profits recorded in 2003 prior to that division’s sale.

Egg Products Division Operating Profit. Egg Products Division operating profit for the year ended December 31, 2004 increased $8.6 million, or 11%, to $87.1 million from $78.5 million for the year ended December 31, 2003. Operating profit for higher value-added egg products decreased by $4.0 million, or 7%, from 2003, reflecting increased operating costs, largely driven by higher grain, transportation and energy costs, and record high egg white costs. While we experienced higher operating expenses, we were limited in our ability to pass-through price increases due to the longer-term fixed price nature of our customer contracts. Operating profits from other egg products rose significantly from 2003 levels, reflecting favorable market-driven pricing. Shell egg profitability declined significantly in 2004 from 2003 levels, reflecting lower Urner Barry pricing levels. The 2004 period included approximately $2.0 million related to amounts received under patent infringement settlements and the 2003 period included approximately $4.3 million related to legal settlements regarding vendor price collusion. We also had other expense of approximately $0.5 million in both 2004 and 2003 related to our investment in Belovo S.A. Also, the Division incurred unusual operating expenses in 2004 related to the handling of wastewater, particularly at the Wakefield, NE location (see Item 3 – LEGAL PROCEEDINGS).

Potato Products Division Operating Profit. Potato Products Division operating profit for the year ended December 31, 2004 decreased $2.5 million, or 26%, to $6.9 million from $9.4 million for the year ended December 31, 2003. This decrease reflected break-even operations in the foodservice business in 2004, compared to a profit in 2003. Also, only modest sales volume growth and higher costs in our more profitable retail operations resulted in a decrease in that sector’s profitability. Part of the higher costs in our retail business related to a re-launch of our core Simply Potatoes^® line in the fall of 2004. Also, the Division initiated a voluntary recall of certain hash brown potato products sold in the retail market in late 2004. An accrual was recorded at December 31, 2004 to cover known and estimated costs of the voluntary recall.

Refrigerated Distribution Division Operating Profit. Refrigerated Distribution Division operating profit for the year ended December 31, 2004 decreased $3.2 million, or 20%, to $13.2 million from $16.4 million for the year ended December 31, 2003. Operating profit declined due, in part, to higher market prices for raw materials for our key product line, cheese, which we were unable to pass on entirely to our customers.

Combined Results for the Year Ended December 31, 2003 Compared to Predecessor’s Results for the Year Ended December 31, 2002

Net Sales. Net sales for the year ended December 31, 2003 increased $157.0 million, or approximately 13%, to $1,325.2 million from $1,168.2 million for the year ended December 31, 2002. The strongest divisional sales growth occurred in the Egg Products Division, which recorded a 26% external net sales increase. External net sales growth of 6% and 13% was recorded by the Potato Products and Refrigerated Distribution divisions, respectively. 2003 was a 53-week year, which added nearly 2% to annual net sales.

Egg Products Division Net Sales. Egg Products Division external net sales for the year ended December 31, 2003 increased $167.8 million, or 26%, to $825.6 million from $657.8 million for the year ended December 31, 2002. External net sales increased for all products lines, with particular strength in egg substitutes, precooked items, dried products and short shelf-life liquid. Consistent with our strategy to emphasize value-added egg product sales and diminish commodity sensitive sales, shell egg unit sales declined by 5% in 2003. However, shell egg dollar sales rose due to strong market prices. During 2003, shell egg prices increased by approximately 29%, as reported by Urner Barry, resulting in notably better pricing for market-sensitive products such as frozen and short shelf-life egg products as well as shell eggs. Sales of higher value-added egg products represented approximately 56% of the Egg Products Division’s external net sales in 2003 compared with 59% in 2002. The increased contribution of lower value-added products reflected the impact of a significantly stronger pricing environment for market-sensitive egg

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products, whereas higher value-added lines are affected to a lesser extent, if at all, by egg market prices. Also, having a full year of Canadian operations, which largely has industrial sales, reduced the portion of total sales from value-added lines.

Potato Products Division Net Sales. Potato Products Division external net sales for the year ended December 31, 2003 increased $4.2 million, or 6%, to $76.4 million from $72.2 million for the year ended December 31, 2002. This increase was primarily attributable to strong unit sales growth for retail refrigerated potato products, which increased approximately 11% from 2002 levels. Foodservice unit sales increased by approximately 3%. Sales to new customers, growth in sales to existing customers, increased marketing and new product introductions all contributed to the sales increase, with mashed potato products showing the greatest growth in both the retail and foodservice markets. Approximately 60% of the Division’s 2003 net sales were to the foodservice market, with 40% to the retail market. Pricing in both market segments was stable year-over-year.

Refrigerated Distribution Division Net Sales. Refrigerated Distribution Division external net sales for the year ended December 31, 2003 increased $30.9 million, or 13%, to $278.5 million from $247.6 million for the year ended December 31, 2002. This increase was due, in part, to higher unit sales for cheese and butter. Overall, unit sales rose by 3% in 2003. Inflation also contributed to the divisional sales increase, with higher market prices prevailing for cheese and butter. Increased product placements and stores served also contributed to the Division’s sales growth.

Dairy Products Division Net Sales. Dairy Products Division external net sales for the year ended December 31, 2003 decreased $45.9 million, or 24%, to $144.7 million from $190.6 million for the year ended December 31, 2002. This decrease was primarily due to the 2003 period being nine months, as the Division was sold effective late September 2003. On a comparable basis, sales decreased slightly due to lower unit sales of carton products related to a customer diversifying its customer base, which were offset by unit sales gains by customers.

Gross Profit. Gross profit for the year ended December 31, 2003 increased $15.9 million, or approximately 7%, to $230.7 million from $214.8 million for the year ended December 31, 2002. Our combined gross profit margin was 17% of net sales for 2003, compared with 18% for 2002. The decrease in gross profit margin was due to decreased gross profit margins from egg products. Egg sourcing costs were higher in 2003 than in 2002, reflecting higher feed costs and much higher open market, and market-based contracted, egg costs.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the year ended December 31, 2003 increased $4.6 million, or 4%, to $121.0 million from $116.4 million for the year ended December 31, 2002. Selling, general and administrative expenses declined to 9% of net sales in 2003 versus 10% for 2002. The decline in selling, general and administrative expenses as a percentage of net sales is attributable to expense management, significant net sales growth and owning the Dairy Products Division for only nine months in 2003.

Operating Profit. Operating profit for the year ended December 31, 2003 decreased $11.2 million, or approximately 11%, to $87.2 million from $98.4 million for the year ended December 31, 2002. This decrease is primarily attributable to transaction expenses recorded by us and our Predecessor of $22.5 million.

Egg Products Division Operating Profit. Egg Products Division operating profit for the year ended December 31, 2003 increased $6.8 million, or 10%, to $78.5 million from $71.7 million for the year ended December 31, 2002. Operating profit for higher value-added egg products decreased by $13.7 million, or 19%, from 2002, reflecting increased egg costs, as a result of increased grain and market-driven egg costs late in the year. Operating profits from other egg products rose significantly from near break-even levels in 2002, reflecting vastly improved market-driven pricing. Shell egg profitability in 2003 rose significantly from very modest 2002 levels, reflecting much higher Urner Barry pricing levels. Various legal settlements related to vendor price collusion added approximately $4.3 million to 2003 divisional operating profits.

Potato Products Division Operating Profit. Potato Products Division operating profit for the year ended December 31, 2003 decreased $1.4 million, or 13%, to $9.4 million from $10.8 million for the year

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ended December 31, 2002. This decrease reflected a gross profit decrease tied to reduced processing yields as a result of below-normal potato quality through the first nine months of 2003, partially offset by the favorable impact of rising sales volumes in the more profitable retail market.

Refrigerated Distribution Division Operating Profit. Refrigerated Distribution Division operating profit for the year ended December 31, 2003 increased $2.7 million, or 20%, to $16.4 million from $13.7 million for the year ended December 31, 2002. Profit margin for our key product line, cheese, rose in 2003 due to both normal (versus historical averages) product costs and retail pricing prevailing through much of the year. Also, our cheese hedging activities were more effective in 2003 than in 2002. Divisional operating profit results for the first several months of 2002 were depressed due to ineffective cheese hedging, which resulted in cheese costs being in excess of market levels. Improved 2003 profitability was partially offset by a charge of approximately $1.0 million in recognition of a bankruptcy filing by a major customer.

Dairy Products Division Operating Profit. Dairy Products Division operating profit for the year ended December 31, 2003 increased $2.0 million, or 20% to $11.9 million from $9.9 million for the year ended December 31, 2002 despite the 2003 period being nine months, as 2002 was affected by high operating costs at one facility that were rectified in 2003. Additionally, sales growth in the higher margin creamer category contributed to profit growth. The Division was sold effective late September 2003.

Loss on Early Extinguishment of Debt and Loss on Dairy Disposition. The Predecessor recorded a loss on the early extinguishment of debt related to the 2003 Merger during the eleven month period ended November 30, 2003 of $61.2 million. The amount consists primarily of $50.8 million redemption premium paid to the 11.75% senior subordinated note holders. The Predecessor also recorded a loss on the sale of its Dairy Products Division. The loss was primarily related to the difference in book basis of our investment in the division compared to the actual cash received by the Predecessor of $42.6 million.

Seasonality and Inflation

Our consolidated quarterly operating results are affected by the seasonal fluctuations of our net sales and operating profits. Specifically, 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 Refrigerated Distribution 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 Potato Products Division are less seasonal, but tend to be higher in the second half of the year coinciding with the potato harvest. Net sales and operating profits from the divested Dairy Products Division typically were significantly higher in the second and third quarters due to increased consumption of ice cream products during the summer months. In recent years, other than fluctuations in raw material costs, largely related to short-term supply and demand variances, inflation has not been a significant factor in our operations. Inflation is not expected to have a significant impact on our business, results of operations or financial condition since we can generally offset the impact of inflation through a combination of productivity gains and price increases.

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 $121.6 million for the year ended December 31, 2004, compared to a combined $107.5 million for the Company and the Predecessor for the year ended December 31, 2003. This increase in our cash flow provided by operating activities is primarily attributable to earnings growth and working capital management. Cash flow provided by combined operating activities was $107.5 million for the year ended December 31, 2003, compared to $83.0 million for the Predecessor for the year ended December 31, 2002. The increase in cash flow provided by operating activities from 2002 to 2003 was primarily attributable to an increase in accrued liabilities.

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In the third quarter of 2004, our immediate parent, M-Foods Holdings, Inc., paid a dividend in the amount of approximately $98.1 million to our ultimate parent, Michael Foods Investors LLC, with the proceeds of an offering of its $100 million 9.75% Senior Discount Notes due October 1, 2013. As the wholly-owned subsidiary of M-Foods Holdings, Inc., we are responsible for servicing these notes. We then issued dividends in the amount of approximately $70.1 million to M-Foods Holdings, Inc. in the fourth quarter of 2004. The dividends were subsequently distributed to Michael Foods Investors LLC. Michael Foods Investors LLC includes members of our management. We now expect to use excess cash flow primarily to reduce debt levels in the coming years, unless there is acquisition activity.

As a result of the Merger, in 2003 we incurred approximately $780.0 million of long-term debt, including $495.0 million of borrowings under our senior credit facility, $135.0 million of borrowings under a senior unsecured term loan facility and $150.0 million from the issuance of 8% senior subordinated notes due 2013. The senior credit facility that we entered into in connection with the Merger currently provides a $100.0 million revolving credit facility maturing in 2009 and a $495.0 million term loan facility maturing in 2010. The senior unsecured term loan facility of $135.0 million matures in 2011. The senior credit facility (a/k/a “credit agreement”) and senior unsecured term loan agreement were amended as of September 17, 2004 (please see our Form 8-K of September 22, 2004; incorporated by reference herein).

In 2003, we used borrowings under the term loan facility of our senior credit facility, borrowings under the senior unsecured term loan facility and the net proceeds of the offering of the 8% senior subordinated notes to consummate the Merger transactions (including repayment in full of our then existing credit facility and substantially all of the Predecessor’s 11.75% senior subordinated notes due 2011), to pay fees and expenses incurred in connection with the transactions, and to provide for working capital and other general corporate purposes.

As a result of the Merger, we continue to have substantial annual cash interest expenses. 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 in the credit agreement, the senior unsecured term loan agreement, and the indenture as of December 31, 2004.

The following is a calculation of our minimum interest coverage and maximum leverage ratios under our credit facility. The terms and related calculations are defined in the credit facility agreement which was included as Exhibit 10.1 of our Form S-4 Registration Statement dated May 19, 2004. The covenant calculations for 2003 were completed by combining the Company’s one month operations ended December 31, 2003 and the Predecessor’s eleven months of operations ended November 30, 2003. In accordance with the terms of our credit agreement, we also excluded the operations of the Dairy Products Division from the 2003 period.

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The aggregate maturities of our long-term debt, our lease commitments and our long-term purchase commitments for the years subsequent to December 31, 2004, are as follows:

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As discussed above, we have a credit agreement with various lenders, including commercial banks, other financial institutions and investment groups, which expires in 2009 and 2010 and provides credit facilities which originally provided $595 million. Within these credit facilities there is a $100 million revolving line of credit. As of December 31, 2004, approximately $455 million was outstanding under the credit agreement, plus approximately $6.5 million was used under the revolving line of credit for letters of credit. After paying our stockholder approximately $70.1 million in dividends in 2004, we made a voluntary repayment of $35 million under the credit agreement in late December 2004. Also, largely the same lender group provided us with a $135 million senior unsecured term loan agreement, which expires in 2011. All available funds from the senior unsecured term loan agreement were borrowed at the time of the Merger and are still outstanding. The weighted average interest rate for our borrowings under the credit agreement and the unsecured term loan was approximately 5.5% at December 31, 2004. Given our business trends and cash flow forecast, we do not anticipate any use of the revolving line of credit during 2005, 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 may repurchase from time to time a portion of our senior subordinated notes, subject to market conditions and other factors. No assurance can be given as to whether or when, or at what prices, such repurchases may occur. Any such repurchases would be limited by certain restrictions found in our credit agreement and in the indenture governing the subordinated notes. The indenture requires the Company to pay certain amounts, as set forth in the indenture, if repurchases occur before the specified dates.

Our ability to make payments on and to refinance our debt, including the senior subordinated 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 can provide no assurances that we would be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all. In addition, the terms of our existing and future indebtedness, including the senior subordinated notes, our senior credit facility and our senior unsecured term loan may limit our ability to pursue any of these alternatives.

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

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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.

Capital Spending

We invested approximately $37.7 million in capital expenditures in 2004. We and the Predecessor invested approximately $30.0 million in capital expenditures in 2003 and the Predecessor made capital investments of approximately $27.4 million in 2002. Capital expenditures each year mainly related to expanding capacity for value-added products, to expand warehouse space for all of our divisions, and the upgrading of computer technology. Also, during 2002, the Predecessor purchased substantially all of the egg-related assets of Canadian Inovatech Inc. for approximately $18 million. Capital expenditures in 2004, 2003 and 2002 were funded from cash flow from operations and borrowings under credit facilities.

We plan to spend approximately $46 million in total capital expenditures for 2005, which will be used to maintain existing production facilities, expand refrigerated warehouse capacity, and to expand production capacity for value-added products, such as specialty egg products. This spending will be funded from operating cash flow, plus available capacity under our revolving line of credit, if need be.

Debt Guarantees

We have guaranteed, through our Waldbaum subsidiary, the repayment of certain industrial revenue bonds used for the expansion of the wastewater treatment facilities of three municipalities where we have food processing facilities. The repayment of these bonds is funded through the wastewater treatment charges paid by us. However, should those charges not be sufficient to pay the bond payments as they become due, we have agreed to pay any shortfall. The remaining principal balance of these bonds at December 31, 2004 was approximately $6.2 million.

Insurance

In general, our insurance costs have increased over the past three years. The insurance industry trends toward significantly higher premiums were accelerated by global geo-political events in 2001. Regarding our largest insurance programs, in 2004 our property insurance premiums declined from 2003 levels, while our casualty insurance premiums rose from 2003 levels. We expect a further decline in property insurance premiums and a flattening of casualty insurance premiums in 2005, based upon counsel from our brokers. We have also experienced, and expect to continue to experience, rising premiums for our portion of health and dental insurance benefits offered to our employees, although the past three years we have succeeded in maintaining such increases below prevailing market rates.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate estimates, including those related to the allowance for doubtful accounts, goodwill and intangible assets, accrued promotion costs, accruals for insurance, financial instruments and income tax provision. We base these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies reflect the significant judgments and estimates used in the preparation of our consolidated financial statements.

Allowance for Doubtful Accounts

We estimate the uncollectibility of our accounts receivable. In determining the adequacy of the

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allowance, we analyze the value of our customer’s financial statements, historical collection experience, aging of receivables and other economic and industry factors. It is possible that the accuracy of the estimation process could be materially impacted by different judgments as to collectibility based on the information considered and further deterioration of accounts.

Goodwill, Customer Relationships and Other Intangibles

We assess the impairment of identifiable intangibles, long-lived assets and related goodwill whenever events or changes in circumstances indicate the carrying value may not be recoverable. Factors which could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the use of acquired assets or our strategy and significant negative industry or economic trends. For intangible assets and long-lived assets, an assessment may occur if the carrying value of the asset exceeds the undiscounted cash flows from the asset.

When we determine that the carrying value of intangibles, long-lived assets and related goodwill may not be recoverable based upon the existence of an impairment, we measure any potential impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in our current business model. The evaluation of fair value requires the use of projections, estimates and assumptions as to the future performance of the operations in performing a discounted cash flow analysis as well as assumptions regarding sales and earning multiples that would be applied in comparable acquisitions in the industry. We assess our goodwill for impairment issues annually.

Accrued Promotion Costs

The amount and timing of expense recognition for customer promotion activities involve management judgment related to estimated participation, performance levels, and historical promotion data and trends. The vast majority of year-end liabilities associated with these activities are resolved within the following fiscal year and, therefore, do not require highly uncertain long-term estimates.

Accruals for Insurance

We are primarily self-insured for our medical and dental liability costs. We maintain high deductible insurance policies for our workers compensation, general liability and automobile liability costs. It is our policy to record our self-insurance liabilities based on claims filed and an estimate of claims incurred but not yet reported. Any projection of losses concerning medical, dental, workers compensation, general liability and automobile liability is subject to a considerable degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, litigation trends, legal interpretations, benefit level changes and claim settlement patterns.

Financial Instruments

We use derivative financial instruments to manage our exposure to various market risks, including certain interest rate, cheese, grain and feed costs. The fair value of these derivative financial instruments is based on estimated amounts which may fluctuate with market conditions.

Income Taxes

Income tax expense involves management judgment as to the ultimate resolution of any tax issues. Historically, our assessments of the ultimate resolution of tax issues have been reasonably accurate. The current open issues are not dissimilar from historical items.

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Recent Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” and issued a revised interpretation in December 2003 (FIN 46R). FIN 46R requires that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities, and results of the activities of the variable interest entity must be included in the consolidated financial statements with those of the business enterprise. FIN 46R must be applied for periods ending after March 15, 2004, and was effective immediately for all variable interest entities created after January 31, 2003. We do not have ownership in any variable interest entities and the adoption of FIN 46R had no impact on our financial condition or results of operations in 2004.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs—An amendment of 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 the Company’s financial condition or results of operations.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 153, “Exchanges of Nonmonetary Assets—An Amendment of 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 the Company’s 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 all stock-based award granted on or after July 1, 2005. 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. The Company is currently assessing the impact of adopting SFAS No. 123(R) to its consolidated results of operations.

Market Risk

Commodity Hedging

Commodity Risk Management. The principal market risks to which we are exposed 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 contracts and interest rate swap agreements, where practicable. We do not trade or use instruments with the objective of earning financial gains on the commodity price or interest rate fluctuations, nor do we use instruments where there are not underlying exposures.

The primary raw materials used in the production of eggs are corn and soybean meal. We purchase these materials to feed our approximately 13.5 million hens, which produce approximately 30% of our annual egg requirements. Shell and liquid eggs are purchased from third-party suppliers and in the spot market for the remainder of the Egg Products Division’s needs. Eggs, corn and soybean meal are commodities that are subject to significant price fluctuations due to market conditions which, in certain circumstances, can adversely affect the results of operations.

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In order to reduce the impact of changes in commodity prices on our operating results, we have developed a risk management strategy that includes the following elements:

The following table is a sensitivity analysis that estimates our exposure to market risk associated with corn and soybean meal futures contracts. The notional value of commodity positions represents the notional value of the corn and soybean meal futures contracts for the year ended December 31, 2004. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10% adverse change in commodity prices (amounts in thousands).

During 2003, we began using forward buy contracts to cover a portion of our Crystal Farms branded

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cheese procurement needs. At December 31, 2004, we had outstanding 2005 forward buy cheese contracts covering approximately 25 million pounds, or approximately 34% of our estimated 2005 requirements. The potential loss in fair market value of these contracts resulting from a 10% adverse change in the underlying commodity prices would be approximately $3.8 million.

Additionally, we hedge some of our natural gas requirements for producing our products by fixing the price for a portion of our natural gas usage. At December 31, 2004, the fair market value of such fixed price purchases was approximately $74,000. These monthly purchases have been made for February and March 2005 and cover approximately 42% of our estimated usage requirements during that period, or approximately 8% of our annual needs. The potential loss in fair market value of these contacts resulting from a 10% adverse change in the underlying commodity prices would be approximately $7,400.

Also, we partially mitigate the risk of variability of our transportation-related fuel costs through the use of home heating oil futures contracts from time to time. We had no such hedges in place as of December 31, 2004.

Interest Rates

Due to our Merger, we have fixed rate debt of $150 million, which we believe had a fair value of approximately the same amount as of the end of 2004. The market risk related to this fixed rate debt, which represents the impact on the fair value from a hypothetical 100 basis point change in interest rates, is $1.5 million. Our credit agreement debt obligations of approximately $455 million carry a variable rate of interest. We believe the fair value of this debt approximated $455 million as of the end of 2004. We also have $135 million borrowed under a senior unsecured term loan agreement with largely the same lenders who are party to the credit agreement. The interest paid on these obligations floats with market changes in interest rates, though a majority of the credit agreement debt, and all of the unsecured term loan debt, is presently tied to one year Eurodollar rates.

As part of our risk management strategy, we have entered into a 6% interest cap arrangement that corresponds with the interest payment terms on $210 million borrowed under the variable portion of our credit agreement for a one-year period starting in November 2004, then declining to $180 million for one year starting in November 2005. As such, the market risk related to these interest rate caps using the same assumption as above would initially be $2.1 million.

ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Risk, above.

ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements and related notes and schedules required by this Item are set forth in Part IV, Item 15 herein.

ITEM 9—CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A—CONTROLS AND PROCEDURES

(a) Our management evaluated, with the participation of the Chief Executive Officer and Chief 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 December 31, 2004. Based on their evaluation, our principal executive and principal financial officers concluded that our disclosure controls and procedures were effective as of December 31, 2004.

(b) There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f)

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and 15d-15(f) under the Exchange Act) that occurred during our fiscal quarter ended December 31, 2004, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B—OTHER INFORMATION

We do not have any information that was required to be reported on Form 8-K during the fourth quarter that was not reported.

PART III

ITEM 10—DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Michael Foods is a wholly-owned subsidiary of M-Foods Holdings, Inc., a corporation owned by Michael Foods Investors, LLC, whose members include affiliates of Thomas H. Lee Partners, L.P. and members of our senior management. Each member of the management committee of Michael Foods Investors, LLC is also a director of Michael Foods (except for Charles Weil).

The names of the executive officers and directors of Michael Foods, and their ages and positions, are as follows:

Gregg A. Ostrander is our President, Chief Executive Officer and Chairman. He has held the prior two offices since 1994 and has been our Chairman since 2001. Mr. Ostrander has been a director of Michael Foods since 1994. In 1993, Mr. Ostrander served as our Chief Operating Officer. From 1989 to 1993, prior to joining Michael Foods, Mr. Ostrander was President of the Armour Swift-Eckrich Prepared Food Division, a food processing company and a division of ConAgra Foods. From 1986 to 1989, Mr. Ostrander served as a Vice President of Marketing and Senior Vice President of Marketing for Armour Swift-Eckrich. Prior to that time, Mr. Ostrander was employed by Beatrice Foods Company, a food processor, for ten years serving most recently as its Director of Marketing. Mr. Ostrander is also a director of Arctic Cat Inc., a recreational vehicle manufacturer, and Birds Eye Foods, Inc., a food company.

James D. Clarkson is our Chief Operating Officer, a position he was appointed to in 2004. Prior to this appointment, Mr. Clarkson was President of our Potato Products and Refrigerated Distribution divisions, positions he held since 1995 and 2002, respectively. Mr. Clarkson joined us in 1994 as Vice President and General Manager of Crystal Farms, a subsidiary of our Refrigerated Distribution Division. Prior to joining us, Mr. Clarkson worked at Lykes Pasco, a food company, as an Industrial Engineer and Warehouse Manager for three years, at Pillsbury/Green Giant, a food company, as Production Superintendent for four years and in various assignments with Armour Swift-Eckrich, most recently as Vice President and General Manager of the Armour Business, a food company.

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John D. Reedy is our Executive Vice President and Chief Financial Officer and has held these positions since 2000. From 1988 to 2000, Mr. Reedy was our Vice President—Finance and Chief Financial Officer. Prior to joining Michael Foods in 1988, Mr. Reedy was at Grant Thornton LLP, an accounting firm, for 18 years, most recently as an Audit Partner.

James G. Mohr is our Senior Vice President—Supply Chain and has held that position since 2004. From 1996 to 2003, Mr. Mohr was our Vice President—Supply Chain. Mr. Mohr has served us in various transportation and logistics management positions since 1994.

Mark D. Witmer is our Treasurer and Secretary. Mr. Witmer has held the former position since 2003 and the latter since 2001. Mr. Witmer joined Michael Foods as the Director of Corporate Communications in 1989. From 1986 to 1989, prior to joining us, Mr. Witmer was a Partner and research analyst at Wessels, Arnold & Henderson, an institutional brokerage firm.

Mark B. Anderson is the President of our Refrigerated Distribution Division, a position he has held since 2004. From 2002 to 2003, Mr. Anderson served as Vice President/General Manager of the division. From 1998 – 2002 Mr. Anderson held various business development and general manager positions within the Division.

Todd M. Abbrecht has been a director of Michael Foods since November 2003 following the consummation of the Merger. Mr. Abbrecht is a Managing Director of Thomas H. Lee Partners, L.P., where he has been employed since 1992. Prior to Thomas H. Lee Partners, L.P., Mr. Abbrecht held a position in the mergers and acquisitions department of Credit Suisse First Boston. Mr. Abbrecht is a director of Simmons Bedding Company, a bedding products manufacturer and distributor, Warner Chilcott Corporation, a specialty pharmaceutical company, and National Waterworks, Inc., a distributor of water and wastewater transmission products.

Anthony J. DiNovi has been a director of Michael Foods since November 2003 following the consummation of the Merger. Mr. DiNovi is Co-President of Thomas H. Lee Partners, L.P., where he has been employed since 1988. Prior to Thomas H. Lee Partners, L.P., Mr. DiNovi held various positions in the corporate finance departments of Goldman, Sachs & Co. and Wertheim Schroder & Co., Inc. Mr. DiNovi is a director of American Media, Inc., a personality journalism publisher, Endurance Specialty Holdings, Inc. a fire, marine and casualty insurance company, National Waterworks, Inc. a distributor of water and wastewater transmission products, US LEC Corporation, a voice, data and Internet services provider, and Vertis, Inc., a provider of advertising, media, and marketing solutions, and various private corporations.

Jerome J. Jenko has been a director and a member of the management committee of M-Foods Investors since 2001 and a director of Michael Foods since 1998. Mr. Jenko had been a director and a member of the management committee of M-Foods Investor LLC, our Predecessor’s parent, prior to the 2003 Merger. He has been a Senior Advisor with Goldsmith, Agio, Helms and Company, an investment banking firm, since 1997. Mr. Jenko is a director of Ocean Spray Cranberries, Inc., a cranberry growing and processing cooperative, and Metris Companies, Inc., a financial products and services company.

Charles D. Weil has been a director of Michael Foods since July 2004. He is President and Chief Executive Officer of M. A. Gedney Company (“Gedney”). Previously, he was Acting President and Chief Executive Officer of Gedney from February 2003 – October 2003. Prior to joining Gedney, Mr. Weil was founder and Chief Executive Officer of C.E.O. Advisors, Inc., a consulting company, from January 2001 – February 2003, and was President and Chief Operating Officer of Young America Corporation, a fulfillment and customer service company, from 1993 – 2000.

Kent R. Weldon has been a director of Michael Foods since November 2003 following the consummation of the Merger. Mr. Weldon is a Managing Director of Thomas H. Lee Partners, L.P, where he has been employed since 1991. Prior to Thomas H. Lee Partners, L.P., Mr. Weldon held a position in the corporate finance department of Morgan Stanley & Co. Incorporated. Mr. Weldon is a director of FairPoint Communications, Inc., a communications services provider, Nortek, Inc., a manufacturer and distributor of

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building products, Progressive Moulded Products, Ltd., a manufacturer and supplier of automotive parts, and Syratech Corporation, a manufacturer and distributor of seasonal products for home entertaining and decoration.

Audit Committee

The Board of Directors has a standing Audit Committee established in accordance with section 3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)). The members of the Audit Committee are Jerome J. Jenko, Chairman, Todd M. Abbrecht and Charles D. Weil.

Audit Committee Financial Expert

The Board of Directors is satisfied that the members of our Audit Committee have sufficient expertise and business and financial experience necessary to perform their duties as the Company’s Audit Committee effectively. As such, no one member of our Audit Committee has been named by our Board of Directors as an “audit committee financial expert” as that term is defined in Item 401(h) of Regulation S-K.

Code of Ethics

We have a Business Conduct Policy, which applies to all of our employees. We have determined that this policy complies with Item 406 of Regulation S-K. We will provide, without charge, a copy of the Business Conduct Policy to any person who so requests in writing. Written requests may be made to Michael Foods, Inc., 301 Carlson Parkway, Suite 400, Minnetonka, Minnesota 55305, attention: Secretary. Our Internet website at www.michaelfoods.com also contains the Business Conduct Policy.

ITEM 11—EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation of our chief executive officer and each of our four most highly compensated executive officers, referred to as the named executive officers, during each of the last three fiscal years.

Summary Compensation Table

Note: All the above amounts exclude any deferred compensation arrangements with our and the Predecessor’s parent company.

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The following table sets forth information concerning individual grants of stock options (whether or not in tandem with SARs), and freestanding SARs (including options and SARs that subsequently have been transferred) made during the last completed fiscal year by our parent to each of the named executive officers:

Option/SAR Grants in Last Fiscal Year

There were no options exercises in 2004.

Employment Agreements

General Provisions. The employment agreement with Gregg A. Ostrander provides for a term of two years beginning on the closing date of the Merger, subject to automatic one year extensions beginning with the second anniversary of the closing of the transactions. The Ostrander employment agreement provides that Mr. Ostrander’s employment (i) shall terminate automatically upon his death or disability, (ii) may terminate at the option of the Company with or without cause and (iii) may terminate at the option of Mr. Ostrander for good reason. The Ostrander employment agreement provides that Mr. Ostrander will receive an annual base salary of at least $715,000 and that he will participate in certain bonus arrangements, long-term incentive plans and employee benefit plans of Michael Foods. For 2005, Mr. Ostrander may receive up to 100% of his salary as an incentive bonus under the Michael Foods, Inc. Executive Officers Incentive Plan. Mr. Ostrander is subject to a noncompetition covenant and a nonsolicitation provision.

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The employment agreement with John D. Reedy provides for a term of two years beginning on the closing date of the Merger, subject to automatic one year extensions beginning with the second anniversary of the closing of the transactions. The Reedy employment agreement provides that Mr. Reedy’s employment (i) shall terminate automatically upon his death or disability, (ii) may terminate at the option of the Company with or without cause and (iii) may terminate at the option of Mr. Reedy for good reason. The Reedy employment agreement provides that Mr. Reedy will receive an annual base salary of at least $400,000 and that he will participate in certain bonus arrangements, long-term incentive plans and employee benefit plans of Michael Foods. For 2005, Mr. Reedy may receive up to 100% of his salary as an incentive bonus under the Michael Foods, Inc. Executive Officers Incentive Plan. Mr. Reedy is subject to a noncompetition covenant and a nonsolicitation provision.

The employment agreement with James D. Clarkson provides for a term of two years beginning on the closing date of the Merger, subject to automatic one year extensions beginning with the second anniversary of the closing of the transactions. The Clarkson employment agreement provides that Mr. Clarkson’s employment (i) shall terminate automatically upon his death or disability, (ii) may terminate at the option of the Company with or without cause and (iii) may terminate at the option of Mr. Clarkson for good reason. Mr. Clarkson’s annual base salary will be at least $400,000, and he will participate in certain bonus arrangements, long-term incentive plans and employee benefit plans of Michael Foods. For 2005, Mr. Clarkson may receive up to 100% of his salary as an incentive bonus under the Michael Foods, Inc. Executive Officers Incentive Plan. Mr. Clarkson is subject to a noncompetition covenant and a nonsolicitation provision.

Termination Provisions. The Ostrander employment agreement provides that if Mr. Ostrander’s employment is terminated by his death or disability, Mr. Ostrander, or his estate or beneficiaries, will receive a payment equal to any annual base salary through the date of termination not yet paid, plus the target bonus for the year prorated for the months of employment in that year, plus any eligible unpaid other benefits, plus three times the total of Mr. Ostrander’s current annual base salary and target bonus. In addition, Mr. Ostrander will receive for three years following the termination date, or until such earlier time as Mr. Ostrander becomes eligible to receive comparable benefits, certain medical, dental and life insurance benefits for himself and his family.

If Mr. Ostrander’s employment is terminated for cause or he terminates without good reason, as described below, Mr. Ostrander will receive his annual base salary through the date of termination and other benefits not yet paid under any plan, program, policy, contract or agreement with or practice of Michael Foods. “Good reason” includes, among other things, any diminution in position, authority, duties and responsibilities or any requirement to relocate or travel extensively. If Mr. Ostrander terminates his employment for good reason or if Michael Foods terminates his employment other than for cause, death or disability, Mr. Ostrander will receive a lump sum in an amount equal to any annual base salary through the date of termination not yet paid, plus the target bonus for the year prorated for the months of employment in that year, plus any eligible unpaid other benefits, plus three times the total of Mr. Ostrander’s current annual base salary and target bonus. In addition, Mr. Ostrander will receive for three years following the termination date, or until such earlier time as Mr. Ostrander becomes eligible to receive comparable benefits, certain medical, dental and life insurance benefits for himself and his family.

Mr. Ostrander may also be eligible to receive an additional payment of any excise tax imposed by Section 4999 of the Internal Revenue Code in connection with payments made in connection with the Merger and any future transactions, as well as an additional payment to cover any applicable taxes such that he will retain an amount equal to the excise taxes, after all income taxes, interest and penalties associated with all such payments. In no event shall the Company be obligated to make any such payments in connection with the acquisition in excess, in the aggregate, of $6,300,000. With respect to any such payments in connection with any future transactions, the Company shall not be obligated to pay any amount in excess, in the aggregate, of $16,300,000.

The Reedy employment agreement provides that if Mr. Reedy’s employment is terminated by his

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death or disability, Mr. Reedy, or his estate or beneficiaries, will receive a payment equal to any annual base salary through the date of termination not yet paid, plus the target bonus for the year prorated for the months of employment in that year, plus any eligible unpaid other benefits, plus two times the total of Mr. Reedy’s current annual base salary and target bonus. In addition, Mr. Reedy will receive for two years following the termination date, or until such earlier time as Mr. Reedy becomes eligible to receive comparable benefits, certain medical, dental and life insurance benefits for himself and his family.

If Mr. Reedy’s employment is terminated for cause or he terminates without good reason, such term having a meaning substantially similar to the meaning given such term in the Ostrander employment agreement, Mr. Reedy will receive his annual base salary through the date of termination and other benefits not yet paid under any plan, program, policy, contract or agreement with or practice of Michael Foods. If Mr. Reedy terminates his employment for good reason or if Michael Foods terminates his employment other than for cause, death or disability, Mr. Reedy will receive a lump sum in an amount equal to any annual base salary through the date of termination not yet paid, plus the target bonus for the year prorated for the months of employment in that year, plus any eligible unpaid other benefits, plus two times the total of Mr. Reedy’s current annual base salary and target bonus. In addition, Mr. Reedy will receive for two years following the termination date, or until such earlier time as Mr. Reedy becomes eligible to receive comparable benefits, certain medical, dental and life insurance benefits for himself and his family.

Mr. Reedy may, under certain circumstances, also be eligible to receive an additional payment of any excise tax imposed by Section 4999 of the Internal Revenue Code in connection with payments made in connection with the Merger and any future transactions, as well as an additional payment to cover any applicable taxes such that he will retain an amount equal to the excise taxes, after all income taxes, interest and penalties associated with all such payments. In no event shall the Company be obligated to make any such payments in connection with the acquisition in excess, in the aggregate, of $6,300,000. With respect to any such payments in connection with any future transactions, the Company shall not be obligated to pay any amount in excess, in the aggregate, of $16,300,000.

The Clarkson employment agreement provides that if Mr. Clarkson is terminated by his death or disability, Mr. Clarkson, or his estate or beneficiaries, will receive a payment equal to any annual base salary through the date of termination not yet paid, plus the target bonus for the year pro rated for the months of employment in that year, plus any eligible unpaid other benefits, plus two times the total of an amount equal to Mr. Clarkson’s current annual base salary and target bonus.

If Mr. Clarkson’s employment is terminated for cause or he terminates without good reason, such term having a meaning substantially similar to the meaning given such term in the Ostrander employment agreement, Mr. Clarkson will receive his annual base salary through the date of termination and other benefits not yet paid under any plan, program, policy, contract or agreement with or practice of Michael Foods. If Mr. Clarkson terminates his employment for good reason or if Michael Foods terminates his employment other than for cause, death or disability, Mr. Clarkson will receive a lump sum in an amount equal to any annual base salary through the date of termination not yet paid, plus the target bonus for the year prorated for the months of employment in that year, plus any eligible unpaid other benefits, plus two times the total of Mr. Clarkson’s current annual base salary and target bonus. In addition, Mr. Clarkson will receive for two years following the termination date, or until such earlier time as Mr. Clarkson becomes eligible to receive comparable benefits, certain medical, dental and life insurance benefits for himself and his family.

Mr. Clarkson may, under certain circumstances, also be eligible to receive an additional payment of any excise tax imposed by Section 4999 of the Internal Revenue Code, in connection with payments made in connection with the Merger and any future transactions, as well as an additional payment to cover any applicable taxes such that he will retain an amount equal to the excise taxes, after all income taxes, interest and penalties associated with all such payments. In no event shall the Company be obligated to make any such payments in connection with the acquisition in excess, in the aggregate, of $6,300,000. With respect to any such payments in connection with any future transactions, the Company shall not be obligated to pay any amount in excess, in the aggregate, of $16,300,000.

The Mohr employment agreement provides that if Mr. Mohr is terminated by his death or disability, Mr. Mohr, or his estate or beneficiaries, will receive a payment equal to any annual base salary through the date of termination not yet paid, plus the target bonus for the year pro rated for the months of employment in that year, plus any eligible unpaid other benefits, plus an amount equal to Mr. Mohr’s current annual base salary.

If Mr. Mohr’s employment is terminated for cause or he terminates without good reason, such term having a meaning substantially similar to the meaning given such term in the Ostrander employment agreement, Mr. Mohr will receive his annual base salary through the date of termination and other benefits not yet paid under any plan, program, policy, contract or agreement with or practice of Michael Foods. If Mr. Mohr terminates his employment for good reason or if Michael Foods terminates his employment other than for cause, death or disability, Mr. Mohr will receive a lump sum in an amount equal to any annual base salary through the date of termination not yet paid, plus the target bonus for the year prorated for the months of employment in that year, plus any eligible unpaid other benefits, plus a payment equal to Mr. Mohr’s current annual base salary. In addition, Mr. Mohr will receive for one year following the termination date, or until such earlier time as Mr. Mohr becomes eligible to receive comparable benefits, certain medical, dental and life insurance benefits for himself and his family.

Mr. Anderson has a severance agreement which provides for payment of his pro rated compensation

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through the date of termination, a lump sum payment of two years’ total annual compensation, and the continuation of certain benefits should he be terminated under certain conditions within two years of a change in control of our Crystal Farms subsidiary. Mr. Witmer is not subject to any severance agreement.

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee are Gregg A. Ostrander, Anthony J. DiNovi, and Kent R. Weldon. The compensation arrangements for our chief executive officer and each of our executive officers was established pursuant to the terms of the respective employment agreements between us and each executive officer. The terms of the employment agreements were established pursuant to arms-length negotiations between representatives of Thomas H. Lee Partners, L.P. or senior executives and each executive officer. Mr. Ostrander is also our President and Chief Executive Officer.

No Compensation Committee interlock relationships existed in 2004.

Deferred Compensation Plan

Upon the closing of the Merger, certain managers became participants in the M-Foods Holdings, Inc. (“Holdings”) 2003 Deferred Compensation Plan. Each participant contributed certain proceeds to the Deferred Compensation Plan. The Deferred Compensation Plan is a nonqualified, unfunded obligation of Holdings. Each participant’s deferred compensation account under the plan will track certain distributions to be made to the Class A Units of Michael Foods Investors, LLC, however, the plan will not hold actual Class A Units of Michael Foods Investors, LLC. Participants in the plan will be entitled to a distribution from their deferred compensation account upon the earlier of (i) a change of control of Holdings (ii) the tenth anniversary of the date of the plan and (iii) upon the exercise of any put or call of the participants Class B Units of Michael Foods Investors, LLC. All payments made under the plan shall be made in cash by Holdings. There were 2004 distributions of deferred compensation totaling $13.1 million coinciding with the dividends issued by Holdings to Michael Foods Investors LLC (see ITEM 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS—Liquidity and Capital Resources).

Incentive Plans

Each of the named executive officers is a participant in the Michael Foods, Inc. Executive Officers Incentive Plan or the Michael Foods, Inc. Senior Management, Officers and Key Employee Incentive Plan, which provide for cash bonuses of up to 100% of base salary, subject to our achieving certain financial performance objectives in any given fiscal year. The target goals set forth in these incentive plans change from year to year and are determined by our Compensation Committee.

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Director Compensation

All members of our board of directors are reimbursed for their usual and customary expenses incurred in connection with attending all board and other committee meetings. Members of the board of directors who are also our employees, or employees of Thomas H. Lee Partners, L.P., do not receive remuneration for serving as members of the board. Other non-employee directors receive a quarterly retainer of $4,000 and are paid $3,000 for each board meeting attended, or $500 for a meeting held telephonically.

For all committees except the Audit Committee, non-employee outside directors are paid $1,000 for each regular committee meeting they attend, except for committee chairs who are paid $1,500 for each committee meeting they attend and chair. Non-employee outside directors are paid $1,500 for each regular Audit Committee meeting they attend, and the Audit Committee chair is paid $2,000 for each Audit Committee meeting they attend and chair.

For all committees except the Audit Committee, non-employee outside directors are paid $500 for each telephonic committee meeting in which they participate, except for committee chairs who are paid $1,000 for each telephonic committee meeting in which they participate and chair. Non-employee outside directors are paid $1,000 for each telephonic Audit Committee meeting in which they participate, except for the Audit Committee chair who is paid $1,500 for each telephonic Audit Committee meeting in which they participate and chair.

Directors’ fees and travel expense reimbursements in 2004 totaled $120,287.

M-Foods Holdings, Inc. Amended and Restated 2003 Stock Option Plan

In order to provide additional financial incentives to our management, certain members of our management and other key employees may be granted stock options to, collectively, purchase up to 6.36% of the common stock of M-Foods Holdings, Inc., our parent company. The exercise price of options granted reflects the fair market value of the underlying shares, as determined by the Compensation Committee in its best judgment.

Fifty percent of the then 25,000 option shares initially reserved for issuance under this stock option plan were issued to Messrs. Ostrander, Reedy, Clarkson, Hoffmann, and Mohr in November 2003. With the payment of certain dividend amounts paid to Michael Foods Investors LLC in late 2004, the stock option plan was amended to reserve a total of 32,277 shares (including the 25,000 initially reserved). Option awards were granted in the amount of 7,277 shares as of November 30, 2004 to existing participants in the plan. The plan provides that the exercise price is payable (1) in cash, (2) after an initial public offering of Michael Foods’ common stock, through simultaneous sales of underlying shares by brokers or (3) through the exchange of M-Foods Holdings, Inc. securities held by the optionee for longer than six months.