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MICHAEL FOODS INC /MN
10-Q, 2000-11-22
AGRICULTURAL PROD-LIVESTOCK & ANIMAL SPECIALTIES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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Form 10-Q

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

For the quarterly period ended September 30, 2000

or

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

For the transition period from                to                

Commission File Number: 0-15638

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Michael Foods, Inc.
(Exact name of registrant as specified in its charter)

(952) 546-1500
(Registrant's telephone number, including area code)

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

    The number of shares outstanding of the registrant's Common Stock, $.01 par value, as of November 6, 2000 was 18,284,991 shares.

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PART I—FINANCIAL INFORMATION

MICHAEL FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

					September 30, 2000			December 31, 1999
ASSETS
CURRENT ASSETS
	Cash and equivalents				$	7,682,000		$	4,961,000
	Accounts receivable, less allowances					98,895,000			92,493,000
	Inventories					82,721,000			71,197,000
	Prepaid expenses and other					4,668,000			4,604,000
		Total current assets				193,966,000			173,255,000
PROPERTY, PLANT AND EQUIPMENT-AT COST
	Land					4,106,000			4,104,000
	Buildings and improvements					133,890,000			133,778,000
	Machinery and equipment					376,741,000			357,724,000
						514,737,000			495,606,000
	Less accumulated depreciation					233,992,000			208,807,000
						280,745,000			286,799,000
OTHER ASSETS
	Goodwill, net					114,146,000			116,729,000
	Joint ventures and other assets					18,660,000			21,134,000
						132,806,000			137,863,000
					$	607,517,000		$	597,917,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
	Current maturities of long-term debt				$	2,881,000		$	3,130,000
	Accounts payable					51,076,000			47,009,000
	Accrued liabilities
		Compensation				13,071,000			13,143,000
		Insurance				7,292,000			7,229,000
		Customer programs				18,567,000			20,999,000
		Income taxes				11,643,000			11,805,000
		Other				13,432,000			18,176,000
			Total current liabilities			117,962,000			121,491,000
LONG-TERM DEBT, less current maturities						203,370,000			175,404,000
DEFERRED INCOME TAXES						37,507,000			36,423,000
COMMITMENTS AND CONTINGENCIES						—			—
SHAREHOLDERS' EQUITY
	Common stock					182,000			203,000
	Additional paid-in capital					58,390,000			102,777,000
	Retained earnings					191,696,000			162,577,000
	Accumulated comprehensive income (loss)					(1,590,000	)		(958,000	)
						248,678,000			264,599,000
					$	607,517,000		$	597,917,000

See accompanying notes to condensed consolidated financial statements.

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MICHAEL FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

Three Months Ended September 30, (Unaudited)

				2000			1999
Net sales				$	276,568,000		$	269,911,000
Cost of sales					228,820,000			223,162,000
	Gross profit				47,748,000			46,749,000
Selling, general and administrative expenses					25,506,000			25,355,000
	Operating profit				22,242,000			21,394,000
Interest expense, net					3,524,000			3,241,000
	Earnings before income taxes				18,718,000			18,153,000
Income tax expense					6,900,000			7,440,000
	NET EARNINGS			$	11,818,000		$	10,713,000
Net Earnings Per Share
	Basic			$	0.65		$	0.53
	Diluted			$	0.64		$	0.52
Weighted average shares outstanding
	Basic				18,278,000			20,251,000
	Diluted				18,516,000			20,522,000

See accompanying notes to condensed consolidated financial statements.

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MICHAEL FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

Nine Months Ended September 30, (Unaudited)

				2000			1999
Net sales				$	795,110,000		$	781,320,000
Cost of sales					650,872,000			642,301,000
	Gross profit				144,238,000			139,019,000
Selling, general and administrative expenses					79,168,000			77,831,000
	Operating profit				65,070,000			61,188,000
Interest expense, net					9,778,000			8,862,000
	Earnings before income taxes				55,292,000			52,326,000
Income tax expense					21,710,000			21,450,000
	NET EARNINGS			$	33,582,000		$	30,876,000
Net Earnings Per Share
	Basic			$	1.75		$	1.50
	Diluted			$	1.73		$	1.48
Weighted average shares outstanding
	Basic				19,172,000			20,574,000
	Diluted				19,394,000			20,818,000

See accompanying notes to condensed consolidated financial statements.

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MICHAEL FOODS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, (Unaudited)

				2000			1999
Net cash provided by operating activities				$	50,179,000		$	73,327,000
Cash flows from investing activities:
	Capital expenditures				(25,967,000	)		(60,918,000	)
	Investments in joint ventures and other assets				835,000			(20,976,000	)
Net cash used in investing activities					(25,132,000	)		(81,894,000	)
Cash flows from financing activities:
	Payments on long-term debt				(130,383,000	)		(138,696,000	)
	Proceeds from long-term debt				158,100,000			177,200,000
	Proceeds from issuance of common stock				545,000			755,000
	Repurchase of common stock				(46,125,000	)		(18,927,000	)
	Dividends				(4,463,000	)		(4,127,000	)
Net cash provided by (used in) financing activities					(22,326,000	)		16,205,000
Net increase in cash and equivalents					2,721,000			7,638,000
Cash and equivalents at beginning of year					4,961,000			2,047,000
Cash and equivalents at end of period				$	7,682,000		$	9,685,000

See accompanying notes to condensed consolidated financial statements.

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MICHAEL FOODS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE A—BASIS OF PRESENTATION

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

    Michael Foods, Inc. (the "Company") utilizes a fiscal year consisting of either 52 or 53 weeks, ending on the Saturday nearest to December 31 each year. The quarters ended September 30, 2000 and 1999 each included thirteen weeks of operations. For clarity of presentation, the Company has described both periods presented as if the quarters ended on September 30.

    In the opinion of management, the unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of September 30, 2000 and the results of operations for the three and nine month periods ended September 30, 2000 and 1999 and cash flows for the nine months ended September 30, 2000 and 1999. The results of operations for the nine months ended September 30, 2000 are not necessarily indicative of the results for the full year.

    The Company's basic net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares. The Company's diluted net earnings per share is computed by dividing net earnings by the weighted average number of outstanding common shares and common share equivalents relating to stock options, when dilutive. Options to purchase 657,676 and 681,878 shares of Common Stock, with weighted average exercise prices of $24.91 and $24.87, which were outstanding during the three and nine month periods ended September 30, 2000, were excluded from the computation of common share equivalents for those periods because they were anti-dilutive. Options to purchase 390,275 and 734,824 shares of common stock, with a weighted average exercise price of $25.56 and $24.80, were outstanding during the three and nine month periods ended September 30, 1999, but were excluded from the computation of common share equivalents for those periods because they were anti-dilutive.

NOTE B—INVENTORIES

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

    Inventories consist of the following:

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NOTE C—COMMITMENTS AND CONTINGENCIES

Use of Estimates

    Preparation of the Company's consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from the estimates used by management.

License Agreement

    The Company has an exclusive license agreement for a patented process for the production and sale of extended shelf-life egg products. Under the license agreement, the Company has the right to defend and prosecute infringement of the licensed patents. The U.S. Federal Court of Appeals has upheld the validity of the four patents subject to the license agreement. However, subsequently a patent examiner at the U.S. Patent and Trademark Office ("PTO") rejected the patents. In August 1999, the examiner's rejections were largely overturned by the Board of Appeals and Interferences of the PTO. Reexamination certificates for three of the patents have since been issued by the PTO. In August 2000, the Company and the patent holder received a Notice of Allowability, followed by a Notice of Allowance, regarding the reissuance of the fourth patent, which included the allowance of product claims beyond the process claims previously allowed. These patents are scheduled to expire in 2006. In the second quarter of 2000, the Company and the patent holder completed a new royalty arrangement whereby the Company pays a reduced amount of royalties and, in turn, is responsible for one-half of any litigation expense incurred to defend the patents.

Litigation

    The Company is engaged in routine litigation incidental to its business. Management believes it will not have a material effect upon its consolidated financial position, liquidity or results of operations.

NOTE D—SHAREHOLDERS' EQUITY

    During the third quarters of 2000 and 1999 the Company repurchased no shares of Common Stock under the share repurchase program which began in July 1998 and was expanded in February and May 2000. Repurchases for the first nine months of 2000 and 1999 were 2,109,400 and 920,100 shares of Common Stock.

NOTE E—COMPREHENSIVE INCOME

    Comprehensive income consists of net earnings and foreign currency translation adjustments. Total comprehensive income was $11,644,000 and $10,713,000 for the three months ended September 30, 2000 and 1999. The total comprehensive income was $32,950,000 and $30,876,000 for the nine months ended September 30, 2000 and 1999.

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NOTE F—BUSINESS SEGMENTS

    The Company operates in four reportable segments—Egg Products, Refrigerated Distribution, Dairy Products and Potato Products. Certain financial information on the Company's operating segments is as follows (unaudited, in thousands):

		Egg Products			Refrigerated Distribution			Dairy Products			Potato Products			Corporate		Total
Three Months ended September 30, 2000:
External net sales		$	162,461		$	57,636		$	41,305		$	15,166		N/A		$	276,568
Intersegment sales			2,849			10			22			632		N/A			3,513
Operating profit (loss)			16,665			3,829			1,329			1,548		(1,129	)		22,242
Three Months ended September 30, 1999:
External net sales		$	157,843		$	55,833		$	41,498		$	14,737		N/A		$	269,911
Intersegment sales			3,235			24			415			577		N/A			4,251
Operating profit (loss)			17,935			2,462			319			2,006		(1,328	)		21,394
Nine Months ended September 30, 2000:
External net sales		$	472,849		$	169,073		$	109,237		$	43,951		N/A		$	795,110
Intersegment sales			8,676			68			507			1,800		N/A			11,051
Operating profit (loss)			50,757			11,962			2,271			4,534		(4,454	)		65,070
Nine Months ended September 30, 1999:
External net sales		$	460,481		$	166,382		$	112,251		$	42,206		N/A		$	781,320
Intersegment sales			12,723			69			993			1,775		N/A			15,560
Operating profit (loss)			52,537			7,046			3,272			4,565		(6,232	)		61,188

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Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations

THREE MONTHS ENDED SEPTEMBER 30, 2000 VS THREE MONTHS ENDED
SEPTEMBER 30, 1999

Results of Operations

    Readers are directed to Note F—Business Segments for data on the unaudited financial results of the Company's four business segments for the three months ended September 30, 2000 and 1999.

    Egg Products Division net sales for the 2000 period reflected unit sales increases, particularly for value-added products, which more than offset significant deflationary pricing impacts on industrial products. Significant unit sales increases were recorded for extended shelf-life liquid eggs, egg substitutes and dried egg products. Unit sales declined in two categories—frozen and short shelf-life eggs—as the Division chose not to pursue sales with little or no profit margin. Egg prices increased approximately 1% compared to third quarter 1999 levels, as reported by Urner Barry Publications—a widely quoted industry pricing service. This increase raised the cost of purchased eggs during a period where prices for industrial egg products were generally lower than normal. Moreover, extreme volatility in egg prices occurred during the quarter, making it difficult to realize typical spreads between raw material costs and finished industrial egg products prices for any significant length of time. However, earnings increases from value-added egg products largely off-set the margin weakness seen from industrial egg product sales.

    Approximately two-thirds of the Division's annual egg needs are purchased under contracts, or in the spot market. While a portion of these eggs are secured under fixed price contracts, a majority are priced according to the cost of grain inputs or to egg market prices as reported by Urner Barry. Approximately one-third of annual egg needs are sourced from internal flocks, where feed costs typically represent roughly two-thirds of the cost of producing such eggs. Feed costs were slightly higher in the 2000 period, compared to the 1999 period, due to higher prices for corn and soybean meal. Increased egg costs, for both internally and externally procured eggs, in the 2000 period, compared to the 1999 period, were generally not met with comparable price changes in egg products prices, creating margin pressure for certain industrial egg products. Egg Products results in the 1999 period were impacted by two non-recurring items. First, a gain was recorded on the sale of a shell egg production facility. Second, a Belgium animal feed contamination scare resulted in losses at the Company's two European egg products joint ventures. The net effect of these items was a modest addition to earnings.

    Refrigerated Distribution Division net sales for the 2000 period reflected strong unit sales increases, with cheese and butter showing particular strength. Sales growth resulted from a brand repositioning over the past two years and a broadening consumer advertising campaign in selected markets, along with notable new account activity and new product introductions. The volume growth, along with more normal product costs for items related to the national butterfat market, resulted in margin expansion in the 2000 period.

    The Dairy Products Division's flat net sales for the 2000 period reflected lower unit sales volumes for the core dairy mix business, in part due to the loss of a major industrial (tanker) customer in late 1999, which offset increased volumes for cartoned specialty products and creamer products, and slightly higher unit pricing compared to the 1999 period. Divisional operating profit increased in the 2000 period as a result of the higher sales of specialty products, and improvements in overhead expenses and operating expenses.

    Potato Products Division net sales for the 2000 period reflected increased unit sales, particularly for both retail and foodservice mashed potato items. New account activity and same-account sales growth contributed to the sales gain. The operating profit decrease in the 2000 period resulted from a less favorable sales mix, reflecting a slight sales decrease for retail shredded products, and increased marketing spending.

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    The gross profit margin of the Company for the period ended September 30, 2000 was comparable to that of the same period in 1999, reflecting the factors discussed above, particularly the margin pressures within the industrial egg products category and the margin increases within the Refrigerated Distribution Division. It is management's strategy to increase value-added product sales as a percent of total sales over time, while decreasing commodity-sensitive products' contribution to consolidated sales. These efforts historically have been beneficial to gross profit margins in most periods.

    Selling, general and administrative expenses decreased slightly as a percent of sales in the period ended September 30, 2000, as compared to the results of the same period in 1999. Favorable impacts from effective expense management more than offset increased expenses related to amortization of the costs associated with the Company's information systems upgrade project and additional marketing efforts.

NINE MONTHS ENDED SEPTEMBER 30, 2000 VS NINE MONTHS ENDED
SEPTEMBER 30, 1999

Results of Operations

    Readers are directed to Note F—Business Segments for data on the unaudited financial results of the Company's four business segments for the nine months ended September 30, 2000 and 1999.

    Egg Products Division net sales for the 2000 period reflected unit sales increases, particularly for value-added products, which more than offset significant deflationary pricing impacts on certain products and an approximate 40% decline in shell egg sales. The latter was by plan and reflects, in part, the sale of a small shell egg facility in the summer of 1999. Sales were particularly strong for extended shelf-life liquid eggs, dried egg products and precooked frozen omelets, patties and curds. Egg prices decreased approximately 3% compared to 1999 levels, as reported by Urner Barry Publications. This decrease lowered the cost of purchased eggs, but this occurred during a period where prices for industrial egg products were generally depressed. Moreover, extreme volatility in egg prices occurred during the 2000 period, making it difficult to realize typical spreads between raw material costs and finished industrial egg products prices for any significant length of time. However, earnings increases from value-added egg products largely off-set the margin weakness seen from industrial egg product sales.

    Approximately two-thirds of the Division's annual egg needs are purchased under contracts, or in the spot market. While a portion of these eggs are secured under fixed price contracts, a majority are priced according to the cost of grain inputs or to egg market prices as reported by Urner Barry. Approximately one-third of annual egg needs are sourced from internal flocks, where feed costs typically represent roughly two-thirds of the cost of producing such eggs. Feed costs in the 2000 period were comparable to the 1999 period. Decreased egg costs, for externally procured eggs, in the 2000 period, compared to the 1999 period, and improved value-added egg products earnings, were more than offset by pricing and margin weakness in certain industrial egg products.

    Divisional operating profit for the 2000 period also reflected the benefit of reduced royalty expense, a portion of which was a retroactive adjustment to January 1, 1999. Under an agreement reached during the second quarter of 2000 period, royalties related to products produced and sold by the Company under a license with NCSU are limited to a fixed portion of the annual production. In consideration of the reduced royalty arrangement, the Company is responsible for one-half of any future litigation expense incurred to defend the patented egg ultra-pasteurization processing technology. Egg Products results in the 1999 period were impacted by two non-recurring items.

    First, a gain was recorded on the sale of a shell egg production facility. Second, a Belgium animal feed contamination scare resulted in losses at the Company's two European egg products joint ventures. The net effect of these items was a modest addition to earnings.

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    Refrigerated Distribution Division net sales for the 2000 period reflected strong unit sales increases, with cheese and butter showing particular strength. Sales growth resulted from a brand repositioning over the past two years and a broadening consumer advertising campaign in selected markets, along with notable new account activity and new product introductions. The volume growth, along with more normal product costs for items related to the national butterfat market, resulted in margin expansion in the 2000 period.

    The Dairy Products Division net sales decline for the 2000 period reflected lower unit sales volumes for the core dairy mix business, in part due to the loss of a major industrial (tanker) customer in late 1999, which offset increased volumes for cartoned specialty products and creamer products. Divisional operating profit declined in the 2000 period as a result of the reduced sales volumes, high overhead expenses and above average operating expenses.

    Potato Products Division net sales for the 2000 period reflected a strong unit sales increase, particularly for mashed items and retail shredded products. New account activity, same-account sales growth and new product introductions all contributed to the sales gain. The flat operating profits in the 2000 period compared to the 1999 period reflect benefits from the volume growth, as plant operations at the main potato processing facility benefited from the increased production throughput, which were offset by increased marketing spending.

    The increase in gross profit margin of the Company for the period ended September 30, 2000, as compared to the results of the same period in 1999, reflected the factors discussed above, particularly the strength in the Refrigerated Distribution Division. It is management's strategy to increase value-added product sales as a percent of total sales over time, while decreasing commodity-sensitive products' contribution to consolidated sales. These efforts historically have been beneficial to gross profit margins in most periods.

    Selling, general and administrative expenses remained approximately constant as a percent of sales in the period ended September 30, 2000, as compared to the results of the same period in 1999. Expenses increased due to amortization of the costs associated with the Company's information systems upgrade project, amortization of a non-compete agreement related to a May 1999 Dairy Products acquisition, increases in bad debt expense resulting from a foodservice distributor's bankruptcy filing, and additional marketing efforts. However, these increased expenses were offset by effective expense controls in other areas and the favorable impact of the reduced egg products royalty arrangement, including a one-time retroactive benefit.

General

    Certain of the Company's products are sensitive to changes in commodity prices. The Company's Egg Products Division derived less than 3% of the Division's net sales for the first nine months of 2000 from shell eggs, which are sensitive to commodity price swings. Value-added extended shelf-life liquid egg products lines and precooked egg products accounted for approximately 50% of the Egg Products Division's net sales. The remainder of Egg Products Division sales is derived from the sale of other egg products, which vary from being commodity-sensitive to value-added. Gross profit from shell eggs is primarily dependent upon the relationship between shell egg prices and the cost of feed, both of which can fluctuate significantly. Shell egg pricing in the 2000 period was approximately 3% below 1999 levels as measured by Urner Barry Publications. Gross profit margins for extended shelf-life liquid eggs, egg substitutes, and precooked egg products are less sensitive to commodity price fluctuations than are other egg products or shell eggs.

    The Company's Refrigerated Distribution Division derives approximately 70% of its net sales from refrigerated products produced by others, thereby reducing the effects of commodity price swings. The balance of refrigerated distribution sales are from shell eggs, some of which are produced by the Egg

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Products Division and are sold on a distribution, or non-commodity, basis by the Refrigerated Distribution Division.

    The Dairy Products Division sells its products primarily on a cost-plus basis and, therefore, the Division's earnings are not typically affected greatly by raw ingredient price fluctuations, except over short time periods.

    The Potato Products Division typically purchases 70%-90% of its raw potatoes from contract producers under annual contracts. The remainder is purchased at market prices to satisfy short-term production requirements or to take advantage of market prices when they are lower than contracted prices. Moderate variations in the purchase price of raw materials or the selling price per pound of finished products can have a significant effect on Potato Products Division operating results.

    Inflation is not expected to have a significant impact on the Company's business. The Company generally has been able to offset the impact of inflation through a combination of productivity gains and price increases.

Capital Resources and Liquidity

    Acquisitions and capital expenditures have been, and will likely continue to be, a significant capital requirement. The Company plans to continue to invest in state-of-the-art production facilities to enhance its competitive position. Historically, the Company has financed its growth principally from internally generated funds, bank borrowings, issuance of senior debt and the sale of Common Stock. The Company believes that these financing alternatives will continue to meet its anticipated needs.

    The Company invested $25,967,000 in capital expenditures during the nine months ended September 30, 2000. The Company plans to spend approximately $45,000,000 in total capital expenditures in 2000, the majority of which is to expand production capacity for value-added products.

    The Company has two unsecured lines of credit for $80,000,000 and $20,000,000 with its principal banks. As of September 30, 2000, $73,000,000 was outstanding under these lines of credit.

    In July 1998, the Company's Board of Directors authorized the purchase of up to 2,000,000 shares of Common Stock on the open market or in privately negotiated transactions. In February 2000, the Board authorized an additional purchase of up to 2,000,000 shares of Common Stock on the open market or in privately negotiated transactions, with an additional 500,000 share authorization made in May 2000. Through September 30, 2000, the Company had repurchased 4,012,200 shares of Common Stock for $89,121,000. During the third quarter of 2000 the Company did not repurchase any shares of Common Stock.

Seasonality

    Consolidated quarterly operating results are affected by the seasonality of the Company's 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. Generally, refrigerated distribution operations experience higher net sales and operating profits in the fourth quarter, coinciding with incremental consumer demand during the holiday season. Net sales and operating profits from dairy operations typically are significantly higher in the second and third quarters due to increased consumption of ice milk and ice cream products during the summer months. Operating profits from potato products are less seasonal, but tend to be higher in the second half of the year coinciding with the potato harvest.

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Forward-Looking Statements

    Certain items in this Form 10-Q may be forward-looking statements, which are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous risks and uncertainties, including variances in the demand for the Company's products due to consumer developments and industry developments, as well as variances in the costs to produce such products, including normal volatility in egg and feed costs. The Company's actual financial results could differ materially from the results estimated by, forecasted by, or implied by the Company in such forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

    There were no material changes in the Company's market risk during the nine month period ended September 30, 2000.

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PART II—OTHER INFORMATION

Item 5—Other Information

    On November 3, 2000, the Company's Crystal Farms Refrigerated Distribution Company ("Crystal Farms") subsidiary initiated a voluntary recall of two cheese items after learning of their possible contamination with Listeria monocytogenes. It is estimated that less than 80,000 pounds of Crystal Farms cheese are affected by the recall. The cheese was produced by a Wisconsin-based dairy cooperative and packaged for Crystal Farms by a contract packaging company. Management believes the ultimate outcome of this recall will not have a material effect on the Company's consolidated financial position, liquidity or results of operations.

Item 6—Exhibits and Reports on Form 8-K

    There were no reports on Form 8-K in the three month period ended September 30, 2000.

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SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		MICHAEL FOODS, INC. (Registrant)
Date: November 13, 2000		By:		/s/ GREGG A. OSTRANDER    Gregg A. Ostrander (Chairman, President and Chief Executive Officer)
Date: November 13, 2000		By:		/s/ JOHN D. REEDY    John D. Reedy (Executive Vice President, Treasurer, Chief Financial Officer and Principal Accounting Officer)

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