**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**Washington, D.C. 20549

#### **FORM 10-Q**

[  X  ]      QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934

For the quarterlyperiod ended June 3, 2006

OR

[       ]      TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934

For the transitionperiod from                    to                           

#### **Commission File Number:  0-7277**

**PIERREFOODS, INC.**(Exact name of registrant as specified in its charter)

#### **North Carolina**(State or other jurisdiction of incorporation ororganization)

**56-0945643**(I.R.S. Employer Identification No.)

**9990Princeton RoadCincinnati, Ohio  45246**(Address of principal executive offices) (zip code)

 Registrant’s telephone number, including areacode:  (513) 874-8741

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(Former name, former address or former fiscalyear if changed since last report)

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding twelve months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  Yes  x No  o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer or anon-accelerated filer (as defined in Rule 12b-2 of the ExchangeAct). Large accelerated filer o  Accelerated filer o Non-accelerated filer x

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

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date.
|                       | Class   |   |   | Outstanding  at July 18, 2006 |   |
|----------------------------|---------|--------|--------|-------------------------------|--------|
| Class A Common  Stock | 100,000 |

 

 

 

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** **

**PIERRE FOODS, INC. AND SUSIDIARY**

 
|                                                                                                                                 | ** ** | Page       | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| **INDEX**                                                                                                                       | ** ** | **Number** | ** ** |
| ** **                                                                                                                      | ** ** | ** ** | ** ** |
| **Part I.   Financial  Information:**                                                                            | ** ** | ** ** | ** ** |
|                                                                                                                            |       |       |       |
| Item  1.   Financial  Statements                                                                                      |       |       |       |
| ** **                                                                                                                      | ** ** | ** ** | ** ** |
| Condensed Consolidated Balance Sheets — June 3,  2006 and March 4, 2006                                          |       | 3          |       |
|                                                                                                                            |       |       |       |
| Condensed Consolidated Statements of Operations — for  the thirteen weeks ended June 3, 2006  and June 4, 2005   |       | 5          |       |
|                                                                                                                            |       |       |       |
| Condensed Consolidated  Statement of Shareholder’s Equity — for the thirteen weeks ended June 3,  2006           |       | 6          |       |
| ** **                                                                                                                      | ** ** | ** ** | ** ** |
| Condensed Consolidated  Statements of Cash Flows — for the thirteen weeks ended June 3, 2006 and    June 4, 2005 |       | 7          |       |
| ** **                                                                                                                      | ** ** | ** ** | ** ** |
| Notes to the Condensed  Consolidated Financial Statements                                                                       |       | 8          |       |
|                                                                                                                            |       |       |       |
| Item 2.   Management’s  Discussion and Analysis of Financial Condition and Results of Operations                 |       | 15         |       |
|                                                                                                                            |       |       |       |
| Item 3.   Quantitative and  Qualitative Disclosures About Market Risk                                                 |       | 21         |       |
|                                                                                                                            |       |       |       |
| Item 4.   Controls and  Procedures                                                                                    |       | 22         |       |
|                                                                                                                            |       |       |       |
| **Part II.   Other  Information:**                                                                               | ** ** | ** ** | ** ** |
|                                                                                                                            |       |       |       |
| Item  1.   Legal  Proceedings                                                                                         |       | 24         |       |
|                                                                                                                            |       |       |       |
| Item  1A. Risk Factors                                                                                                          |       | 24         |       |
|                                                                                                                            |       |       |       |
| Item 6.   Exhibits                                                                                                    |       | 24         |       |
| ** **                                                                                                                      | ** ** | ** ** | ** ** |
| Signatures                                                                                                                      |       | 25         |       |
| Exhibit 31.1                                                                                                               |       | 26         |       |
| Exhibit 31.2                                                                                                               |       | 27         |       |
| Exhibit 32                                                                                                                 |       | 28         |       |

 

 

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**PART I.   FINANCIALINFORMATION**

**ITEM 1.   FINANCIAL STATEMENTS**

**PIERREFOODS, INC. AND SUSIDIARY______________________________________**

**CondensedConsolidated Balance Sheets**
| ** **                                 | ** ** | **June 3, 2006** | ** **  | **March 4, 2006** | ** ** |
|--------------------------------------------|------------|----------------------------|-------------|-----------------------------|------------|
| ** **                                 | ** ** | **(Unaudited)**            | ** **  | ** **                  | ** ** |
| ASSETS                                     |       |                       |        |                        |       |
|                                       |       |                       |        |                        |       |
| CURRENT ASSETS:                            |       |                       |        |                        |       |
| Cash and cash  equivalents                 |       | $                          | 33,733      |                        | $          | 2,540,722 |   |
| Accounts  receivable, net                  |       | 22,437,135                 |        | 29,590,488                  |       |
| Inventories                                |       | 49,696,925                 |        | 45,686,342                  |       |
| Refundable  income taxes                   |       | -                          |        | 1,650,812                   |       |
| Deferred income  taxes                     |       | 3,976,012                  |        | 3,976,012                   |       |
| Prepaid expenses  and other current assets |       | 2,238,035                  |        | 3,165,310                   |       |
|                                       |       |                       |        |                        |       |
| Total current  assets                      |       | 78,381,840                 |        | 86,609,686                  |       |
|                                       |       |                       |        |                        |       |
| PROPERTY, PLANT, AND  EQUIPMENT, NET       |       | 56,333,979                 |        | 56,206,497                  |       |
|                                       |       |                       |        |                        |       |
| OTHER ASSETS:                              |       |                       |        |                        |       |
| Other  intangibles, net                    |       | 129,801,444                |        | 134,844,032                 |       |
| Goodwill                                   |       | 186,535,050                |        | 186,535,050                 |       |
| Deferred loan  origination fees, net       |       | 7,225,154                  |        | 7,331,561                   |       |
| Other                                      |       | 845,205                    |        | 897,845                     |       |
|                                       |       |                       |        |                        |       |
| Total other  assets                        |       | 324,406,853                |        | 329,608,488                 |       |
|                                       |       |                       |        |                        |       |
| Total Assets                               |       | $                          | 459,122,672 |                        | $          | 472,424,671 |   |

 

See accompanyingnotes to unaudited Condensed Consolidated Financial Statements.

 

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**PIERRE FOODS, INC. ANDSUSIDIARY______________________________________**

 
| ** **                                                                                                                         | ** ** | **June 3, 2006** | ** **  | **March 4, 2006** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|-------------|-----------------------------|------------|
| ** **                                                                                                                         | ** ** | **(Unaudited)**            | ** **  | ** **                  | ** ** |
| LIABILITIES AND  SHAREHOLDER’S EQUITY                                                                                         | ** ** | ** **                 | ** **  | ** **                  | ** ** |
|                                                                                                                               |       |                       |        |                        |       |
| CURRENT LIABILITIES:                                                                                                               |       |                       |        |                        |       |
| Current  installments of long-term debt                                                                                            |       | $                          | 219,502     |                        | $          | 229,172 |   |
| Trade accounts  payable                                                                                                            |       | 7,772,583                  |        | 11,897,576                  |       |
| Accrued interest                                                                                                                   |       | 4,809,855                  |        | 1,780,618                   |       |
| Accrued payroll  and payroll taxes                                                                                                 |       | 5,497,842                  |        | 5,014,821                   |       |
| Accrued  promotions                                                                                                                |       | 2,930,129                  |        | 3,258,650                   |       |
| Income taxes  payable                                                                                                              |       | 1,125,200                  |        | —                      |       |
| Accrued taxes  (other than income and payroll)                                                                                     |       | 1,246,866                  |        | 796,531                     |       |
| Other accrued  liabilities                                                                                                         |       | 1,543,340                  |        | 1,635,052                   |       |
|                                                                                                                               |       |                       |        |                        |       |
| Total current  liabilities                                                                                                         |       | 25,145,317                 |        | 24,612,420                  |       |
|                                                                                                                               |       |                       |        |                        |       |
| LONG-TERM DEBT, less  current installments                                                                                         |       | 232,584,564                |        | 244,764,487                 |       |
|                                                                                                                               |       |                       |        |                        |       |
| DEFERRED INCOME TAXES                                                                                                              |       | 46,365,033                 |        | 48,821,259                  |       |
|                                                                                                                               |       |                       |        |                        |       |
| OTHER LONG-TERM  LIABILITIES                                                                                                       |       | 6,299,599                  |        | 6,168,649                   |       |
|                                                                                                                               |       |                       |        |                        |       |
| Total  Liabilities                                                                                                                 |       | 310,394,513                |        | 324,366,815                 |       |
|                                                                                                                               |       |                       |        |                        |       |
| SHAREHOLDER’S EQUITY:                                                                                                         |       |                       |        |                        |       |
| Common stock —  Class A, 100,000 shares authorized, issued, and outstanding  at June 3, 2006 and March 4, 2006 |       | 150,215,670                |        | 150,225,541                 |       |
| Retained deficit                                                                                                                   |       | (1,487,511                 | )           | (2,167,685                  | )          |
|                                                                                                                               |       |                       |        |                        |       |
| Total  shareholder’s equity                                                                                                   |       | 148,728,159                |        | 148,057,856                 |       |
|                                                                                                                               |       |                       |        |                        |       |
| Total Liabilities and  Shareholder’s Equity                                                                                   |       | $                          | 459,122,672 |                        | $          | 472,424,671 |   |

 

See accompanyingnotes to unaudited Condensed Consolidated Financial Statements.

 

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**PIERREFOODS, INC. AND SUSIDIARY______________________________________**

**Condensed Consolidated Statementsof Operations**(Unaudited)

 
| ** **                                                   | ** ** | **For the**           | ** **  | **For the**           | ** ** |
|--------------------------------------------------------------|------------|----------------------------|-------------|----------------------------|------------|
| ** **                                                   | ** ** | **Thirteen Weeks**    | ** **  | **Thirteen Weeks**    | ** ** |
| ** **                                                   | ** ** | **Ended**                  | ** **  | **Ended**                  | ** ** |
| ** **                                                   | ** ** | **June 3, 2006** | ** **  | **June 4, 2005** | ** ** |
|                                                         |       |                       |        |                       |       |
| REVENUES                                                     |       | $                          | 105,755,518 |                       | $          | 107,734,698 |   |
|                                                         |       |                       |        |                       |       |
| COSTS AND EXPENSES:                                          |       |                       |        |                       |       |
| Cost of goods  sold                                          |       | 74,097,508                 |        | 78,340,827                 |       |
| Selling,  general, and administrative expenses               |       | 18,348,977                 |        | 17,038,334                 |       |
| Depreciation and  amortization                               |       | 6,795,405                  |        | 7,900,663                  |       |
|                                                         |       |                       |        |                       |       |
| Total costs and expenses                                     |       | 99,241,890                 |        | 103,279,824                |       |
|                                                         |       |                       |        |                       |       |
| OPERATING INCOME                                             |       | 6,513,628                  |        | 4,454,874                  |       |
|                                                         |       |                       |        |                       |       |
| INTEREST EXPENSE AND  OTHER INCOME:                          |       |                       |        |                       |       |
| Interest expense                                             |       | (5,521,903                 | )           | (5,471,632                 | )          |
| Other income                                                 |       | 32,288                     |        | 26,523                     |       |
|                                                         |       |                       |        |                       |       |
| Interest expense  and other income, net                      |       | (5,489,615                 | )           | (5,445,109                 | )          |
|                                                         |       |                       |        |                       |       |
| INCOME (LOSS) BEFORE  INCOME TAX (PROVISION) BENEFIT         |       | 1,024,013                  |        | (990,235                   | )          |
|                                                         |       |                       |        |                       |       |
| INCOME TAX (PROVISION)  BENEFIT                              |       | (343,839                   | )           | 377,972                    |       |
|                                                         |       |                       |        |                       |       |
| NET INCOME (LOSS)                                            |       | $                          | 680,174     |                       | $          | (612,263 | ) |
|                                                         |       |                       |        |                       |       |
| NET INCOME (LOSS) PER  COMMON SHARE — BASIC AND DILUTED |       | $                          | 6.80        |                       | $          | (6.12 | ) |
|                                                         |       |                       |        |                       |       |
| WEIGHTED AVERAGE SHARES OUTSTANDING — BASIC AND DILUTED |       | 100,000                    |        | 100,000                    |       |

 

See accompanying notes tounaudited Condensed Consolidated Financial Statements.

 

5

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**PIERREFOODS, INC. AND SUSIDIARY______________________________________**

**Condensed Consolidated Statementof Shareholder’s Equity**

**For the Thirteen Weeks Ended June 3, 2006**(Unaudited)
| ** **                         | ** ** | **Common**       | ** **  | ** **   | ** ** | **Total**              | ** ** |
|------------------------------------|------------|------------------|-------------|--------------|------------|------------------------|------------|
| ** **                         | ** ** | **Stock**        | ** **  | **Retained** | ** ** | **Shareholder’s** | ** ** |
| ** **                         | ** ** | **Class A** | ** **  | **Deficit**  | ** ** | **Equity**             | ** ** |
|                               |       |             |        |         |       |                   |       |
| BALANCE AT  MARCH 4, 2006     |       | $                | 150,225,541 |         | $          | (2,167,685             | )          | $ | 148,057,856 |   |
|                               |       |             |        |         |       |                   |       |
| Net income                         |       | —           |        | 680,174      |       | 680,174                |       |
| Expenses paid on behalf  of parent |       | (9,871           | )           | —       |       | (9,871                 | )          |
|                               |       |             |        |         |       |                   |       |
| BALANCE AT JUNE 3, 2006            |       | $                | 150,215,670 |         | $          | (1,487,511             | )          | $ | 148,728,159 |   |

 

See accompanyingnotes to unaudited Condensed Consolidated Financial Statements.

 

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** **

**PIERREFOODS, INC. AND SUSIDIARY______________________________________**

**Condensed Consolidated Statementsof Cash Flows**(Unaudited)
| ** **                                                                                | ** ** | **For the**           | ** ** | **For the**           | ** ** |
|-------------------------------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                                                                | ** ** | **Thirteen Weeks**    | ** ** | **Thirteen Weeks**    | ** ** |
| ** **                                                                                | ** ** | **Ended**                  | ** ** | **Ended**                  | ** ** |
| ** **                                                                                | ** ** | **June 3, 2006** | ** ** | **June 4, 2005** | ** ** |
|                                                                                      |       |                       |       |                       |       |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                                     |       |                       |       |                       |       |
| Net  income/(loss)                                                                        |       | $                          | 680,174    |                       | $          | (612,263 | ) |
|                                                                                      |       |                       |       |                       |       |
| Adjustments to  reconcile net income/(loss) to net cash provided by operating activities: |       |                       |       |                       |       |
| Depreciation and  amortization                                                            |       | 6,795,405                  |       | 7,900,663                  |       |
| Amortization of  deferred loan origination fees                                           |       | 372,506                    |       | 382,938                    |       |
| Change in  deferred taxes                                                                 |       | (2,456,226                 | )          | —                     |       |
| Changes in  operating assets and liabilities:                                             |       |                       |       |                       |       |
| Receivables                                                                               |       | 7,153,353                  |       | 3,566,050                  |       |
| Inventories                                                                               |       | (4,010,583                 | )          | (6,249,555                 | )          |
| Refundable  income taxes, prepaid expenses, and other current assets                      |       | 2,578,087                  |       | 1,071,933                  |       |
| Trade accounts  payable and other accrued liabilities                                     |       | 542,567                    |       | 4,046,742                  |       |
| Other long-term  liabilities                                                              |       | 130,950                    |       | 240,934                    |       |
| Other assets                                                                              |       | 52,640                     |       | 516,565                    |       |
| Total  adjustments                                                                        |       | 11,158,699                 |       | 11,476,270                 |       |
| Net cash provided  by operating activities                                                |       | 11,838,873                 |       | 10,864,007                 |       |
|                                                                                      |       |                       |       |                       |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                                     |       |                       |       |                       |       |
| Capital  expenditures                                                                     |       | (1,880,302                 | )          | (2,449,928                 | )          |
| Net cash used in  investing activities                                                    |       | (1,880,302                 | )          | (2,449,928                 | )          |
|                                                                                      |       |                       |       |                       |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                                     |       |                       |       |                       |       |
| Repayments of  revolving credit agreement                                                 |       | —                     |       | (790,000                   | )          |
| Principal  payments on long-term debt                                                     |       | (12,189,593                | )          | (7,496,494                 | )          |
| Loan origination  fees                                                                    |       | (266,096                   | )          | (45,707                    | )          |
| Return of  capital to parent                                                              |       | (9,871                     | )          | (81,878                    | )          |
| Net cash used in  financing activities                                                    |       | (12,465,560                | )          | (8,414,079                 | )          |
|                                                                                      |       |                       |       |                       |       |
| DECREASE IN CASH AND  CASH EQUIVALENTS                                                    |       | (2,506,989                 | )          | —                     |       |
|                                                                                      |       |                       |       |                       |       |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF PERIOD                                           |       | 2,540,722                  |       | —                     |       |
|                                                                                      |       |                       |       |                       |       |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                                  |       | $                          | 33,733     |                       | $          | — |   |

** **

**Seeaccompanying notes to unaudited Condensed Consolidated Financial Statements.**

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**PIERREFOODS, INC. AND SUSIDIARY______________________________________**

**Notesto Condensed Consolidated Financial Statements**(Unaudited)

**1.            Basis of Presentation andAcquisition**

* *Pierre Foods, Inc. (the “Company” or “Pierre”) is a manufacturerand marketer of high-quality, differentiated processed food solutions, focusingon formed, pre-cooked protein products and hand-held convenience sandwiches. TheCompany’s products include beef, pork, poultry, cheese, and bakery items. Pierreoffers comprehensive food solutions to its customers, including proprietaryproduct development, special ingredients and recipes, as well as custompackaging and marketing programs. Pierre’s pre-cooked proteins includeflamebroiled burger patties, homestyle meatloaf, chicken strips, and boneless,barbecued pork rib products. Pierre markets its pre-cooked protein products toa broad array of customers that includes restaurant chains, schools, and otherfoodservice providers.

***Basis of Presentation.  ***The unauditedCondensed Consolidated Financial Statements of Pierre and its subsidiary havebeen prepared in accordance with accounting principles generally accepted inthe United States of America (“GAAP”), as well as the instructions to Form 10-Qand Article 10 of Regulation S-X. These statements should be read inconjunction with the Consolidated Financial Statements and the notes theretoincluded in the Company’s Annual Report on Form 10-K filed on June 2,2006 (“Form 10-K”).

Thefinancial information as of March 4, 2006 included in these financialstatements has been derived from the Company’s audited Consolidated FinancialStatements. In the opinion of the Company, the accompanying unaudited CondensedConsolidated Financial Statements contain all adjustments necessary to presentfairly the financial position, the results of operations, and the cash flows ofthe Company for the interim periods. The results of interim operations are notnecessarily indicative of the results to be expected for the full fiscal year,and as noted above, should be read in conjunction with the ConsolidatedFinancial Statements and the notes thereto included in the Company’s Form 10-K.The Company’s current accounting policies are consistent with those describedin the notes to the Company’s March 4, 2006 audited Consolidated FinancialStatements.

Includedin this report are interim unaudited Condensed Consolidated FinancialStatements that contain all adjustments necessary to present fairly thefinancial position as of June 3, 2006, the results of operations for thethirteen week periods ended June 3, 2006 and June 4, 2005, the cashflows of the Company for the thirteen weeks ended June 3, 2006 and June 4,2005, and the statement of shareholder’s equity for the thirteen week periodended June 3, 2006. The thirteen week periods ended June 3, 2006 and June 4,2005 are referred to as “fiscal 2007” and “fiscal 2006”, respectively.

TheCompany reports the results of its operations using a 52-53 weekbasis. In line with this, each quarter of the fiscal year will contain 13 weeksexcept for the infrequent fiscal years with 53 weeks.

***Acquisition.  ***On June 30, 2004, theshareholders of PF Management, Inc. (“PFMI”), the sole shareholder of theCompany, sold their shares of stock in PFMI (the “Acquisition”) to PierreHolding Corp. (“Holding”), an affiliate of Madison Dearborn Partners, LLC (“MDP”).The fair value adjustments related to the Acquisition, were pushed down to theCompany from Holding, which primarily included adjustments in property, plant,and equipment, inventories, goodwill, other intangible assets and relateddeferred taxes.

**2.****                                      Stock-BasedCompensation**

On June 30,2004, Holding adopted a stock option plan, pursuant to which the Board ofDirectors of Holding may grant options to purchase an aggregate of 163,778shares of common stock of Holding. Such options may be granted to directors, employees,and consultants of Holding and its subsidiaries, including the Company. At bothJune 3, 2006 and March 4, 2006, options to purchase a total of126,219 shares of common stock of Holding had been issued to members ofmanagement of the Company (the “Options”) and 37,559 were reserved for futureissuance. All outstanding Options were granted with an exercise price of $10per share and expire ten years from the date of grant. A portion of eachoutstanding Option vests daily on a pro-rata basis over a five-year period fromthe date of grant and the remaining portion of each outstanding Option vestsseven years from the date of grant, subject 

8

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to accelerated vesting based on the achievement ofcertain performance measures. At June 3, 2006 and March 4, 2006,options to purchase 18,579 shares and 16,064 shares, respectively, were vestedand exercisable.

The Company treatsthe Options as stock-based employee compensation for employees of the Company. Priorto implementing Statement of Financial Accounting Standards (“SFAS “) No. 123(R),“Accounting for Stock-Based Compensation” (revision 2004), (“SFAS 123(R)”), aspreviously permitted under GAAP, the Company accounted for the Options underthe recognition and measurement principles of Accounting Principles BoardOpinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), andrelated Interpretations using the intrinsic value method. Accordingly, nocompensation expense was recognized for the Options in the Company’s Condensed ConsolidatedStatements of Operations. The weighted average minimum value per share of theoptions granted was $2.24 based on the Black-Scholes-Merton option pricingmodel with the following weighted average assumptions:

 

| Dividend yield          |   | —    |   |
|-------------------------|--------|-----------|--------|
| Term to  expiration     |   | 10 years  |   |
| Expected life           |   | 6.3 years |   |
| Expected  volatility    |   | —    |   |
| Risk free interest rate |   | 3.93      | %      |

 

EffectiveMarch 5, 2006, as required for the first annual reporting period beginningafter December 15, 2005 for non-public companies (as defined in SFAS123(R)), the Company adopted SFAS 123(R) using the prospective adoptionmethod. The new statement requires compensation expense associated withshare-based payments to employees to be recognized in the financial statementsbased on their fair values**.**Upon theadoption of SFAS 123(R) because the Company had used the minimum valuemethod prior to the adoption, the Company was required to apply the provisionsof the statement only prospectively for any newly issued, modified or settledaward after the date of initial adoption. No new Options were issued, modifiedor settled subsequent to adoption, however, the fair value assigned to any newly issued, modified or settled awardsin the future is expected to be significantly greater due to the differences invaluation methods.

**3.             Inventories**

A summary of inventories, by major classifications,follows:

|                 | ** ** | **June 3, 2006** | ** ** | **March 4, 2006** | ** ** |
|-----------------|------------|----------------------------|------------|-----------------------------|------------|
| Raw materials   |       | $                          | 7,859,047  |                        | $          | 7,589,997 |   |
| Finished goods  |       | 41,822,614                 |       | 38,090,709                  |       |
| Work in process |       | 15,264                     |       | 5,636                       |       |
| Total           |       | $                          | 49,696,925 |                        | $          | 45,686,342 |   |

 

**4.         Long-TermDebt**

Long-term debt is comprised of the following:
|                                                                                          | ** ** | **June 3, 2006** | ** **  | **March 4, 2006** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------|-------------|-----------------------------|------------|
| 9.875% senior notes,  interest payable on January 15 and July 15 of each year, |       |                       |        |                        |       |
| maturing on July 15,  2012                                                          |       | $                          | 125,000,000 |                        | $          | 125,000,000 |   |
| $150 million  term loan, with floating interest rates maturing 2010                      |       | 107,000,000                |        | 119,125,000                 |       |
| 0.0% to 7.55% capitalized  lease obligations maturing through 2011                       |       | 804,066                    |        | 868,659                     |       |
| Total long-term  debt                                                                    |       | 232,804,066                |        | 244,993,659                 |       |
| Less current installments                                                                |       | 219,502                    |        | 229,172                     |       |
| Long-term debt less  current installments                                                |       | $                          | 232,584,564 |                        | $          | 244,764,487 |   |

 

EffectiveJune 30, 2004, the Company obtained a $190 million credit facility,which includes a six-year variable-rate $150 million term loan, afive-year variable-rate $40 million revolving credit facility and a$10 million 

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letter of credit subfacility. Funds available underthis facility are available for working capital requirements, permittedinvestments and general corporate purposes. Borrowings under the facility bearinterest at floating rates based upon the interest rate option selected fromtime to time by the Company and are secured by a first-priority securityinterest in substantially all of the Company’s assets. The interest rates forbase rate borrowings under the revolving credit facility and the term loan at June 3,2006 were 9.75% (prime of 8.00% plus 1.75%) and 9.00% (prime of 8.00% plus1.00%), respectively. Actual interest rates are lowered by the use of LIBORtranches as appropriate. Repayment of borrowings under the term loan wasinitially $375,000 per quarter, which began on September 4, 2004, with aballoon payment of $141.4 million due on June 5, 2010. However, inaddition to paying all scheduled quarterly payments totaling $8.6 million forthe term of the loan, the Company has made prepayments on the term loantotaling $34.4 million as of June 3, 2006. The remaining outstandingbalance of $107.0 million as of June 3, 2006 is due on June 5, 2010.

On April 3, 2006,the Company entered into Amendment No. 1 to its credit facility (the “Amendment”).The Amendment provided for, among other things, a reduction of 0.5% in the perannum interest rate with respect to borrowings under the Company’s term loan. Theapplicable interest rate for base rate borrowings under the term loan wasdecreased from the base rate (which is the greater of the applicable Prime Rateand 1¤2of 1% above the Federal Funds Rate) plus 1.50% to such base rate plus 1.00%. Acopy of the Amendment is included as Exhibit 10.1 to the Form 8-Kfiled on April 7, 2006.

Alsoeffective June 30, 2004, in conjunction with the Acquisition, the Companyissued 9.875% senior notes, with interest payable on January 15 and July 15of each year (the “Notes”). The proceeds of the Notes, together with the equitycontributions from MDP and certain members of management and borrowings underthe Company’s senior credit facility, were used to finance the Acquisition ofthe Company and to repay outstanding indebtedness.

Asof June 3, 2006, the Company had cash and cash equivalents on hand of$33,733, no outstanding borrowings under its revolving credit facility and borrowingavailability of approximately $34.4 million. Also as of June 3, 2006,the Company had borrowings under its term loan of $107.0 million and $125.0million of Notes outstanding. As of March 4, 2006, the Company had cashand cash equivalents on hand of $2.5 million, no outstanding borrowings andborrowing availability of approximately $34.4 million under its revolvingcredit facility. Also as of March 4, 2006, the Company had borrowingsunder its term loan of $119.1 million and $125.0 million of Notes outstanding. Thematurity date of the $40 million revolving credit facility is June 30,2009. In addition, the Company is required to satisfy certain financialcovenants regarding cash flow and capital expenditures. As of June 3,2006, the Company is in compliance with all financial covenants.

**5.            Goodwill and Other IntangibleAssets**

Inconjunction with the Acquisition, the Company engaged an independent party toperform valuations for financial reporting purposes on the Company’s goodwilland other intangibles. Assets identified through this valuation processincluded goodwill, formulas, customer relationships, licensing agreements, andcertain tradenames and trademarks.

Inaccordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” (“SFAS142”), the Company tests recorded goodwill and other intangible assets withindefinite lives for impairment at least annually. All other intangible assetswith finite lives are amortized over their estimated economic or estimateduseful lives. In addition, all other intangible assets are reviewed forimpairment in accordance with SFAS No. 144, “Accounting for the Impairmentor Disposal of Long-Lived Assets,” (“SFAS 144”). Based on the Company’s reviewand the review performed by third parties, no impairment existed at June 3,2006 or March 4, 2006.

TheCompany’s amortizable other intangible assets are amortized using acceleratedamortization methods that match the expected benefit derived from the assets. Theaccelerated amortization methods allocate amortization expense in proportion toeach year’s expected revenues to the total expected revenues over the estimatedeconomic or estimated useful lives of the assets.

The gross carrying value of goodwill and the grosscarrying value and accumulated amortization of other intangible assets as of June 3,2006 are as follows:

 

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| ** **                               | ** ** | **As of June 3, 2006** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | ** **                  | ** ** | **Gross** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                               | ** ** | **Useful**                  | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| ** **                               | ** ** | **Life**                    | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
| **Amortizable  intangible assets:**      | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Formulas                                 |       | 15  years                   |       | $ | 95,000,000 |   | $ | 27,848,272 |   | $ | 67,151,728 |   |
| Tradename and trademarks                 |       | 12-20  years                |       | 20,100,000 |   | 3,913,507 |   | 16,186,493 |   |
| Customer relationships                   |       | 12  years                   |       | 28,500,000 |   | 11,230,690 |   | 17,269,310 |   |
| Licensing agreements                     |       | 10  years                   |       | 12,100,000 |   | 3,106,087 |   | 8,993,913 |   |
| **Total  amortizable intangible assets** |       |                        |       | $ | 155,700,000 |   | $ | 46,098,556 |   | $ | 109,601,444 |   |
|                                     |       |                        |       |   |   |   |   |   |   |
| **Indefinite-lived  intangible assets:** | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Tradename                                |       | Indefinite                  |       | $ | 20,200,000 |   | $ | — |   | $ | 20,200,000 |   |
| **Total  other intangible assets**       |       |                        |       | $ | 175,900,000 |   | $ | 46,098,556 |   | $ | 129,801,444 |   |
|                                     |       |                        |       |   |   |   |   |   |   |
| Goodwill                                 |       | N/A                         |       | $ | 186,535,050 |   | $ | — |   | $ | 186,535,050 |   |
| **Total intangible assets**              |       |                        |       | $ | 362,435,050 |   | $ | 46,098,556 |   | $ | 316,336,494 |   |

 

Thegross carrying value of goodwill and the gross carrying value and accumulatedamortization of other intangible assets as of March 4, 2006 are asfollows:
| ** **                               | ** ** | **As of March 4, 2006** | ** ** |
|------------------------------------------|------------|---------------------------------------------|------------|
| ** **                               | ** ** | ** **                                  | ** ** | **Gross** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                               | ** ** | **Useful**                                  | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| ** **                               | ** ** | **Life**                                    | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
| **Amortizable  intangible assets:**      | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |
| Formulas                                 |       | 15  years                                   |       | $ | 95,000,000 |   | $ | 24,680,581 |   | $ | 70,319,419 |   |   |
| Tradename and trademarks                 |       | 12-20  years                                |       | 20,100,000 |   | 3,433,777 |   | 16,666,223 |   |   |
| Customer relationships                   |       | 12  years                                   |       | 28,500,000 |   | 10,227,838 |   | 18,272,162 |   |   |
| Licensing agreements                     |       | 10  years                                   |       | 12,100,000 |   | 2,713,772 |   | 9,386,228 |   |   |
| **Total  amortizable intangible assets** |       |                                        |       | $ | 155,700,000 |   | $ | 41,055,968 |   | $ | 114,644,032 |   |   |
|                                     |       |                                        |       |   |   |   |   |   |   |   |
| **Indefinite-lived  intangible assets:** | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |   |
| Tradename                                |       | Indefinite                                  |       | $ | 20,200,000 |   | $ | — |   | $ | 20,200,000 |   |   |
| **Total  other intangible assets**       |       |                                        |       | $ | 175,900,000 |   | $ | 41,055,968 |   | $ | 134,844,032 |   |   |
|                                     |       |                                        |       |   |   |   |   |   |   |   |
| Goodwill                                 |       | N/A                                         |       | $ | 186,535,050 |   | $ | — |   | $ | 186,535,050 |   |   |
| **Total intangible assets**              |       |                                        |       | $ | 362,435,050 |   | $ | 41,055,968 |   | $ | 321,379,082 |   |   |
|                                          |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Thefuture amortization of other intangible assets (dollars in thousands) for thenext five fiscal years is estimated to be as follows:
| ** **                | ** ** | **2008**   | ** ** | **2009**   | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012**   | ** ** |
|---------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Formulas                  |       | $          | 11,165     |       | $          | 9,761      |       | $          | 8,468      |       | $          | 7,030 |   | $ | 5,733 |   |
| Tradename and  trademarks |       | 1,821      |       | 1,732      |       | 1,646      |       | 1,539      |       | 1,412      |       |
| Customer  relationships   |       | 3,358      |       | 2,874      |       | 2,391      |       | 1,869      |       | 1,412      |       |
| Licensing agreements      |       | 1,495      |       | 1,426      |       | 1,361      |       | 1,239      |       | 1,097      |       |
|                           |            |            |            |            |            |            |            |            |            |            |            |  |  |  |  |  |

 

**6.****                 Commitments andContingencies**

TheCompany provided a letter of credit in the amount of $5.5 million that wasoutstanding as of June 3, 2006 and March 4, 2006 to its insurancecarrier for the underwriting of certain performance bonds. This letter of 

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credit expires in fiscal 2007. The Company alsoprovides a secured letter of credit to its insurance carrier for outstandingand potential workers’ compensation and general liability claims. The letter ofcredit for these claims totaled $110,000 as of June 3, 2006 and March 4,2006. In addition, if required by a supplier, the Company provides securedletters of credit to such suppliers. The Company had no letters of credit forsuppliers as of June 3, 2006 or March 4, 2006.

The Company is involvedin various legal proceedings. Management believes, based on the advice of legalcounsel, that the outcome of such proceedings will not have a materiallyadverse effect on the Company’s financial position or future results of operationsand cash flows. See Note 10 — “Legal Proceedings,” to the CondensedConsolidated Financial Statements for further discussion of proceedings as of June 3,2006.

Inconjunction with the Acquisition, the Company and the selling shareholders****entered into a tax sharing and indemnification agreementcontaining certain representations and warranties of the selling shareholderswith respect to taxes. The agreement provides that any net operating losscarryforwards attributable to expenses relating to the sale of the Company (“DealRelated NOLs”) and certain other deal related expenses, will be for the benefitof the selling shareholders. As of the date of the Acquisition, these DealRelated NOLs and other deal related expenses totaled approximately $24.2 millionand $6.6 million, respectively. Accordingly, the Company is required pay to theselling shareholders the amount of any tax benefit attributable to such DealRelated NOLs and other deal related expenses, except that the first $4.0million of such tax benefits shall be paid into an escrow account that willsecure the selling shareholders indemnification obligations under the taxsharing and indemnification agreement. The Company is required to make paymentsto the selling shareholders or the escrow account for tax benefits derived fromsuch utilization 20 days after the filing of the tax return that utilizes suchDeal Related NOLs or other deal related expenses.

Initially,the Company recorded a net long-term liability to the selling shareholderstotaling $10.3 million for the estimated obligations under the tax sharing andindemnification agreement. As of June 3, 2006, based on the federal incometax return filed November 15, 2005 (for the tax year ended February 26,2005), the Company has utilized $8.6 million of the Deal Related NOLs and $1.7million in other deal related expenses. During the fiscal year ended March 4,2006, the Company submitted payments based on the tax benefits received, net ofother tax assessments due to the Company from the selling shareholders, to anescrow account for a total of $3.6 million and directly to the sellingshareholders for a total of $1.4 million. As of June 3, 2006, the Companyhas a net long-term liability to the selling shareholders totaling $5.3 million.The Company expects to utilize the remaining Deal Related NOLs and make paymentto the selling shareholders pursuant to the tax sharing and indemnificationagreement subsequent to the filing of its tax return in November 2007.

**7**.      **Comprehensive Income**

Totalcomprehensive income/(loss) is comprised solely of net income/(loss) in fiscal2007 and fiscal 2006.

**8.     SupplementalCash Flow Disclosures—Cash Paid During the Period and Non-Cash Transactions**
| ** **                        | ** ** | **Thirteen Weeks**    | ** ** | **Thirteen Weeks**    | ** ** |
|-----------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                        | ** ** | **Ended**                  | ** ** | **Ended**                  | ** ** |
| ** **                        | ** ** | **June 3, 2006** | ** ** | **June 4, 2005** | ** ** |
|                              |       |                       |       |                       |       |
| Cash paid during  the period for: |       |                       |       |                       |       |
| Interest                          |       | $                          | 2,106,064  |                       | $          | 2,080,565 |   |
| Income taxes,  net                |       | $                          | 24,055     |                       | $          | 1,368,780 |   |

**9.      Transactions with Related Parties**

AtJune 3, 2006, there were no significant changes in related partytransactions from those described at March 4, 2006 in the Company’s Form 10-K.

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**10.          Legal Proceedings**

On August 19,2003, as a result of complaints from neighboring businesses, the Companyreceived a Notice of Violation (“NOV”) from the Hamilton County Department ofEnvironmental Services (“HCDOES”) relating to operations at its Cincinnati,Ohio plant facility. The NOV alleged that the Company violated its permits byexceeding the visual emission (“VE”) specification of 20% opacity. The Companyreceived additional NOV’s for opacity violations on October 22, 2003 and November 26,2003, all of which were the result of complaints from neighboring businesses.

Subsequentto the original NOV received in August of 2003, the Company beganinvestigating and testing various emission reduction technologies. The Companyfound a solution that enabled operations to continue with less smoke output andcompleted the upgrade during early 2004. HCDOES inspected the upgrade in April of2004 and determined that the Company had returned to compliance with theopacity limit. In connection with the upgrade, the Company was required tosubmit a revised Permit to Install (“PTI”) application.

InAugust, 2005, pursuant to its regulatory authority, HCDOES requested a Method 5Stack Test be performed to assess the Company’s compliance with its emissionslimits. The Company contacted HCDOES, requesting the scheduled stack emissioncompliance test be postponed while the Company’s independent consulting firmconducted an emissions audit program consisting of a series of engineeringstack tests that were performed at both controlled and uncontrolled emissiontest points in order to evaluate the magnitude of the emissions based oncurrent production data and to estimate new emissions factors by product line. HCDOESagreed to this approach and granted permission to delay the standard Method 5Stack Test originally requested while the Company conducted its emissions auditprogram.

TheCompany contracted with an independent environmental consulting firm to performthe audit and evaluation. As part of the overall audit, this firm performedpreliminary testing in early September 2005, which indicated thatviolations of emission levels may have occurred, and retested September 28,2005 through September 30, 2005. The firm conducted additional testsduring October 27, 2005 through November 8, 2005. The Companyreceived the results of the audit in January, 2006. The results allowed theCompany to evaluate the facility’s current and historical potential and actualemissions. The testing revealed that assumptions made by the Company’s formeroutside engineering firm concerning particulate emissions and throughput wereincorrect. This miscalculation caused the Company to receive permit limits thatare lower than actual emissions for certain cook lines. The Company met withthe local air permitting authority in February, 2006, to discuss the results ofthe emissions audit program.

Basedon the results of the audit program, the Company received a NOV from HCDOES forparticulate emissions in excess of the allowable limits of certain of its airpermits and for submitting certain permit applications with incorrectinformation. The Company is in the process of assessing control technologyoptions and vendors for the installation of new control technology tosubstantially reduce particulate emissions. This process, including theinstallation of additional control technology, will likely last through fiscal2007.

TheCompany is cooperating with the authorities in all aspects of these matters. Inaddition, the Company consulted with its outside legal counsel to assist themin resolving these matters and estimate the potential fines and penalties thatmay be assessed in the future.

The Company continuously evaluates contingencies based uponthe best available information. The Company believes it has recordedappropriate liabilities to the extent necessary in cases where the outcome ofsuch liabilities is considered probable and reasonably estimable, and that itsassessment of contingencies is reasonable. To the extent that resolution ofcontingencies results in amounts that vary from management’s estimates, futureearnings will be charged or credited accordingly.

As part of its ongoing operations in the food manufacturingindustry, the Company is subject to extensive federal, state, and localregulations and its food processing facilities and food products are subject tofrequent inspection, audits and inquiries by the United States Department ofAgriculture, the Food and Drug Administration, and various local health andagricultural agencies and by federal, state, and local agencies responsible forthe enforcement of environmental laws and regulations. The Company is alsoinvolved in various legal actions arising in the normal course of business. Thesematters are continuously being evaluated and, in some cases, are beingcontested by the Company and the outcome is not predictable. Consequently, anestimate of the possible loss or range of loss associated with these actionscannot be made. Although occasional adverse outcomes (or settlements) 

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may occur and could possibly have an adverse effect onthe results of operations in any one accounting period, the Company believesthat the final disposition of such matters will not have a material adverseaffect on the Company’s consolidated financial position.

 

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**ITEM 2.****   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The following discussion relates to the financialcondition and results of operations for fiscal 2007 and fiscal 2006. Thethirteen week periods ended June 3, 2006 and June 4, 2005 arereferred to as “fiscal 2007” and “fiscal 2006”, respectively. This sectionshould be read in conjunction with the Company’s Condensed ConsolidatedFinancial Statements and considered with “Risk Factors” discussed in Item 1Aand Item 7 —”Quantitative and Qualitative Disclosures About Market Risk,” whichare included in the Company’s Form 10-K for the fiscal year ended March 4,2006 filed with the SEC on June 2, 2006 and “Cautionary StatementsRegarding Forward Looking Information,” which precedes Item 3 of Part I ofthis Report.

Pierreoperates on a 52-week or 53-week fiscal year ending on the firstSaturday in March or if the last day of February is a Saturday, thelast day of February. Each quarter of the fiscal year contains 13 weeksexcept for the infrequent fiscal years with 53 weeks.

**Results of OperationsFiscal 2007 Compared to Fiscal 2006**

***Revenues, net.  ***Net revenuesdecreased by $2.0 million in fiscal 2007 compared to fiscal 2006, or 1.8%. Thisdecrease was primarily due to (1) decreased sales volume to two largeNational Accounts restaurant chain customers (approximately $4.5 million),partially resulting from promotional activity that did not include Pierre’sproducts; (2) decreased sales volume to other National Accounts customersdue to increased sales volume as a result of a pipeline fill of new items infiscal 2006 that did not take place in fiscal 2007 (approximately $3.9million); and (3) decreased sales prices as a result of decliningcommodity protein pricing attributable to market-related pricing contracts withtwo large National Accounts restaurant chain customers (approximately $2.6 million);offset by (4) increased sales volume in most of the Company’s otherend-market segments.

***Cost of goods sold.  ***Cost ofgoods sold decreased by $4.2 million in fiscal 2007 compared to fiscal2006, or 5.4%. This decrease was primarily due to (1) decreased rawmaterial protein costs of $4.4 million; (2) decreased costs as a result ofdecreased sales volumes and a change in mix to lower cost products of $2.2million; offset by (3) increased overhead costs primarily related toincreased expenses for utilities, insurance, and maintenance repairs.

As a percentage ofrevenues, cost of goods sold decreased from 72.7% to 70.1%, a decrease of 2.6%.This decrease was primarily due to (1) the net impact of decreased pricespaid for raw material proteins and formulation mix (approximately 2.9%); (2) decreasedcosts as a result of a change in mix to lower cost products (approximately2.0%); offset by (3) increased overhead costs primarily related toincreased utilities, insurance and maintenance repairs.

The primary materials used in the Company’s foodprocessing operations include boneless beef, pork, chicken, flour, yeast,seasonings, cheese, breading, soy proteins, and packaging supplies. Meatproteins are generally purchased under 7-day payment terms. Historically,the Company has not hedged in the futures markets, and over time, the Company’sraw material costs have fluctuated with movement in the relevant commoditymarkets. Additionally, the Company has contracts with formulaic pricing thatrequire the Company to immediately pass along commodity price variances. Duringfiscal 2007, net raw material protein prices decreased approximately $4.4million, including a $2.6 million decrease related to these formulaic contractsand decreases of approximately $1.8 million related to other non-contractedsales.

Approximately 36.5% oftotal sales for fiscal 2007 were protected from commodity exposure, of which31.8% were attributable to market-related pricing contracts, while the other4.7% were related to the USDA Commodity Reprocessing Program, which alsoinsulates the Company from raw material price fluctuations. For fiscal 2006,approximately 44.3% of total sales were protected from commodity exposure, ofwhich 40.1% were attributable to market-related pricing contracts, while theother 4.2% were related to the USDA Commodity Reprocessing Program.

The following tablerepresents the decreases in the weighted average prices the Company paid forbeef, pork, chicken, and cheese during fiscal 2007 compared to fiscal 2006excluding formulation mix and contracts with formulaic pricing.

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|            | ** ** | **% Decrease in** | ** ** |
|------------|------------|-----------------------------|------------|
| ** ** | ** ** | **Fiscal 2007**        | ** ** |
| ** ** | ** ** | **Compared to**        | ** ** |
| ** ** | ** ** | **Fiscal 2006**        | ** ** |
| Beef       |       | 12.5%                       |       |
| Pork       |       | 17.6%                       |       |
| Chicken    |       | 21.6%                       |       |
| Cheese     |       | 16.8%                       |       |
| Aggregate  |       | 16.3%                       |       |

***Selling, general, and administrative*.  **Selling,general, and administrative expenses increased by $1.3 million in fiscal 2007compared to fiscal 2006, or 7.7%. As a percentage of revenues, selling,general, and administrative expenses increased from 15.8% to 17.4%. Thisincrease was primarily due to (1) increased storage expense (approximately$0.5 million) as a result of increased inventories built to maintain customerservice levels for customer requirements and product line expansion, inaddition to increased storage rates paid by the Company; (2) increasedfreight (approximately $0.5 million) due to higher fuel surcharges and due tothe change in the mix of products shipped by the Company; and (3) increasedselling expenses (approximately $0.5 million) incurred primarily as a result ofincreased demonstration expenses related to growth in the Warehouse Clubselling channel; offset by (4) decreased administrative expense(approximately $0.1 million), primarily as a result of a decrease in incentivecompensation.

***Depreciation and amortization.  ***Depreciationand amortization expense decreased by $1.1 million. This is due todecreased amortization expense (approximately $0.8 million), primarily due tothe accelerated amortization method used for certain intangible assets.

***Interest expense and other income, net*.  **Interestexpense and other income, net consists primarily of interest on fixed andvariable-rate long-term debt and interest on the revolving loan, both of whichwere entered into in connection with the Acquisition. Interest expense and otherincome, net increased by $0.1 million, or 0.8%. This increase is primarilydue to increased floating interest rates related to the Company’s term loan,offset by decreased borrowings as a result of partial repayment of the termloan.

***Income taxes*.  **The effective taxrate for fiscal 2007 was 33.6% compared to 38.3% for fiscal 2006. The change inthe effective tax rate is primarily due to (1) the impact of the Section 199adjustment (the “Domestic Manufacturing Deduction”) in the current year; (2) thephase-out of Ohio franchise tax and the phase-in of a gross receipts taxreferred to as the Commercial Activity Tax (“CAT”); and (3) the Company’sincreased profitability and expected pre-tax income in the current yearrelative to the impact of permanent differences.

**Liquidityand Capital Resources**

Thefollowing table summarizes the Company’s net cashprovided by (used in) operating, investing, and financing activities for thethirteen weeks ended June 3, 2006 and June 4, 2005, respectively.
| ** **                       | ** ** | **Thirteen Weeks Ended** | ** **  | **Thirteen Weeks Ended** | ** ** |
|----------------------------------|------------|------------------------------------|-------------|------------------------------------|------------|
| ** **                       | ** ** | **June 3, 2006**         | ** **  | **June 4, 2005**         | ** ** |
| Net cash  provided by (used in): |       |                               |        |                               |       |
| Operating activities             |       | $                                  | 11,838,873  |                               | $          | 10,864,007 |   |
| Investing activities             |       | $                                  | (1,880,302  | )                                  | $          | (2,449,928 | ) |
| Financing  activities            |       | $                                  | (12,465,560 | )                                  | $          | (8,414,079 | ) |

 

Net cash provided by operating activitiesfor fiscal 2007 was $11.8 million compared to net cash provided byoperating activities of $10.9 million for fiscal 2006. The increase in netcash provided by operating activities was primarily due to the Company’s increasedprofitability during successor fiscal 2007, in addition to (1) a decreasein accounts receivable (approximately $7.2 million) during fiscal 2007 comparedto less of a decrease during the prior year comparable period (approximately$3.6 million); (2) an increase in inventories (approximately $4.0 million)in 

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fiscal 2007 compared with less of an increase in theprior year comparable period (approximately $6.2 million); and (3) adecrease in refundable income taxes, prepaid expense and other current assets(approximately $2.6 million) during fiscal 2007 compared to less of a decreasein the prior year comparable period (approximately $1.1 million); offset by (4) anincrease in accounts payable and other accrued liabilities (approximately $0.5million) during fiscal 2007 compared to a greater increase (approximately $4.0million) in the prior year comparable period; (5) a change in deferred income taxes (approximately $2.5 million)in fiscal 2007 that did not occur in fiscal 2006;  and (6) a decrease in depreciation andamortization expense (approximately $1.1 million) in fiscal 2007 compared withfiscal 2006, primarily due to the accelerated amortization method used forcertain intangible assets.

Theprimary components of net cash provided by operating activities for fiscal 2007were (1) a decrease in receivables (approximately $7.2 million), primarilyas a result of the summer seasonality within our School selling channel; (2) depreciationand amortization of intangible assets (approximately $6.8 million), of which$1.8 million relates to depreciation of fixed assets and $5.0 million relatesto amortization of intangible assets recorded in conjunction with theAcquisition; (3) a decrease in refundable income taxes, prepaid expenses,and other current assets (approximately $2.6 million), due to the reduction inrefundable income taxes resulting from the tax provision recorded based on theincome in fiscal 2007 and due to the reduction in prepaid expenses, primarilyprepaid insurance premiums; (4) an increase in trade accounts payable andother accrued liabilities (approximately $0.5 million); (5) amortizationof deferred loan fees (approximately $0.4 million); and (6) an increase inother long-term liabilities (approximately $0.1 million) as a result of the deferred compensation plan; offset by (7) anincrease in inventories (approximately $4.0 million) as a result of aninventory build to maintain customer service levels for customer requirementsand product line expansion; and (8) a change in deferred income taxes(approximately $2.5 million) as a result of the tax provision recorded due tothe income in fiscal 2007.

Netcash used in investing activities for fiscal 2007 was $1.9 millioncompared to $2.4 million for fiscal 2006. Net cash used in investingactivities consists of capital expenditures for both fiscal 2007 and fiscal2006, which consisted of various plant improvements and routine capitalexpenditures.

Netcash used in financing activities for fiscal 2007 and for fiscal 2006 was$12.5 million and $8.4 million, respectively. Net cash used in financingactivities for fiscal 2007 was due primarily to: (1) principal payments onlong-term debt of $12.1 million and (2) loan origination fees of $0.3million as a result of the Amendment No. 1 to the Credit Agreement(discussed below).

EffectiveJune 30, 2004, the Company obtained a $190 million credit facility,which includes a six-year variable-rate $150 million term loan, afive-year variable-rate $40 million revolving credit facility and a$10 million letter of credit subfacility. Funds available under thisfacility are available for working capital requirements, permitted investmentsand general corporate purposes. Borrowings under the facility bear interest atfloating rates based upon the interest rate option selected from time to timeby the Company and are secured by a first-priority security interest insubstantially all of the Company’s assets. The interest rates for base rateborrowings under the revolving credit facility and the term loan at June 3,2006 were 9.75% (prime of 8.00% plus 1.75%) and 9.00% (prime of 8.00% plus1.00%), respectively. Actual interest rates are lowered by the use of LIBORtranches as appropriate. Repayment of borrowings under the term loan wasinitially $375,000 per quarter, which began on September 4, 2004, with aballoon payment of $141.4 million due on June 5, 2010. However, inaddition to paying all scheduled quarterly payments totaling $8.6 million forthe term of the loan, the Company has made prepayments on the term loantotaling $34.4 million as of June 3, 2006. The remaining outstandingbalance of $107.0 million as of June 3, 2006 is due on June 5, 2010.

On April 3, 2006,the Company entered into Amendment No. 1 to its credit facility (the “Amendment”).The Amendment provided for, among other things, a reduction of 0.5% in the perannum interest rate with respect to borrowings under the Company’s term loan. Theapplicable interest rate for base rate borrowings under the term loan wasdecreased from the base rate (which is the greater of the applicable Prime Rateand 1¤2of 1% above the Federal Funds Rate) plus 1.50% to such base rate plus 1.00%. Acopy of the Amendment is included as Exhibit 10.1 to the Form 8-Kfiled on April 7, 2006.

Alsoeffective June 30, 2004, in conjunction with the Acquisition, the Companyissued 9.875% senior notes, with interest payable on January 15 and July 15of each year (the “Notes”). The proceeds of the Notes, together with the equitycontributions from MDP and certain members of management and borrowings underthe Company’s senior credit facility, were used to finance the Acquisition ofthe Company and to repay outstanding indebtedness.

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Asof June 3, 2006, the Company had cash and cash equivalents on hand of$33,733, no outstanding borrowings and borrowing availability of approximately$34.4 million under its revolving credit facility. Also as of June 3,2006, the Company had borrowings under its term loan of $107.0 million and$125.0 million of Notes outstanding. As of March 4, 2006, the Company hadcash and cash equivalents on hand of $2.5 million, no outstanding borrowingsunder its revolving credit facility, and borrowing availability ofapproximately $34.4 million. Also as of March 4, 2006, the Companyhad borrowings under its term loan of $119.1 million and $125.0 million ofNotes outstanding. The maturity date of the $40 million revolving creditfacility is June 30, 2009. In addition, the Company is required to satisfycertain financial covenants regarding cash flow and capital expenditures. As ofJune 3, 2006, the Company is in compliance with all financial covenants.

The Company has budgeted approximately $11.5 million forcapital expenditures for the remainder of fiscal 2007. Theseexpenditures include a provision for capacity expansion, system upgrades androutine food processing capital improvement projects and other miscellaneousexpenditures within the Company’s existing facilities. The Company believesthat funds from operations and funds from its $40 million revolving creditfacility, as well as the Company’s ability to enter into capital or operatingleases, will be adequate to finance these capital expenditures. As described inNote 10, “Legal Proceedings,” to the Condensed Consolidated FinancialStatements, if the HCDOES determines that the Company is non-compliant withemissions requirements, the Company likely will be required to installadditional control equipment. The Company is estimating the cost of suchupgrades to existing equipment to be $2.5 million. Should such capitalexpenditures be required, the Company would likely adjust its capital budgetfor its fiscal 2007 or delay previously budgeted capital expenditures.

Ifthe Company continues its historical annual revenue growth trend as expected,then the Company will be required to raise and invest additional capital foradditional plant expansion projects to provide operating capacity to satisfyincreased demand. Management believes thatfuture cash requirements for these plant expansion projects would need to bemet through other long-term financing sources. The incurrence of additionallong-term debt is governed and restricted by the Company’s existing debtinstruments. Furthermore, there can be no assurance that additional long-termfinancing will be available on advantageous terms (or any terms) when needed bythe Company.

TheCompany provided a letter of credit in the amount of $5.5 million that wasoutstanding as of June 3, 2006 and March 4, 2006 to its insurancecarrier for the underwriting of certain performance bonds. This letter ofcredit expires in fiscal 2007. The Company alsoprovides a secured letter of credit to its insurance carrier for outstandingand potential workers’ compensation and general liability claims. The letter ofcredit for these claims totaled $110,000 as of June 3, 2006 and March 4,2006. In addition, if required by a supplier, the Company provides securedletters of credit to such suppliers. The Company had no letters of credit forsuppliers as of June 3, 2006 or March 4, 2006.

TheCompany is involved in various legal proceedings. Management believes, based onthe advice of legal counsel, that the outcome of such proceedings will not havea materially adverse effect on the Company’s financial position or futureresults of operations and cash flows. See Note 10 — “Legal Proceedings,” to theCondensed Consolidated Financial Statements for further discussion ofproceedings as of June 3, 2006.

Thefollowing tables summarize our commitments and contractual obligations byfiscal year as of June 3, 2006.

 
| ** **                                 | ** ** | **Commitments by Fiscal Year** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                 | ** ** | **Total**                                     | ** ** | **Less than 1  Year** | ** ** | **1–3  Years** | ** ** | **3-5  Years** | ** ** | **More than 5  Years** | ** ** |
| Letters of  credit                         |       | $                                             | 5,610,000  |   | $ | 5,610,000 |   | $ | — |   | $ | — |   | $ | — |   |
| Purchase  commitments for capital projects |       | 1,477,544                                     |       | 1,477,544 |   | — |   | — |   | — |   |
| Purchase commitments for raw materials     |       | 936,780                                       |       | 936,780 |   | — |   | — |   | — |   |
| Purchase commitments for natural gas       |       | 2,755,380                                     |       | 2,755,380 |   | — |   | — |   | — |   |
| Purchase  commitments for miscellaneous    |       | 122,500                                       |       | 122,500 |   | — |   | — |   | — |   |
| Total                                      |       | $                                             | 10,902,204 |   | $ | 10,902,204 |   | $ | — |   | $ | — |   | $ | — |   |

 

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| ** **                        | ** ** | **Contractual Obligations by Fiscal Year** | ** **  |
|-----------------------------------|------------|----------------------------------------------------------------|-------------|
| ** **                        | ** ** | ** **                                                     | ** **  | **Less than 1** | ** ** | **1–3** | ** ** | **3-5** | ** ** | **More than ** | ** ** |
| ** **                        | ** ** | **Total**                                                      | ** **  | **Year** | ** ** | **Years** | ** ** | **Years** | ** ** | **5 Years** | ** ** |
|                              |       |                                                           |        |   |   |   |   |   |   |   |   |
| Long-term debt                    |       | $                                                              | 232,000,000 |   | $ | — |   | $ | — |   | $ | 107,000,000 |   | $ | 125,000,000 |   |
| Capital lease  obligations*       |       | 804,066                                                        |        | 219,502 |   | 346,058 |   | 238,506 |   | — |   |
| Operating lease  obligations      |       | 4,080,587                                                      |        | 3,149,541 |   | 749,493 |   | 165,353 |   | 16,200 |   |
| Interest on  fixed-rate debt**    |       | 68,747,919                                                     |        | 12,716,967 |   | 25,157,802 |   | 24,701,275 |   | 6,171,875 |   |
| Interest on  variable-rate debt** |       | 27,128,039                                                     |        | 8,347,089 |   | 16,694,178 |   | 2,086,772 |   | — |   |
| Total                             |       | $                                                              | 332,760,611 |   | $ | 24,433,099 |   | $ | 42,947,531 |   | $ | 134,191,906 |   | $ | 131,188,075 |   |

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*Capital leaseobligations exclude interest component related to leases.

**Estimated payments forinterest are based on actual interest rates for fixed and variable-rate debtoutstanding as of June 3, 2006 assuming that the outstanding balancesremain unchanged until maturity.

Inconjunction with the Acquisition, the Company and the selling shareholders****entered into a tax sharing and indemnification agreementcontaining certain representations and warranties of the selling shareholderswith respect to taxes. The agreement provides that any net operating losscarryforwards attributable to expenses relating to the sale of the Company (“DealRelated NOLs”) and certain other deal related expenses, will be for the benefitof the selling shareholders. As of the date of the Acquisition, these DealRelated NOLs and other deal related expenses totaled approximately $24.2million and $6.6 million, respectively. Accordingly, the Company is requiredpay to the selling shareholders the amount of any tax benefit attributable tosuch Deal Related NOLs and other deal related expenses, except that the first$4.0 million of such tax benefits shall be paid into an escrow account thatwill secure the selling shareholders indemnification obligations under the taxsharing and indemnification agreement. The Company is required to make paymentsto the selling shareholders or the escrow account for tax benefits derived fromsuch utilization 20 days after the filing of the tax return that utilizes suchDeal Related NOLs or other deal related expenses.

The Companyinitially recorded a net long-term liability to the selling shareholderstotaling $10.3 million for the estimated obligations under the tax sharing andindemnification agreement. As of June 3, 2006, based on the federal incometax return filed November 15, 2005 (for the tax year ended February 26,2005), the Company has utilized $8.6 million of the Deal Related NOLs and $1.7million in other deal related expenses. During the fiscal year ended March 4,2006, the Company submitted payments based on the tax benefits received, net ofother tax assessments due to the Company from the selling shareholders, to anescrow account for a total of $3.6 million and directly to the sellingshareholders for a total of $1.4 million. As of June 3, 2006, the Companyhas a net long-term liability to the selling shareholders totaling $5.3 million.Although this amount is excluded from the table above, the Company expects toutilize the remaining Deal Related NOLs and make payment to the sellingshareholders pursuant to the tax sharing and indemnification agreement subsequentto the filing of its tax return in November 2007.

**Critical Accounting Policies andEstimates**

The preparation of financialstatements in conformity with GAAP requires the appropriate application of certain accounting policies,many of which require the Company to make estimates and assumptions aboutfuture events and their impact on amounts reported in the financial statementsand related notes. Since future events and the impact of those events cannot bedetermined with certainty, the actual results will inevitably differ from theCompany’s estimates. Such differences could be material to the financialstatements.

The Company believes itsapplication of accounting policies, and the estimates inherently requiredtherein, are reasonable. These accounting policies andestimates are constantly reevaluated, and adjustments are made when facts andcircumstances dictate a change. Historically, the Company’s application ofaccounting policies has been appropriate, and actual results have not differedmaterially from those determined using necessary estimates.

The following critical accounting policies affect the Company’s more significantjudgments and estimates used in the preparation of its financial statements.

***Revenue Recognition.  ***The Company records**revenues from its sales of food processing products at thetime title transfers. Standard shipping terms are FOB destination. Based onthese terms, title passes at the time the product is delivered to the customer.Revenue is recognized as the net amount to be received by the Company after 

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deductions for estimated discounts, product returns,and other allowances. These estimates are based on historical trends andexpected future payments (see also *Promotions*below).

***Goodwill and Other Intangible Assets*.  **Inconjunction with the Acquisition, the Company engaged an independent party toperform valuations for financial reporting purposes of the Company’s goodwilland other intangible assets. Assets identified through this valuation processincluded goodwill, formulas, customer relationships, licensing agreements, andcertain trade names and trademarks.

Inaccordance with SFAS No. 142 (“SFAS 142”) —”Goodwill and Other IntangibleAssets,” the Company tests recorded goodwill and intangibles with indefinitelives for impairment at least annually. Intangible assets with finite lives areamortized over their estimated economic or estimated useful lives. In addition,all other intangible assets are reviewed for impairment in accordance with SFAS144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  As of March 4, 2006, the Companyperformed the annual impairment review of goodwill and indefinite-livedintangible assets and also assessed whether the indefinite-lived intangibleassets continue to have indefinite lives. The Company engaged an independentparty to perform valuations to assist in the impairment review. There were noimpairment charges as a result of this review.

TheCompany’s amortizable intangible assets are amortized using accelerated amortizationmethods that match the expected benefit derived from the assets. Theaccelerated amortization methods allocate amortization expense in proportion toeach year’s expected revenues to the total expected revenues over the estimateduseful lives of the assets.

***Promotions*.  **Promotionalexpenses associated with rebates, marketing promotions, and special pricingarrangements are recorded as a reduction of revenues or as selling expense atthe time the sale is recorded. Certain of these expenses are estimated based onhistorical trends, expected future payments to be made under these programs,and expected future customer deductions to be taken under these programs. TheCompany believes the estimates recorded in the financial statements arereasonable estimates of the Company’s liability under these programs.

***Concentration of Credit Risk andSignificant Customers*.  **Financial instruments thatpotentially subject the Company to concentrations of credit risk consistprimarily of trade receivables. The Company performs periodic creditevaluations of its customers’ financial condition and generally does notrequire collateral. The Company encounters a certain amount of credit risk as aresult of a concentration of receivables among a few significant customers. Salesto the Company’s largest customer were approximately 19% and 25% of netrevenues for fiscal 2007 and fiscal 2006, respectively. Accounts receivable at June 3,2006 and March 4, 2006 included receivables from the Company’s largestcustomer totaling $3.4 million and $2.7 million, respectively.

***Stock-BasedCompensation*.  **The Company treats the options topurchase shares of common stock of Holding issued to employees of the Company (“Options”)as stock-based compensation for employees of the Company. Prior to fiscal 2007,as permitted under GAAP, the Company accounted for the Options under therecognition and measurement principles of Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees” (“APB 25”), and relatedInterpretations using the intrinsic value method. Accordingly, no compensationexpense was recognized for the stock option plan in the Company’s condensedconsolidated statements of operations.

Effective March 5, 2006, as required for thefirst annual reporting period beginning after December 15, 2005 fornon-public companies (as defined in SFAS 123(R)), the Company adopted SFAS 123(R) usingthe prospective adoption method. The new statement requires compensationexpense associated with share-based payments to employees to be recognized inthe financial statements based on their fair values**.**Uponthe adoption of SFAS 123(R) because the Company had used the minimum valuemethod prior to the adoption, the Company was required to apply the provisionsof the statement only prospectively for any newly issued, modified or settledaward after the date of initial adoption. No new Options were issued, modifiedor settled subsequent to adoption, however, the fair value assigned to any newly issued, modified or settled awardsin the future is expected to be significantly greater due to the differences invaluation methods.

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**Seasonality**

Exceptfor sales to school districts, which represent approximately 20% of the Company’stotal sales annually and which decline significantly during summer, late November andDecember, there is no other significant seasonal variation in the Company’ssales.

**Cautionary Statement As ToForward-Looking Information**

Thisreport includes “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended, including statements about thebusiness, operations, financial results, and future prospects of the Company. Forward-lookingstatements relate to future events or future financial performance. In somecases, you can identify forward-looking statements by terminology such as “may,”“should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential”or “continue,” the negative of such terms or other comparable terminology. Thesestatements may involve risks and uncertainties related to, among other things:

·                  changes in economic and business conditions in theworld;

·                  potential impact of hurricanes and other naturaldisasters on sales, raw material costs, fuel costs, insurance costs, and baddebt expense resulting from uncollectible accounts receivables;

·                  increased global tensions, market disruptionresulting from a terrorist or other attack and any armed conflict involving theUnited States;

·                  adverse changes in food costs and availability ofsupplies or costs of distribution;

·                  the Company’s level of indebtedness;

·                  restrictions imposed by the Company’s debtinstruments;

·                  increased competitive activity;

·                  government regulatory actions, including thoserelating to federal and state environmental laws;

·                  dependence on significant customers;

·                  changes in consumer preferences and diets;

·                  consolidation of the Company’s customers;

·                  general risks of the food industry, including riskof contamination, mislabeling of food products, a decline in meat consumption, andoutbreak of disease among cattle, chicken or pigs, or any change in consumerperception of certain protein products;

·                  adverse change to, or efficient utilization orsuccessful rationalization of, the Company’s Cincinnati, Ohio or Claremont,North Carolina facilities;

·                  dependence on key personnel; and

·                  changes in the availability and relative costs oflabor and potential labor disruptions or union organization activities.

The Company is not under any duty to update anyforward-looking statements after the date of this report to conform suchstatements to actual results or to changes in the Company’s expectations. Allforward-looking statements contained in this report and any subsequently filedreports are expressly qualified in their entirety by these cautionarystatements.

**ITEM3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

As discussed in theCompany’s Annual Report on Form 10-K, the Company is exposed tomarket risk stemming from changes in interest rates, foreign exchange rates andcommodity prices. Changes in these factors could cause fluctuations in theCompany’s financial condition, results of operations and cash flows. TheCompany owned no derivative financial instruments or nonderivative financialinstruments held for trading purposes at June 3, 2006 or March 4,2006. Certain of the Company’s outstanding nonderivative financial instrumentsat June 3, 2006 are subject to interest rate risk, but not subject toforeign currency or commodity price risk. In fiscal 2007, the average price theCompany paid for beef, pork, chicken, and cheese (increased)/decreasedapproximately (0.3%), (3.9%), 11.3% and 10.8%, respectively, compared to theprices paid during the fourth quarter of the fiscal year 

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ended March 4, 2006. The Company managescommodity price risk through purchase orders, non-cancelable contracts and bypassing on such cost increases to customers. There was no significant change inmarket risk during fiscal 2007.

TheCompany’s major market risk exposure is potential loss arising from changinginterest rates and its impact on long-term debt. The Company’s policy is tomanage interest rate risk by maintaining a combination of fixed and variablerate financial instruments in amounts and with maturities that managementconsiders appropriate. The risks associated with long-term debt at June 3,2006 have not changed materially since March 4, 2006. Of the long-termdebt outstanding at June 3, 2006, the $125.0 million of New Notesaccrue interest at a fixed interest rate, while the $107.0 millionoutstanding borrowings under the term loan facility and the revolving creditfacility accrue interest at variable interest rates. At June 3, 2006,there were no outstanding borrowings under the revolving credit facility. Arise in prevailing interest rates could have adverse effects on the Company’sfinancial condition and results of operations. A 25 basis point increase in thereference rates for the Company’s average variable-rate debt outstanding duringfiscal 2007 would have decreased net income for that period by approximately$70,000.

**ITEM4.   CONTROLS AND PROCEDURES**

***Evaluation of Disclosure Controls and Procedures*.  **As of the end of the period covered by thisreport, the Company performed an evaluation, under the supervision and with theparticipation of its management including the President and Chief ExecutiveOfficer and Principal Financial Officer of the effectiveness of the Company’sdisclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and15d-15(e)). Based upon this evaluation, the Company’s President and ChiefExecutive Officer and Principal Financial Officer have concluded that as of June 3,2006, the Company’s disclosure controls and procedures were effective for thepurposes of ensuring that information required to be disclosed inreports that the Company files or submits under the 1934 Act has been recorded,processed, summarized and reported in accordance with the rules and formsof the Securities and Exchange Commission (the “SEC’).

***Changes in Internal Controls*.  **There have been no changes in the Company’s internalcontrols over financial reporting during the quarter ended June 3, 2006that have materially affected, or are reasonably likely to materially affect,the Company’s internal control over financial reporting.

 

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**PART II.   OTHER INFORMATION**

**ITEM 1.   LEGAL PROCEEDINGS**

On August 19, 2003, as a result of complaints fromneighboring businesses, the Company received a Notice of Violation (“NOV”) fromthe Hamilton County Department of Environmental Services (“HCDOES”) relating tooperations at its Cincinnati, Ohio plant facility. The NOV alleged that theCompany violated its permits by exceeding the visual emission (“VE”)specification of 20% opacity. The Company received additional NOV’s for opacityviolations on October 22, 2003 and November 26, 2003, all of whichwere the result of complaints from neighboring businesses.

Subsequent to the original NOV received in August of2003, the Company began investigating and testing various emission reductiontechnologies. The Company found a solution that enabled operations to continuewith less smoke output and completed the upgrade during early 2004. HCDOESinspected the upgrade in April of 2004 and determined that the Company hadreturned to compliance with the opacity limit. In connection with the upgrade,the Company was required to submit a revised Permit to Install (“PTI”)application.

In August, 2005, pursuant to its regulatory authority, HCDOESrequested a Method 5 Stack Test be performed to assess the Company’s compliancewith its emissions limits. The Company contacted HCDOES, requesting thescheduled stack emission compliance test be postponed while the Company’sindependent consulting firm conducted an emissions audit program consisting ofa series of engineering stack tests that were performed at both controlled anduncontrolled emission test points in order to evaluate the magnitude of theemissions based on current production data and to estimate new emissionsfactors by product line. HCDOES agreed to this approach and granted permissionto delay the standard Method 5 Stack Test originally requested while theCompany conducted its emissions audit program.

TheCompany contracted with an independent environmental consulting firm to performthe audit and evaluation. As part of the overall audit, this firm performedpreliminary testing in early September 2005, which indicated thatviolations of emission levels may have occurred, and retested September 28,2005 through September 30, 2005. The firm conducted additional tests duringOctober 27, 2005 through November 8, 2005. The Company received theresults of the audit in January, 2006. The results allowed the Company toevaluate the facility’s current and historical potential and actual emissions. Thetesting revealed that assumptions made by the Company’s former outsideengineering firm concerning particulate emissions and throughput were incorrect.This miscalculation caused the Company to receive permit limits that are lowerthan actual emissions for certain cook lines. The Company met with the localair permitting authority in February, 2006, to discuss the results of theemissions audit program.

Basedon the results of the audit program, the Company received a NOV from HCDOES forparticulate emissions in excess of the allowable limits of certain of its airpermits and for submitting certain permit applications with incorrectinformation. The Company is in the process of assessing control technologyoptions and vendors for the installation of new control technology to substantiallyreduce particulate emissions. This process, including the installation ofadditional control technology, will likely last through fiscal 2007.

TheCompany is cooperating with the authorities in all aspects of these matters. Inaddition, the Company consulted with its outside legal counsel to assist themin resolving these matters and estimate the potential fines and penalties thatmay be assessed in the future.

The Company continuously evaluates contingencies based uponthe best available information. The Company believes it has recordedappropriate liabilities to the extent necessary in cases where the outcome ofsuch liabilities is considered probable and reasonably estimable, and that itsassessment of contingencies is reasonable. To the extent that resolution ofcontingencies results in amounts that vary from management’s estimates, futureearnings will be charged or credited accordingly.

As part of its ongoing operations in the food manufacturingindustry, the Company is subject to extensive federal, state, and localregulations and its food processing facilities and food products are subject tofrequent 

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inspection, audits and inquiries by the United StatesDepartment of Agriculture, the Food and Drug Administration, and various localhealth and agricultural agencies and by federal, state, and local agenciesresponsible for the enforcement of environmental laws and regulations. TheCompany is also involved in various legal actions arising in the normal courseof business. These matters are continuously being evaluated and, in some cases,are being contested by the Company and the outcome is not predictable.Consequently, an estimate of the possible loss or range of loss associated withthese actions cannot be made. Although occasional adverse outcomes (orsettlements) may occur and could possibly have an adverse effect on the resultsof operations in any one accounting period, the Company believes that the finaldisposition of such matters will not have a material adverse affect on theCompany’s consolidated financial position.

**ITEM 1A.   RISK FACTORS**

At June 3,2006, there were no material changes in risk factors from those described at March 4,2006 in the Company’s Form 10-K.

**ITEM 6.   EXHIBITS**

(a)   Exhibits

31.1         Rule 13a-14(a)/15d-14(a) Certificationof the Chief Executive Officer

31.2         Rule 13a-14(a)/15d-14(a) Certificationof the Principal Financial Officer

32                                    Section 1350Certifications of the Chief Executive Officer and the Principal FinancialOfficer

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|        |   | PIERRE FOODS, INC.                    |
|--------|--------|---------------------------------------|
|   |   |                                  |
|   |   |                                  |
|   |   | /s/ Norbert E. Woodhams               |
|   |   | By: Norbert E. Woodhams               |
|   |   | President and Chief Executive Officer |
|   |   | Dated: July 18, 2006             |
|   |   |                                  |
|   |   |                                  |
|   |   | /s/ Joseph W. Meyers                  |
|   |   | By: Joseph W. Meyers                  |
|   |   | Vice President, Finance               |
|   |   | Dated: July 18, 2006             |

 

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