##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934  For the quarterly period ended September 4, 2004  OR [    ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934  For the transition period from  to Commission File Number: 0-7277 PIERRE FOODS, INC.  North Carolina
(State or other jurisdiction of incorporation or organization) 56-0945643
(I.R.S. Employer Identification No.) 9990 Princeton Road
Cincinnati, Ohio 45246
(Address of principal executive offices) (zip code) Registrants telephone number, including area code: (513) 874-8741    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]                      No [   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [   ]                      No [X] Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date. Class
    
    Outstanding at October 15, 2004Class A Common Stock
    
    100,000




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##### 



PIERRE FOODS, INC. INDEX Page No.Part I. Financial Information:Item 1. Financial StatementsConsolidated Balance Sheets -September 4, 2004 and March 6, 2004
    
    
    3 - 4Consolidated Statements of Operations-for the periods from June 6, 2004
through June 30, 2004 and July 1, 2004 through September 4, 2004 and
for the Thirteen Weeks Ended August 30, 2003
    
    
    5Consolidated Statements of Operations-for the periods from March 7,
2004 through June 30, 2004 and July 1, 2004 through September 4, 2004
and for the Twenty-Six Weeks Ended August 30, 2003
    
    
    6Consolidated Statements of Shareholders Equity- for the periods from
June 5, 2004 through September 4, 2004 and March 6, 2004 through
September 4, 2004
    
    
    7 - 8Consolidated Statements of Cash Flows -For the periods from March 7, 2004
through June 30, 2004 and July 1, 2004 through September 4, 2004 and
for the Twenty-Six Weeks Ended August 30, 2003
    
    
    9 - 10Notes to Consolidated Financial Statements
    
    
    11 - 19Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operation
    
    
    20 - 26Item 3. Quantitative and Qualitative Disclosures About Market
Risk
    
    
    27Item 4. Controls and
Procedures
    
    
    28Part II. Other Information:Item 6. Exhibits
    
    
    29Signatures
    
    
    30Exhibit 10.14
Credit Agreement, dated as of June 30, 2004, among Pierre Merger
Corp., Wachovia Bank, National Association, as administrative and
collateral agent, Wachovia Capital Markets, LLC and Banc of America
Securities LLC, as joint lead arrangers and book-running managers,
and a syndicate of banks, financial institutions and other
institutional lenders party thereto (incorporated by reference to Exhibit 10.14 to the Companys
Form S-4 filed September 27, 2004)Exhibit 31.1
    
    
    31Exhibit 31.2
    
    
    32Exhibit 32
    
    
    33
  2




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##### 



PART I. FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS PIERRE FOODS, INC. AND SUBSIDIARIES 
 Consolidated Balance Sheets (Unaudited)Successor Pierre
    
    Predecessor PierreSeptember 4, 2004
    
    March 6, 2004ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    
    
    
    $
    204,865Certificates of deposit
    
    
    
    
    
    
    1,240,000Accounts receivable, net
    
    
    29,701,962
    
    
    
    25,641,608Inventories
    
    
    44,313,733
    
    
    
    38,974,018Deferred income taxes
    
    
    4,580,670
    
    
    
    3,569,766Prepaid expenses and other current assets (includes prepayments
to related parties of $24,000 at March 6, 2004)
    
    
    4,134,090
    
    
    
    3,236,867Total current assets
    
    
    82,730,455
    
    
    
    72,867,124PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    57,337,374
    
    
    
    60,695,455OTHER ASSETS:Trade name, net
    
    
    39,937,599
    
    
    
    38,808,636Customers, net
    
    
    27,252,396
    
    
    
    Licenses, net
    
    
    11,825,769
    
    
    
    Formulas, net
    
    
    92,330,797
    
    
    
    Goodwill
    
    
    172,514,704
    
    
    
    Note receivable  related party
    
    
    
    
    
    
    993,247Deferred income taxes
    
    
    
    
    
    
    482,215Deferred loan origination fees, net
    
    
    8,190,098
    
    
    
    1,627,601Other
    
    
    
    
    
    
    296,694Total other assets
    
    
    352,051,363
    
    
    
    42,208,393Total Assets
    
    $
    492,119,192
    
    
    $
    175,770,972
 See accompanying notes to unaudited consolidated financial statements. 3




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##### 



PIERRE FOODS, INC. AND SUBSIDIARIES (Unaudited)Successor Pierre
    
    Predecessor PierreSeptember 4, 2004
    
    March 6, 2004LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current installments of long-term debt
    
    $
    1,742,773
    
    
    $
    1,628,276Trade accounts payable
    
    
    9,926,707
    
    
    
    7,170,004Accrued interest
    
    
    2,478,680
    
    
    
    3,242,623Accrued payroll and payroll taxes
    
    
    4,812,915
    
    
    
    5,745,950Accrued promotions
    
    
    3,853,083
    
    
    
    3,064,769Income taxes payable
    
    
    
    
    
    
    39,248Accrued taxes (other than income and payroll)
    
    
    1,315,383
    
    
    
    901,693Other accrued liabilities (includes related party liabilities of
$4,503,219 at March 6, 2004)
    
    
    897,552
    
    
    
    4,964,703Total current liabilities
    
    
    25,027,093
    
    
    
    26,757,266LONG-TERM DEBT, less current installments
    
    
    276,555,448
    
    
    
    142,065,760DEFERRED INCOME TAXES
    
    
    40,005,957
    
    
    
    OTHER LONG-TERM LIABILITIES
    
    
    10,401,716
    
    
    
    327,411SHAREHOLDERS EQUITY:Common stock  Class A, 100,000 shares authorized, issued
and outstanding at September 4, 2004 and March 6, 2004
    
    
    145,577,253
    
    
    
    29,438,172Retained deficit
    
    
    (5,448,275
    )
    
    
    (17,817,637
    )Note receivable  related party
    
    
    
    
    
    
    (5,000,000
    )Total shareholders equity
    
    
    140,128,978
    
    
    
    6,620,535Total Liabilities and Shareholders Equity
    
    $
    492,119,192
    
    
    $
    175,770,972
 See accompanying notes to unaudited consolidated financial statements. 4




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##### 



PIERRE FOODS, INC. AND SUBSIDIARIES 
 Consolidated Statements of Operations (Unaudited) Predecessor Pierre
    
    Successor PierrePredecessor Pierre
    
    For the Period
    
    For the PeriodThirteen Weeks
    
    June 6, 2004
    
    July 1, 2004Ended
    
    Through
    
    ThroughAugust 30, 2003
    
    June 30, 2004
    
    September 4, 2004REVENUES
    
    $
    81,248,052
    
    
    $
    23,535,282
    
    
    $
    75,439,415COSTS AND EXPENSES:Cost of goods sold (includes related party transactions
totaling $1,089,235 in predecessor second quarter 2004)
    
    
    58,209,167
    
    
    
    19,980,334
    
    
    
    59,432,272Selling, general and administrative expenses (includes
related party transactions totaling $7,568,055 in
predecessor second quarter 2004)
    
    
    18,964,282
    
    
    
    7,608,479
    
    
    
    9,554,960Loss on disposition of property, plant and equipment, net
    
    
    632
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    1,164,222
    
    
    
    358,777
    
    
    
    5,529,424Total costs and expenses
    
    
    78,338,303
    
    
    
    27,947,590
    
    
    
    74,516,656OPERATING INCOME (LOSS)
    
    
    2,909,749
    
    
    
    (4,412,308
    )
    
    
    922,759OTHER INCOME (EXPENSE):Interest expense
    
    
    (5,883,160
    )
    
    
    (1,754,115
    )
    
    
    (9,029,105
    )Other income, net
    
    
    
    
    
    
    1,784
    
    
    
    Other expense, net
    
    
    (5,883,160
    )
    
    
    (1,752,331
    )
    
    
    (9,029,105
    )LOSS BEFORE INCOME TAX BENEFIT
    
    
    (2,973,411
    )
    
    
    (6,164,639
    )
    
    
    (8,106,346
    )INCOME TAX BENEFIT
    
    
    1,039,296
    
    
    
    2,021,385
    
    
    
    2,658,071NET LOSS
    
    $
    (1,934,115
    )
    
    $
    (4,143,255
    )
    
    $
    (5,448,275
    )NET LOSS PER
COMMON SHARE  BASIC AND DILUTED
    
    $
    (19.34
    )
    
    $
    (41.43
    )
    
    $
    (54.48
    )WEIGHTED AVERAGE SHARES OUTSTANDING BASIC
AND DILUTED
    
    
    100,000
    
    
    
    100,000
    
    
    
    100,000
 See accompanying notes to unaudited consolidated financial statements. 5




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##### 



PIERRE FOODS, INC. AND SUBSIDIARIES 
 Consolidated Statements of Operations (Unaudited) Predecessor Pierre
    
    Successor PierrePredecessor Pierre
    
    For the Period
    
    For the PeriodTwenty-Six Weeks
    
    March 7, 2004
    
    July 1, 2004Ended
    
    Through
    
    ThroughAugust 30, 2003
    
    June 30, 2004
    
    September 4, 2004REVENUES
    
    $
    162,727,921
    
    
    $
    115,548,564
    
    
    $
    75,439,415COSTS AND EXPENSES:Cost of goods sold (includes related party transactions
totaling $2,529,440 in predecessor fiscal 2004)
    
    
    114,429,082
    
    
    
    87,025,521
    
    
    
    59,432,272Selling, general and administrative expenses (includes
related party transactions totaling $15,408,207 in
predecessor fiscal 2004)
    
    
    39,061,557
    
    
    
    26,446,857
    
    
    
    9,554,961Loss on disposition of property, plant and equipment, net
    
    
    632
    
    
    
    339,921
    
    
    
    Depreciation and amortization
    
    
    2,314,979
    
    
    
    1,544,903
    
    
    
    5,529,424Total costs and expenses
    
    
    155,806,250
    
    
    
    115,357,202
    
    
    
    74,516,657OPERATING INCOME
    
    
    6,921,671
    
    
    
    191,362
    
    
    
    922,758OTHER INCOME (EXPENSE):Interest expense
    
    
    (9,330,640
    )
    
    
    (6,537,519
    )
    
    
    (9,029,105
    )Other income, net
    
    
    
    
    
    
    1,784
    
    
    
    Other expense, net
    
    
    (9,330,640
    )
    
    
    (6,535,735
    )
    
    
    (9,029,105
    )LOSS BEFORE INCOME TAX BENEFIT
    
    
    (2,408,969
    )
    
    
    (6,344,373
    )
    
    
    (8,106,347
    )INCOME TAX BENEFIT
    
    
    851,089
    
    
    
    2,080,337
    
    
    
    2,658,071NET LOSS
    
    $
    (1,557,880
    )
    
    $
    (4,264,035
    )
    
    $
    (5,448,275
    )NET LOSS PER
COMMON SHARE  BASIC AND DILUTED
    
    $
    (15.58
    )
    
    $
    (42.64
    )
    
    $
    (54.48
    )WEIGHTED AVERAGE SHARES OUTSTANDING BASIC
AND DILUTED
    
    
    100,000
    
    
    
    100,000
    
    
    
    100,000
 See accompanying notes to unaudited consolidated financial statements. 6




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##### 



PIERRE FOODS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY FOR THE PERIOD FROM JUNE 5, 2004 THROUGH SEPTEMBER 4, 2004 Common
    
    Retained
    
    Receivable
    
    TotalStock
    
    Earnings
    
    From
    
    ShareholdersClass A
    
    (Deficit)
    
    Shareholder
    
    EquityPREDECESSOR PIERREBALANCE AT JUNE 5, 2004
    
    $
    29,098,533
    
    
    $
    (28,262,693
    )
    
    $
    (5,000,000
    )
    
    $
    (4,164,160
    )Net loss
    
    
    
    
    
    
    (4,143,255
    )
    
    
    
    
    
    
    (4,143,255
    )BALANCE AT JUNE 30, 2004
    
    
    29,098,533
    
    
    
    (32,405,948
    )
    
    
    (5,000,000
    )
    
    
    (8,307,415
    )PURCHASE ACCOUNTING ADJUSTMENT
    
    
    (29,098,533
    )
    
    
    32,405,948
    
    
    
    5,000,000
    
    
    
    8,307,415SUCCESSOR PIERREPURCHASE ALLOCATION
    
    
    145,577,253
    
    
    
    
    
    
    
    
    
    
    
    145,577,253Net loss
    
    
    
    
    
    
    (5,448,275
    )
    
    
    
    
    
    
    (5,448,275
    )BALANCE AT SEPTEMBER 4, 2004
    
    $
    145,577,253
    
    
    $
    (5,448,275
    )
    
    $
    
    
    
    $
    140,128,978
 See accompanying notes to unaudited consolidated financial statements. 7




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##### 



PIERRE FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY FOR THE PERIOD FROM MARCH 6, 2004 THROUGH SEPTEMBER 4, 2004 Common
    
    Retained
    
    Receivable
    
    TotalStock
    
    Earnings
    
    From
    
    ShareholdersClass A
    
    (Deficit)
    
    Shareholder
    
    EquityPREDECESSOR PIERREBALANCE AT MARCH 6, 2004
    
    $
    29,438,172
    
    
    $
    (17,817,637
    )
    
    $
    (5,000,000
    )
    
    $
    6,620,535Net loss
    
    
    
    
    
    
    (4,264,035
    )
    
    
    
    
    
    
    (4,264,035
    )Transaction with common shareholder
    
    
    (339,639
    )
    
    
    (10,324,276
    )
    
    
    
    
    
    
    (10,663,915
    )BALANCE AT JUNE 30, 2004
    
    
    29,098,533
    
    
    
    (32,405,948
    )
    
    
    (5,000,000
    )
    
    
    (8,307,415
    )PURCHASE ACCOUNTING ADJUSTMENT
    
    
    (29,098,533
    )
    
    
    32,405,948
    
    
    
    5,000,000
    
    
    
    8,307,415SUCCESSOR PIERREPURCHASE ALLOCATION
    
    
    145,577,253
    
    
    
    
    
    
    
    
    
    
    
    145,577,253Net loss
    
    
    
    
    
    
    (5,448,275
    )
    
    
    
    
    
    
    (5,448,275
    )BALANCE AT SEPTEMBER 4, 2004
    
    $
    145,577,253
    
    
    $
    (5,448,275
    )
    
    $
    
    
    
    $
    140,128,978
 See accompanying notes to unaudited consolidated financial statements. 8




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##### 



PIERRE FOODS, INC. AND SUBSIDIARIES 
 Consolidated Statements of Cash Flows (Unaudited) Predecessor Pierre
    
    Successor PierrePredecessor Pierre
    
    For the Period
    
    For the PeriodTwenty-Six Weeks
    
    March 7, 2004
    
    July 1, 2004Ended
    
    Through
    
    ThroughAugust 30, 2003
    
    June 30, 2004
    
    September 4, 2004CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (1,557,880
    )
    
    $
    (4,264,035
    )
    
    $
    (5,448,275
    )Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:Depreciation and amortization
    
    
    2,314,979
    
    
    
    1,544,903
    
    
    
    5,529,424Amortization of deferred loan origination fees
    
    
    416,637
    
    
    
    716,478
    
    
    
    4,504,010Change in deferred income taxes
    
    
    
    
    
    
    (675,222
    )
    
    
    (1,820,378
    )Write-off of deferred loan origination fees
    
    
    1,233,530
    
    
    
    
    
    
    
    Loss on disposition of property, plant and equipment, net
    
    
    632
    
    
    
    339,921
    
    
    
    Decrease in other assets
    
    
    35,716
    
    
    
    296,694
    
    
    
    Increase (decrease) in other long-term liabilities
    
    
    (179,531
    )
    
    
    (94,477
    )
    
    
    84,115Changes in operating assets and liabilities:Receivables
    
    
    (1,105,635
    )
    
    
    5,660,719
    
    
    
    (9,721,073
    )Inventories
    
    
    (2,059,890
    )
    
    
    (4,911,529
    )
    
    
    1,592,762Refundable income taxes, prepaid expenses and other
current assets
    
    
    853,617
    
    
    
    (455,532
    )
    
    
    (2,747,197
    )Trade accounts payable and other accrued liabilities
    
    
    2,138,874
    
    
    
    2,227,855
    
    
    
    614,361Total adjustments
    
    
    3,648,929
    
    
    
    4,649,810
    
    
    
    (1,963,976
    )Net cash provided by (used in) operating activities
    
    
    2,091,049
    
    
    
    385,775
    
    
    
    (7,412,251
    )CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sales of property, plant and equipment
    
    
    500
    
    
    
    
    
    
    
    Capital expenditures
    
    
    (7,329,138
    )
    
    
    (2,084,160
    )
    
    
    (455,418
    )Net cash used in investing activities
    
    
    (7,328,638
    )
    
    
    (2,084,160
    )
    
    
    (455,418
    )
 See accompanying notes to unaudited consolidated financial statements. 9




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##### 



Predecessor Pierre
    
    Successor PierrePredecessor Pierre
    
    For the Period
    
    For the PeriodTwenty-Six Weeks
    
    March 7, 2004
    
    July 1, 2004Ended
    
    Through
    
    ThroughAugust 30, 2003
    
    June 30, 2004
    
    September 4, 2004CASH FLOWS FROM FINANCING ACTIVITIESBorrowings (repayments) of revolving credit agreement
    
    $
    6,023,936
    
    
    $
    7,712,901
    
    
    $
    (18,492,886
    )Principal payments on long-term debt
    
    
    (60,502
    )
    
    
    (673,526
    )
    
    
    (414,557
    )Loan origination fees
    
    
    (620,197
    )
    
    
    (3,371,999
    )
    
    
    (8,410,987
    )Payoff of Old Notes
    
    
    
    
    
    
    
    
    
    
    (115,000,000
    )Issuance of New Notes
    
    
    
    
    
    
    
    
    
    
    125,000,000Borrowings under new term loan
    
    
    
    
    
    
    
    
    
    
    150,000,000Repayment of debt in conjunction with the Acquisition
    
    
    
    
    
    
    
    
    
    
    (29,048,031
    )Termination of certificate of deposit
    
    
    
    
    
    
    
    
    
    
    1,262,245Return of capital to parent
    
    
    
    
    
    
    
    
    
    
    (99,201,971
    )Distributions of special purpose leasing entity
    
    
    (233,000
    )
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    5,110,237
    
    
    
    3,667,376
    
    
    
    5,693,813NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (127,352
    )
    
    
    1,968,991
    
    
    
    (2,173,856
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    274,329
    
    
    
    204,865
    
    
    
    2,173,856CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    146,977
    
    
    $
    2,173,856
    
    
    $
    
 See accompanying notes to unaudited consolidated financial statements. 10




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##### 



PIERRE FOODS, INC. AND SUBSIDIARIES 
 Notes to Consolidated Financial Statements  1. Basis of Presentation On June 30, 2004, the shareholders of PF Management, the sole shareholder
of the Company, sold their shares of stock in PF Management (the Acquisition)
to an affiliate of Madison Dearborn Partners, LLC (MDP). The financial information as of March 6, 2004, included in these financial
statements has been derived from the Companys audited consolidated financial
statements. In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments necessary to present
fairly the financial position, the results of operations and the cash flows of
the Company for the interim periods. The results of interim operations are not
necessarily indicative of the results to be expected for the full fiscal year.
These interim unaudited consolidated financial statements should be read in
conjunction with the Companys March 6, 2004 audited consolidated financial
statements and notes thereto. Included in this report are interim unaudited consolidated financial
statements that contain all adjustments necessary to present fairly the
financial position as of September 4, 2004 and March 6, 2004, the results of
operations for the periods from June 6, 2004 through June 30, 2004, July 1,
2004 through September 4, 2004, March 7, 2004 through June 30, 2004, and for
the thirteen and twenty-six weeks ended August 30, 2003, and the cash flows of
the Company for the periods of March 7, 2004 through June 30, 2004 and July 1,
2004 through September 4, 2004 and the twenty-six weeks ended August 30, 2003.
The periods from June 6, 2004 through June 30, 2004 and March 7, 2004 through
June 30, 2004 are referred to as predecessor second quarter 2005 and
predecessor fiscal 2005, respectively. The period from July 1, 2004 through
September 4, 2004 is referred to as successor fiscal 2005. The thirteen week
and twenty-six week periods ended August 30, 2003 are referred to as
predecessor second quarter 2004 and predecessor fiscal 2004, respectively.
Financial statement presentation used for fiscal 2004 has been reclassified,
where applicable, to conform to financial statement presentation used for both
predecessor fiscal 2005 and successor fiscal 2005. The fair value adjustments related to the Acquisition, which have been
pushed down to Pierre Foods, Inc. from Pierre Holding Corp., primarily include
adjustments in property, plant and equipment, inventory, goodwill, other
intangible assets and related deferred taxes. The Company reports the results of its operations using a 52-53 week
basis. In line with this, each quarter of the fiscal year will contain 13
weeks except for the infrequent fiscal years with 53 weeks. 2. Acquisition On June 30, 2004, the shareholders of PF Management, the sole shareholder
of the Company, sold their shares of stock in PF Management to an affiliate of
MDP. In connection with the sale, the following occurred:  
    
    The Company merged with Pierre Merger Corp., an affiliate of MDP,
with the Company being the surviving corporation following the merger.  
    
    The Company terminated its three-year variable-rate $40 million
revolving credit facility and obtained a $190 million credit facility
from a new lender which includes a six-year variable-rate $150 million
term loan and a five-year variable rate $40 million revolving credit
facility with a $10 million letter of credit subfacility. See Note 4,
Long-Term Debt. 11




---



##### 




    
    The Company terminated its few remaining related party transactions
(described in Note 9, Related Party Transactions), transferred
miscellaneous assets to Messrs. Richardson and Clark, our former
Chairman and Vice Chairman, respectively, including its airplane, which
was distributed to Mr. Richardson.  
    
    Pierre Merger Corp. closed a cash tender offer and consent
solicitation for the Companys Old Notes (as defined in Note 4).
Holders of approximately $106.3 million, or approximately 92%, of
aggregate principal amount of the Companys outstanding Old Notes
tendered their Old Notes. The Company, as the surviving corporation of
the merger with Pierre Merger Corp., accepted and paid for all Old Notes
tendered pursuant to the tender offer. A redemption notice for the Old
Notes not tendered (approximately $8.7 million) was issued on June 30,
2004 and these Old Notes were redeemed on July 20, 2004.  
    
    The Company issued $125.0 million of 9-7/8% Senior Subordinated Notes
due 2012 (the New Notes). The proceeds of the New Notes, together with
the equity contributions from MDP and certain members of management (as
described below) and borrowings under our new senior credit facility,
were used to finance the Acquisition of the Company and to repay
outstanding indebtedness.  
    
    The Companys President and Chief Executive Officer, Norbert E.
Woodhams, and its Senior Vice President of Sales, Marketing and New
Product Development, Robert C. Naylor, signed employment agreements
committing them to continue working for the Company after the sale. The
stated term of employment for each executive is one year, but each
agreement will renew automatically and continuously year-to-year unless
terminated. The following table presents selected financial information and
unaudited pro forma information for the predecessor second quarter 2004 and
for the second quarter 2005, as if the Acquisition had occurred on March 2,
2003 and March 7, 2004, as applicable. PredecessorSecond
    
    SecondQuarter 2004
    
    Quarter 2005Actual
    
    Pro Forma
    
    Actual
    
    Pro FormaRevenues
    
    $
    81,248,052
    
    
    $
    81,202,140
    
    
    $
    98,974,697
    
    
    $
    98,974,697Net loss
    
    $
    (1,934,115
    )
    
    $
    (3,425,029
    )
    
    $
    (9,591,530
    )
    
    $
    (10,212,628
    )
 The following table presents selected financial information and
unaudited pro forma information for the predecessor fiscal 2004, for the
predecessor fiscal 2005 and for the fiscal 2005, as if the Acquisition had
occurred on March 2, 2003 and March 7, 2004, as applicable. PredecessorFiscal
    
    Fiscal2004
    
    2005Actual
    
    Pro Forma
    
    Actual
    
    Pro FormaRevenues
    
    $
    162,727,921
    
    
    $
    162,681,967
    
    
    $
    190,987,979
    
    
    $
    190,979,374Net loss
    
    $
    (1,557,880
    )
    
    $
    (4,553,255
    )
    
    $
    (9,712,310
    )
    
    $
    (12,919,092
    )
 12




---



##### 



These unaudited pro forma results, based on assumptions deemed appropriate
by the Companys management, have been prepared for informational purposes only
and are not necessarily indicative of the amounts that would have resulted if
the Company had been acquired by MDP on March 2, 2003 or March 7, 2004, as
applicable. Purchase related adjustments to the results of operations include
the effects on depreciation and amortization, interest expense, cost of goods
sold and income taxes. Included in these pro forma results are certain predecessor fees that the
Company does not expect to incur in the future. These include professional
fees, primarily related to the restructuring of the Fourth Supplemental
Indenture on March 8, 2004 and the Management Buy Out on July 26, 2002. For
the predecessor second quarter 2004 and for the combined predecessor second
quarter 2005 and successor fiscal 2005, these fees amounted to $448,220 and
$336,488, respectively. For the predecessor fiscal 2004 and for the combined
predecessor fiscal 2005 and successor fiscal 2005, these fees amounted to
$1,183,020 and $2,591,989, respectively. Other predecessor expenses included in these pro forma results that are no
longer expected to be incurred include outside Board of Director fees,
community relations, and donations to our former shareholders alma mater. For
the predecessor second quarter 2004 and for the combined predecessor second
quarter 2005 and successor fiscal 2005, these fees amounted to $102,833 and
$122,825, respectively. For the predecessor fiscal 2004 and for the combined
predecessor fiscal 2005 and successor fiscal 2005, these fees amounted to
$234,139 and $600,653. Also included in the pro forma results for the predecessor second quarter
2005 are certain Acquisition expenses related to the sale of the Company to
MDP. These transaction expenses include professional fees of $956,000 for the
predecessor second quarter 2005. Other predecessor second quarter 2005
transaction expenses relating to the previous shareholders adviser amounted to
$780,952. A termination payoff of the endorsement between the Company and
Crawford Race Cars, LLC also resulted in expense in the predecessor second
quarter 2005 amounting to $318,000 that is not expected to be incurred in the
future. The unaudited pro forma condensed consolidated financial statements
reflect the Acquisition of the Company in accordance with Financial Accounting
Standard No. 141 (FAS 141) Business Combinations and Financial Accounting
Standard No. 142 (FAS 142) Goodwill and Other Intangible Assets. The Acquisition was recorded under the purchase method of accounting. The
purchase price has been allocated to assets acquired and liabilities assumed
based on the estimated fair market value at the date of Acquisition. The
preliminary allocation of the purchase price is as follows: Current assets
    
    $
    75,727,665Plant, property and equipment
    
    
    57,857,942Non-current assets
    
    
    4,283,121Goodwill
    
    
    172,514,705Other intangibles
    
    
    175,900,000Debt and other liabilities assumed
    
    
    (231,186,607
    )Net assets acquired
    
    $
    255,096,826
 The allocation of the purchase price to specific assets and liabilities is
based, in part, upon preliminary appraisals, and is therefore subject to
change. The Company expects to finalize the outside appraisals of acquired
assets and liabilities in fiscal 2005. Deferred tax liabilities will also be
finalized after the final allocation of the purchase price and the final tax
basis of the assets and liabilities has been determined. 13




---



##### 



3. Inventories A summary of inventories, by major classifications, follows: September 4, 2004
    
    March 6, 2004Manufacturing supplies
    
    $
    1,703,925
    
    
    $
    1,572,212Raw materials
    
    
    6,450,727
    
    
    
    5,427,936Finished goods
    
    
    36,150,851
    
    
    
    31,972,713Work in process
    
    
    8,230
    
    
    
    1,157Total
    
    $
    44,313,733
    
    
    $
    38,974,018
 4. Long-Term Debt Long term debt is comprised of the following: September 4, 2004
    
    March 6, 200412.25% Senior Notes, interest payable
on June 1 and December 1 of each
year, maturing on June 1, 2006
    
    $
    
    
    
    $
    115,000,0009.875% Senior Notes, interest payable
on July 15 and January 15 of each
year, maturing on July 15, 2012
    
    
    125,000,000
    
    
    
    $150 million term loan, with floating
interest rates maturing 2010
    
    
    149,625,000
    
    
    
    New revolving line of credit, maximum
borrowings of $40 million with
floating interest rates maturing 2009
    
    
    2,500,000
    
    
    
    Former revolving line of credit, maximum
borrowings of $40 million with
floating interest rates maturing 2007
    
    
    
    
    
    
    13,279,9855.25% Term loan subline-equipment
    
    
    
    
    
    
    4,583,3395.25% Term loan subline-real estate
    
    
    
    
    
    
    4,708,331Aircraft lease-variable interest rate
    
    
    
    
    
    
    5,606,6856% Note payable maturing 2008
    
    
    
    
    
    
    270,9834.89% to 11.9% capitalized lease
obligations maturing 2010
    
    
    1,173,221
    
    
    
    244,713Total long term debt
    
    
    278,298,221
    
    
    
    143,694,036Less current installments
    
    
    1,742,773
    
    
    
    1,628,276Long-term debt, less current installments
    
    $
    276,555,448
    
    
    $
    142,065,760
 As of September 4, 2004, the Company had outstanding borrowings under its
new revolving credit facility of $2.5 million and borrowing availability of
approximately $32.7 million. On March 8, 2004, following a consent solicitation in which consents of
holders of $112.4 million in aggregate principal amount of the Companys
outstanding senior notes due 2006 (the Old Notes), representing 97.74% of the
outstanding Old Notes, consented to a Fourth Supplemental Indenture between the
Company and U.S. Bank National Association, as trustee (the Trustee), the
Company entered into the Fourth Supplemental Indenture with the Trustee. Among
other things, the Fourth Supplemental Indenture increased the annual interest
rate on the Old
Notes from 10.75% to 12.25% through March 31, 2005 and 13.25% thereafter
and required the payment of a cash consent fee of $3.5 million (3% of the
principal amount of Old Notes held by each consenting noteholder); required the
termination of all related 14




---



##### 



party transactions, except for certain
specifically-permitted transactions (see Note 9, Related Party Transactions);
provided for the assumption by the Company of approximately $15.3 million of
subordinated debt of PF Management, Inc., the sole shareholder of the Company;
and waived any and all defaults of the Indenture existing as of March 8, 2004. Concurrently with the execution of the Fourth Supplemental Indenture, the
Company took title to an aircraft transferred from a related party subject to
$5.6 million of existing purchase money debt; assumed $15.3 million of debt
from PF Management; cancelled the $1.0 million related party note receivable
against the debt assumed from PF Management; cancelled the balances owed by the
Company to certain related parties, as follows: $0.5 million owed to Columbia
Hill Aviation; $3.5 million owed to PF Purchasing; $0.5 million owed to PF
Distribution; and assumed the operating leases of PF Distribution in connection
with the Fourth Supplemental Indenture. Minimum lease payments on the former
PF Distribution operating leases were scheduled to be $3.0 million during
fiscal year 2005, $2.9 million during fiscal year 2006 and $0.5 million during
fiscal year 2007. We refer to these transactions as the Restructuring. On June 30, 2004, the shareholders of PF Management closed the sale of
their shares of stock of PF Management to an affiliate of MDP (see Note 2).
Effective June 30, 2004, the Company terminated its three-year variable-rate
$40 million revolving credit facility. Existing debt issuance costs related to
the Companys former $40 million facility in the amount of $0.5 million and a
prepayment penalty paid to the former lender in the amount of $0.4 million were
charged to interest expense. Also effective June 30, 2004, the Company
obtained a $190 million credit facility from a new lender which includes a
six-year variable-rate $150 million term loan, a five-year variable rate $40
million revolving credit facility and a $10 million letter of credit
subfacility. Funds available under this new facility are available for working
capital requirements, permitted investments and general corporate purposes.
Borrowings under the new facility bear interest at floating rates based upon
the interest rate option selected from time to time by the Company and are
secured by a first-priority security interest in substantially all of the
Companys assets. The interest rate for borrowings under the new revolving
credit facility at September 4, 2004 was 6.0% (prime plus 1.5%). Repayment of
borrowings under the term loan is $375,000 per quarter beginning on September
4, 2004, with a balloon payment of $141.4 million due on June 5, 2010. The
maturity date of the $40 million revolving credit facility is June 30, 2009.
In addition, the Company is required to satisfy certain financial covenants
regarding cash flow and capital expenditures. Also
in conjunction with the sale, the Company issued $125.0 million of
97⁄8%
Senior Subordinated Notes due 2012 (the New Notes). The
proceeds of the New Notes, together with the equity contributions from MDP and
certain members of management (see Note 2) and borrowings under our new senior
credit facility, were used to finance the Acquisition of the Company and to
repay outstanding indebtedness, including paying off debt of PF Management
assumed by the Company under the Fourth Supplemental Indenture (except capital
leases), paying for the Old Notes tendered in connection with the tender offer
described in Note 2 and redeeming the Old Notes not tendered. 5. Goodwill and Other Intangible Assets In conjunction with the Acquisition, the Company engaged an independent
party to perform valuations for financial reporting purposes on the Companys
goodwill and other intangible assets. Assets identified through this valuation
process included goodwill, formulas, customer relationships, licensing
agreements and certain trade names and trademarks. Prospectively, in accordance with Financial Accounting Standard No.
142Goodwill and Other Intangible Assets (FAS 142), the Company will test
recorded goodwill and other intangible assets with indefinite lives for
impairment at least annually. All other intangible assets with finite lives
will be amortized over their estimated economic or estimated useful lives. In
addition, all other intangible assets will be reviewed for impairment in
accordance with FAS 144. The Companys amortizable other intangible assets are amortized using
accelerated amortization methods that match the expected benefit derived from
the assets. The accelerated amortization methods allocate amortization expense
in proportion to each years expected revenues to the total expected revenues
over the estimated useful lives of the assets. 15




---



##### 



The gross carrying value of goodwill and the gross carrying value and
accumulated amortization of other intangible assets are as follows: As of September 4, 2004
    
    As of March 6, 2004Gross
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Amount
    
    AmortizationAmortizable
intangible assets:Formulas
    
    $
    95,000,000
    
    
    $
    2,669,203
    
    
    $
    
    
    
    $
    Tradename and
trademarks
    
    
    20,100,000
    
    
    
    362,401
    
    
    
    
    
    
    
    Customer
relationships
    
    
    28,500,000
    
    
    
    1,247,604
    
    
    
    
    
    
    
    Licensing
agreements
    
    
    12,100,000
    
    
    
    274,231
    
    
    
    
    
    
    
    Total amortizable
intangible assets
    
    $
    155,700,000
    
    
    $
    4,553,439
    
    
    $
    
    
    
    $
    
 Gross
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    Carrying
    
    AccumulatedAmount
    
    Amortization
    
    Amount
    
    AmortizationUnamortizable
intangible assets:Tradename
    
    $
    20,200,000
    
    
    $
    
    
    
    $
    38,808,636
    
    
    $
    Goodwill
    
    
    172,514,092
    
    
    
    
    
    
    
    
    
    
    
    Total unamortizable
intangible
assets
    
    $
    192,714,092
    
    
    $
    
    
    
    $
    38,808,636
    
    
    $
    
 The future amortization of other intangible assets (dollars in thousands)
for the next five fiscal years is estimated to be as follows: 2006
    
    2007
    
    2008
    
    2009
    
    2010Formulas
    
    $
    14,300
    
    
    $
    12,671
    
    
    $
    11,165
    
    
    $
    9,761
    
    
    $
    8,468Tradename
and
trademarks
    
    
    2,024
    
    
    
    1,919
    
    
    
    1,821
    
    
    
    1,732
    
    
    
    1,646Customer
relationships
    
    
    5,376
    
    
    
    4,011
    
    
    
    3,358
    
    
    
    2,874
    
    
    
    2,391License
agreements
    
    
    1,755
    
    
    
    1,670
    
    
    
    1,619
    
    
    
    1,573
    
    
    
    1,528
 16




---



##### 



6. Comprehensive Income Total comprehensive loss is comprised solely of net loss in the
predecessor second quarter 2005, predecessor fiscal 2005, successor fiscal
2005, predecessor second quarter 2004 and predecessor fiscal 2004. 7. Supplemental Cash Flow
Disclosures - Cash Paid During the Period and
Non-Cash Transactions Predecessor Pierre
    
    Successor PierreFor the Period
    
    For the PeriodTwenty-Six Weeks
    
    March 7, 2004
    
    July 1, 2004Ended
    
    Through
    
    ThroughAugust 30, 2003
    
    June 30, 2004
    
    September 4, 2004Cash paid during the period for:Interest
    
    $
    7,650,248
    
    
    $
    7,915,332
    
    
    $
    3,162,636Income taxes net of refunds received
    
    $
    (197,977
    )
    
    $
    
    
    
    $
    Non-cash transactions:Assumption of PF Management debt
    
    $
    
    
    
    $
    14,274,050
    
    
    $
    Cancellation of note receivable
    
    $
    
    
    
    $
    993,247
    
    
    $
    Cancellation of accrual to PF Purchasing
    
    $
    
    
    
    $
    3,479,007
    
    
    $
    Cancellation of accrual to PF Distribution
    
    $
    
    
    
    $
    535,251
    
    
    $
    Cancellation of receivable from former
owner
    
    $
    
    
    
    $
    5,000,000
    
    
    $
    Distribution of plant, property and
equipment
    
    $
    
    
    
    $
    8,476,080
    
    
    $
    Distribution of other current assets
    
    $
    
    
    
    $
    9,255
    
    
    $
    Deferred taxes for airplane
    
    $
    
    
    
    $
    1,576,000
    
    
    $
    Deferred tax liability
    
    $
    
    
    
    $
    
    
    
    $
    45,752,427Tax sharing liability to previous
shareholders
    
    $
    
    
    
    $
    
    
    
    $
    10,317,601Valuation of goodwill and other intangibles
    
    $
    
    
    
    $
    
    
    
    $
    298,605,456Valuation of inventory
    
    $
    
    
    
    $
    
    
    
    $
    2,020,948Valuation of plant, property and equipment
    
    $
    
    
    
    $
    
    
    
    $
    4,438,984Capital
lease addition
    
    $
    
    
    
    $
    1,013,300
    
    
    $
    Other
    
    $
    
    
    
    $
    174,874
    
    
    $
    
 17




---



##### 



8. Recently Issued Accounting Guidance In December of 2003, the FASB issued FIN 46R, Consolidation of Variable
Interest Entities (FIN 46R), which replaces the same titled FIN 46 that was
issued in January 2003. FIN 46R addresses how to identify variable interest
entities and the criteria that requires a company to consolidate such entities
in its financial statements. FIN 46R is effective for the first reporting
period that ends after March 15, 2004. This statement did not have an impact
on the Companys financial statements. 9. Related Party Transactions As described in Note 4, Long-Term Debt, on March 8, 2004, following a
consent solicitation in which a majority of the holders of the Companys
outstanding Old Notes consented to a Fourth Supplemental Indenture between the
Company and the Trustee, the Company entered into the Fourth Supplemental
Indenture with the Trustee. Among other things, the Fourth Supplemental
Indenture limited future related party transactions and required the
termination of all related party transactions, except for certain
specifically-permitted transactions. The following related party transactions were specifically permitted under
the terms of the Fourth Supplemental Indenture:  
    
    Columbia Hill Land Company, LLC, owned 50% by each of James C.
Richardson and David R. Clark, our then Chairman and Vice-Chairman,
respectively, leased office space to the Company in Hickory, North
Carolina, pursuant to a ten-year lease that commenced in September
1998. Rents paid under the lease were approximately $29,000, $29,000
and $58,000 during successor fiscal 2005, predecessor fiscal 2005 and
predecessor fiscal 2004, respectively.  
    
    On March 8, 2004 the Company took title to an aircraft that was
transferred from Columbia Hill Aviation, LLC (CHA), owned 100% by
PF Management, subject to existing purchase money debt. The aircraft
was originally leased by the Company from CHA beginning in the fourth
quarter of fiscal 2002. Effective March 1, 2002, the original lease
was cancelled and replaced with a non-exclusive lease agreement.
Pursuant to this new lease, the Company was obligated to make 16
quarterly lease payments of $471,500 each for the right to use the
aircraft for up to 115 flight hours per quarter, based on
availability. Under this lease agreement, CHA was responsible for all
expenses incurred in the operation of the use of the aircraft, except
that the Company provided its own flight crew. All other related party transactions that were in effect at March 6, 2004
were terminated as of March 8, 2004 pursuant to the terms of the Fourth
Supplemental Indenture. As a result of the termination of these related party
transactions, subsequent to March 8, 2004, the Company has performed its
purchasing and distribution services internally. The following transactions were entered into on March 8, 2004 as permitted
by the Fourth Supplemental Indenture: Assumption of PF Management debt
    
    $
    (14,274,050
    )Accrued liabilities to PF Purchasing cancelled
    
    
    3,479,007Note receivable cancelled
    
    
    (993,247
    )Accrued liabilities to PF Distribution cancelled
    
    
    535,251Cash received
    
    
    763,999Other
    
    
    (174,874
    )Total
    
    $
    (10,663,914
    )
 18




---



##### 



Allocated to the following accounts:Transactions with common shareholder
    
    $
    10,324,275Common Stock
    
    
    339,639Total
    
    $
    10,663,914
 The $339,639 charge represents the removal of members equity of CHA. On June 30, 2004, in conjunction with the sale by the shareholders of PF
Management of their shares of stock of PF Management to MDP, all related party
transactions were terminated as described in Note 2. 19




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Results of Operations Predecessor Second Quarter 2005 and Successor Fiscal 2005 Compared to
Predecessor Second Quarter 2004 Revenues, net.Net revenues increased by $17.7 million in the predecessor
second quarter 2005 and successor second quarter 2005 compared to predecessor
second quarter 2004, or 21.8%. The increase in net revenues was the result of
increases in sales across most of the Companys end-market segments, including
the substantial development of national business with an existing customer and
the advent of business with a new customer. Included in the predecessor second
quarter 2004 are revenues of $45,912 related to Compass Outfitters, LLC, which
will not be present in future periods due to Compass Outfitters, LLC being
retained by the selling shareholders (see Note 2). Cost of goods sold.Cost of goods sold increased by $21.2 million in the
predecessor second quarter 2005 and successor second quarter 2005 compared to
predecessor second quarter 2004, or 36.4%. As a percentage of revenues, cost
of goods sold increased from 71.6% to 80.2%. This increase was primarily due to
increased raw material prices ($6.6 million), the impact of a $1.5 million
purchase accounting adjustment on beginning inventory (as a result of the
Acquisition) and start-up costs of $1.8 million related to the development of
new national account business. In the predecessor second quarter 2005 and
successor second quarter 2005 beef, pork, chicken and cheese prices increased
approximately 3.1%, 38.2%, 61.9% and 46.1%, respectively, compared to
predecessor second quarter 2004. These increases were partially offset by price
increases passed on to customers and the elimination of commissions as a result
of the termination of the Companys purchasing agreement with PF Purchasing.
Commissions paid to PF Purchasing totaled $1.2 million during predecessor
second quarter 2004. This affiliate relationship was terminated in conjunction
with the restructuring of the Companys Old Notes, which was completed on March
8, 2004. Selling, general and administrative. Selling, general and administrative
expenses decreased by $1.8 million in the predecessor second quarter 2005 and
successor second quarter 2005 compared to predecessor second quarter 2004, or
9.5%. As a percentage of revenues, selling, general and administrative
expenses decreased from 23.3% to 17.3%. This decrease was primarily due to the
elimination of PF Distribution fees and a decrease in affiliate expenses
offset, in part, by expenses associated with the sale of the Company, which are
not expected to recur in future periods. Expenses associated with the previous
shareholders in the predecessor second quarter 2005 and successor second
quarter 2005 and the predecessor second quarter 2004 that are not expected to
be incurred in the future include the following: 20




---



##### 



Predecessor SecondQuarter 2005AndSuccessor
    
    PredecessorSecond Quarter 2005
    
    Second Quarter 2004(dollars in millions)Distribution expenses (a)
    
    
    
    
    
    $
    2.7House lease (b)
    
    
    
    
    
    
    0.1Compensation expense (c)
    
    $
    0.3
    
    
    
    0.7Travel and entertainment (d)
    
    
    0.3
    
    
    
    0.5Office expense(e)
    
    
    
    
    
    
    0.2Aircraft expense (f)
    
    
    0.4
    
    
    
    0.4Compass Outfitters (g)
    
    
    
    
    
    
    0.2Professional fees (h)
    
    
    0.3
    
    
    
    0.4Previous shareholders other expenses (i)
    
    
    0.1
    
    
    
    0.1Previous shareholders transaction fees (j)
    
    
    1.0
    
    
    
    Consulting services (k)
    
    
    0.8
    
    
    
    Endorsement termination (l)
    
    
    0.3
    
    
    
    Other (m)
    
    
    0.1
    
    
    
    Total
    
    $
    3.6
    
    
    $
    5.3
 Distribution expenses (a) incurred under related party agreements that
were terminated in March 2004 as part of the Restructuring . The house lease
(b) relates to rent expense, maintenance and other occupancy costs paid to
related parties pursuant to a lease that was terminated in connection with the
Restructuring. Compensation expense (c) relates to personnel who were
terminated in connection with the sale of the Company and will not be replaced.
Travel and entertainment (d) relates to expenses incurred by personnel who
were terminated and will not be replaced as a result of the sale of the
Company. Office Expense (e) relates to rent expense, maintenance and other
occupancy costs associated with the lease of an office building from a related
party that was terminated in connection with the sale of the Company. Aircraft
expense (f) relates to the leasing of an aircraft owned by Columbia Hill
Aviation, LLC which was formerly a subsidiary of PF Management, which was
retained by the selling shareholders. Compass Outfitters (g) relates to an
asset that was retained by the selling shareholders. The professional fees (h)
primarily are related to the restructuring of the Fourth Supplemental Indenture
on March 8, 2004 and to the sale of the company. The previous shareholders
other expenses (i) relate to outside board of director fees, community
relations, and contributions made to the former owners alma mater. The
previous shareholders transaction fees (j) include legal, accounting, and tax
consulting fees related to the sale of the company. The consulting services
(k) consist of the fee paid to the selling shareholders adviser for his role
in the Acquisition. The endorsement termination (l) relates to the contract
between the Company and Crawford Race Cars, LLC. Other (m) includes employee
travel and other expenses incurred in connection with the financing of the
Acquisition. Operational selling, general, and administrative expenses were lower in
the predecessor second quarter 2005 and successor second quarter 2005 by $0.3
million compared to predecessor second quarter 2004 due to the payment of lower
bonuses to employees of $0.4 million, offset by $0.1 million of volume related
increases in selling and distribution. Depreciation and Amortization.Depreciation and amortization expense
increased in the predecessor second quarter 2005 and successor fiscal 2005
compared to predecessor second quarter 2004 by $4.7 million. This is due to
the commencement of amortizing other intangible assets in the successor fiscal
2005, amounting to $4.6 million. 21




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Other Expense. Other expense consists primarily of interest on fixed and
variable rate long-term debt and interest on a revolving loan, both of which
were entered into in connection with the Acquisition. Interest expense
increased in the predecessor second quarter 2005 and successor fiscal 2005
compared to predecessor second quarter 2004 by $4.9 million, or 83.3%. This is
due to the write-off of the loan commitment fees associated with the previous
shareholders debt offset by the increased debt. Income taxes. The effective tax rate for both the predecessor second
quarter 2005 and for successor fiscal 2005 was 32.8% compared to 35% for
predecessor second quarter 2004. Predecessor Fiscal 2005 and Successor Fiscal 2005 Compared to Predecessor
Fiscal 2004 Revenues,
net.Net revenues increased by $28.3 million, or 17.4%. The
increase in net revenues was the result of increases in sales across most of
the Companys end-market segments, including the substantial development of
national business with an existing customer and the advent of business with a
new customer. Included in the predecessor fiscal 2004 are revenues of $45,954
related to Compass Outfitters, LLC. Included in the predecessor fiscal 2005
and successor fiscal 2005 are non-recurring revenues of $8,604 related to
Compass Outfitters, LLC. These revenues will not be present in future periods
due to Compass Outfitters, LLC being retained by the selling shareholders. Cost of goods sold.Cost of goods sold increased by $32.0 million in the
predecessor fiscal 2005 and successor fiscal 2005 compared to predecessor
fiscal 2004, or 28.0%. As a percentage of revenues, cost of goods sold
increased from 70.3% to 76.7%. This increase was primarily due to increased raw
material prices ($10.2 million), the impact of a $1.5 million purchase
accounting adjustment on beginning inventory (as a result of the Acquisition)
and start-up costs of $3.1 million related to the development of new national
accounts business. In the predecessor fiscal 2005 and successor fiscal 2005,
beef, pork, chicken and cheese prices increased approximately 3.9%, 43.3%,
68.9% and 45.1%, respectively, compared to predecessor fiscal 2004. These
increases were partially offset by price increases passed on to customers and
the elimination of commissions as a result of the termination of the Companys
purchasing agreement with PF Purchasing. Commissions paid to PF Purchasing
totaled $2.3 million during predecessor fiscal 2004. This affiliate
relationship was terminated in conjunction with the restructuring of the
Companys Old Notes, which was completed on March 8, 2004. Selling, general and administrative. Selling, general and administrative
expenses decreased by $3.1 million, or 7.8%. As a percentage of revenues,
selling, general and administrative expenses decreased from 24.0% to 18.9%.
This decrease was primarily due to the elimination of PF Distribution fees of
$5.8 million and a decrease in affiliate expenses offset, in part, by expenses
associated with the sale of the Company that are not expected to repeat in
future periods. Expenses associated with the previous shareholders in the
predecessor fiscal 2005 and successor fiscal 2005 that are not expected to be
incurred in the future include the following: 22




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Predecessor Fiscal2005AndSuccessor
    
    PredecessorFiscal 2005
    
    Fiscal 2004(dollars in millions)Distribution expenses (a)
    
    
    
    
    
    $
    5.8House lease(b)
    
    
    
    
    
    
    0.1Compensation expense (c)
    
    $
    1.2
    
    
    
    1.4Travel and entertainment (d)
    
    
    1.0
    
    
    
    1.0Office expense(e)
    
    
    0.8
    
    
    
    0.3Aircraft expense (f)
    
    
    0.2
    
    
    
    0.7Compass Outfitters (g)
    
    
    0.1
    
    
    
    0.4Professional fees (h)
    
    
    2.6
    
    
    
    1.2Previous shareholders other expenses (i)
    
    
    0.7
    
    
    
    0.2Previous shareholders transaction fees (j)
    
    
    1.0
    
    
    
    Consulting services (k)
    
    
    0.8
    
    
    
    Endorsement termination (l)
    
    
    0.3
    
    
    
    Other (m)
    
    
    0.1
    
    
    
    Total
    
    $
    8.8
    
    
    $
    11.1
 Distribution expenses (a) incurred under related party agreements that
were terminated in March 2004 as part of the Restructuring . The house lease
(b) relates to rent expense, maintenance and other occupancy costs paid to
related parties pursuant to a lease that was terminated in connection with the
Restructuring. Compensation expense (c) relates to personnel who were
terminated in connection with the sale of the Company and will not be replaced.
Travel and entertainment (d) relates to expenses incurred by personnel who
were terminated and will not be replaced as a result of the sale of the
Company. Office Expense (e) relates to rent expense, maintenance and other
occupancy costs associated with the lease of an office building from a related
party that was terminated in connection with the sale of the Company. Aircraft
expense (f) relates to the leasing of an aircraft owned by Columbia Hill
Aviation, LLC which was formerly a subsidiary of PF Management, which was
retained by the selling shareholders. Compass Outfitters (g) relates to an
asset that was retained by the selling shareholders. The professional fees (h)
primarily are related to the restructuring of the Fourth Supplemental Indenture
on March 8, 2004 and to the sale of the company. The previous shareholders
other expenses (i) relate to outside board of director fees, community
relations, and contributions made to the former owners alma mater. The
previous shareholders transaction fees (j) include legal, accounting, and tax
consulting fees related to the sale of the company. The consulting services
(k) consist of the fee paid to the selling shareholders adviser for his role
in the transaction. The endorsement termination (l) relates to the contract
between the Company and Crawford Race Cars, LLC. Other (m) includes employee
travel and other expenses incurred as a result of the debt placement for the
Acquisition. Operational selling, general, and administrative expenses were lower than
prior year by $0.4 million due to lower bonus payments to
employees of $1.1 million,
lower corporate training expenses of $0.3 million, lower marketing expenses of
$0.3 million, lower bad debt expense of $0.2 million, lower professional
services of $0.2 million, lower selling commissions of $0.1 million, lower
travel expense of $0.1 million, lower taxes of $0.1 million, and other
administrative expenses of $0.2 million. These were offset, in part, by
unfavorable distribution freight and storage rates of $1.2 million due to
higher inventories, fuel surcharges, and general freight rate increases. In
addition, selling expenses were unfavorable in promotions by $0.6 million and
new product development expenses of $0.4 million. Depreciation and Amortization.Depreciation and amortization expense
increased by $4.8 million. The increase is due primarily to the commencement
of amortizing other intangible assets in the successor fiscal 2005, amounting
to $4.6 million. 23




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Loss on Disposal of Assets.The loss on disposal of assets increased by
$0.3 million. The increase is due to the recording of losses related to
affiliated companies as a consequence of the Restructuring. Other Expense. Other expense consists primarily of interest on fixed and
variable rate long-term debt and interest on a revolving loan, both of which
exist as a result of the Acquisition. Other expense increased by $6.2 million,
or 66.8%. This is due to the increased debt and the advent of the revolving
loan. Income taxes. The effective tax rate for both predecessor fiscal 2005 and
successor fiscal 2005 was 32.8%, compared to 35.3% for predecessor second
quarter 2004. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
appropriate application of certain accounting policies, many of which require
the Company to make estimates and assumptions about future events and their
impact on amounts reported in the financial statements and related notes.
Since future events and the impact of those events cannot be determined with
certainty, the actual results will inevitably differ from the Companys
estimates. Such differences could be material to the financial statements. The Company believes its application of accounting policies, and the
estimates inherently required therein, are reasonable. These accounting
policies and estimates are constantly reevaluated, and adjustments are made
when facts and circumstances dictate a change. Historically, the Companys
application of accounting policies has been appropriate, and actual results
have not differed materially from those determined using necessary estimates. The following critical accounting policies affect the Companys more
significant judgments and estimates used in the preparation of its financial
statements. Revenue Recognition.Revenue from sales of food processing products is
recorded at the time title transfers. Standard shipping terms are FOB
destination, therefore title passes at the time the product is delivered to the
customer. Revenue is recognized as the net amount to be received after
deductions for estimated discounts, product returns and other allowances.
These estimates are based on historical trends and expected future payments
(see also Promotionsbelow). Goodwill and Other Intangible Assets.In conjunction with the
Acquisition, the Company engaged an independent party to perform valuations for
financial reporting purposes on the Companys goodwill and other intangibles.
Assets identified through this valuation process included goodwill, formulas,
customer relationships, licensing agreements and certain trade names and
trademarks. Prospectively, in accordance with Financial Accounting Standard No.
(FAS) 142Goodwill and Other Intangible Assets, the Company will test
recorded goodwill and intangibles with indefinite lives for impairment at least
annually. All other intangible assets with finite lives will be amortized over
their estimated economic or estimated useful lives. In addition, all other
intangible assets will be reviewed for impairment in accordance with FAS 144. The Companys amortizable intangible assets are amortized using
accelerated amortization methods that match the expected benefit derived from
the assets. The accelerated amortization methods allocate amortization expense
in proportion to each years expected revenues to the total expected revenues
over the estimated useful lives of the assets. Promotions. Promotional expenses associated with rebates, marketing
promotions and special pricing arrangements are recorded as a reduction of
revenues or selling expense at the time the sale is recorded. Certain of these
expenses are estimated based on historical trends and expected future payments
to be made under these programs. The Company believes the estimates recorded
in the financial statements are reasonable estimates of the Companys liability
under these programs. 24




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Concentration of Credit Risk and Significant Customers. Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of trade receivables. The Company performs periodic
credit evaluations of its customers financial condition and generally does not
require collateral. The Company encounters a certain amount of credit risk as
a result of a concentration of receivables among a few significant customers.
Sales to the Companys largest customer were approximately 32.4%, 29.1% and
26.1% of revenues for the predecessor second quarter 2005, the predecessor
fiscal 2005 and the successor fiscal 2005, respectively. Accounts receivable
at September 4, 2004 included receivables from the Companys largest customer
totaling $5.0 million. New Accounting Pronouncements. In December of 2003, the FASB issued FIN
46R, Consolidation of Variable Interest Entities (FIN 46R), which replaces
the same titled FIN 46 that was issued in January 2003. FIN 46R addresses how
to identify variable interest entities and the criteria that requires a company
to consolidate such entities in its financial statements. FIN 46R is effective
for the first reporting period that ends after March 15, 2004. This statement
did not have an impact on the Companys financial statements. Liquidity and Capital Resources Net cash provided by (used in) operating activities for predecessor fiscal
2005 and successor fiscal 2005 was $0.4 million and ($7.4) million,
respectively, compared to $2.1 million for predecessor fiscal 2004. The
primary components of the net cash provided by operating activities for
predecessor fiscal 2005 were: (1) a decrease in accounts receivable of $5.7
million; (2) an increase in trade accounts payable and other accrued
liabilities of $2.2 million; offset by (3) an increase in inventory of $4.9
million and (4) an increase in refundable income taxes, prepaid expenses and
other current assets of $0.5 million. The primary components of the net cash
used in operating activities for successor 2005 were: (1) an increase in
accounts receivable of $9.7 million; (2) an increase in refundable income
taxes, prepaid expenses and other current assets of $2.7 million; offset by (3)
a decrease in inventory of $1.6 million and (4) an increase in trade accounts
payable and other accrued liabilities of $0.6 million. Net cash used in investing activities for predecessor fiscal 2005 and
successor fiscal 2005 was $2.1 million and $0.5 million, respectively, compared
to $7.3 million for predecessor fiscal 2004. The decrease is primarily due to
significant capital expenditures for a plant expansion in predecessor fiscal
2004 that did not occur in predecessor fiscal 2005 or successor fiscal 2005. Net cash provided by financing activities for predecessor fiscal 2005 and
successor fiscal 2005 was $3.7 million and $5.7 million, respectively, compared
to $5.1 million for predecessor fiscal 2004. The increase in cash provided by
financing activities for predecessor fiscal 2005 was due primarily to: (1) net
borrowings under the revolving credit agreement with former lender of $7.7
million; offset by (2) loan origination fees incurred in the amount of $3.4
million and (3) principal payments on long-term debt. The increase in cash
provided by financing activities for successor fiscal 2005 was due primarily
to: (1) borrowings under the new term loan of $150.0 million; (2) issuance of
New Notes of $125.0 million; (3) net borrowings under the new revolving credit
agreement of $2.5 million and (4) the termination of a certificate of deposit
for $1.3 million; offset by (5) payoff of Old Notes; (6) return of capital to
parent of $99.2 million; (7) repayment of debt in conjunction with the
Acquisition of $18.5 million; (8) repayment of the revolving credit agreement
with the former lender of $21.0 million and (9) loan origination fees of $8.4
million. The interest rate for borrowings under the Companys new $40 million
revolving credit facility and the Companys $150 million term loan at September
4, 2004 was 6.0% (prime plus 1.5%). As of September 4, 2004, the Company had no cash and cash equivalents on
hand, outstanding borrowings under its revolving credit facility of $2.5
million and borrowing availability of approximately $32.7 million. Also as of
September 4, 2004, the Company had borrowings under its term loan of $149.6
million. The Company has budgeted approximately $2.5 million for capital
expenditures for the remainder of fiscal 2005. These expenditures are primarily
for the routine food processing capital improvement projects and other
miscellaneous expenditures. The Company believes that funds from operations
and funds from the new $40 million revolving credit facility, as well as the
Companys ability to enter into capital or operating leases, will be adequate
to finance these capital expenditures. 25




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If the Company continues its historical revenue growth trend as expected,
then the Company may be required to raise and invest additional capital for
additional plant expansion projects to provide operating capacity to satisfy
increased demand. Management believes that future cash requirements for these
plant expansion projects may need to be met through other long-term financing
sources. The incurrence of additional long-term debt is governed and
restricted by the Companys existing debt instruments. Furthermore, there can
be no assurance that additional long-term financing will be available on
advantageous terms (or any terms) when needed by the Company. On March 8, 2004, following a consent solicitation in which consents of
holders of $112.4 million in aggregate principal amount of the Companys
outstanding senior notes due 2006 (the Old Notes), representing 97.74% of the
outstanding Old Notes, consented to a Fourth Supplemental Indenture between the
Company and U.S. Bank National Association, as trustee (the Trustee), the
Company entered into the Fourth Supplemental Indenture with the Trustee. (see
Note 2). Concurrently with the execution of the Fourth Supplemental Indenture
the Company took title to an aircraft transferred from a related party subject
to $5.6 million of existing purchase money debt; cancelled the $1.0 million
related party note receivable from its principal shareholders; cancelled the
balances owed by the Company to certain related parties, as follows: $0.5
million owed to Columbia Hill Aviation; $3.5 million owed to PF Purchasing and
$0.5 million owed to PF Distribution; and assumed the operating leases of PF
Distribution in connection with the Fourth Supplemental Indenture. Minimum
lease payments on the former PF Distribution operating leases were scheduled to
be $3.0 million during fiscal year 2005, $2.9 million during fiscal year 2006
and $0.5 million during fiscal year 2007. The Company assumed $15.3 million of
subordinated debt of PF Management, Inc., the sole shareholder of the Company,
in connection with the execution of the Fourth Supplemental Indenture and
cancelled the $1.0 million related party note receivable against the debt
assumed from PF Management. On June 30, 2004, the shareholders of PF Management closed the sale of
their shares of stock of PF Management to an affiliate of MDP (see Note 2).
Effective June 30, 2004, the Company terminated its three-year variable-rate
$40 million revolving credit facility. Existing debt issuance costs related to
the Companys former $40 million facility in the amount of $0.5 million and a
prepayment penalty in the amount of $0.4 million were paid to the former lender
and were charged to interest expense. Also effective June 30, 2004, the
Company obtained a $190 million credit facility from a new lender which
includes a six-year variable-rate $150 million term loan, a five-year variable
rate $40 million revolving credit facility and a $10 million letter of credit
subfacility. Funds available under this new facility are available for working
capital requirements, permitted investments and general corporate purposes.
Borrowings under the new facility bear interest at floating rates based upon
the interest rate option selected from time to time by the Company and are
secured by a first-priority security interest in substantially all of the
Companys assets. The interest rate for borrowings under the new revolving
credit facility at September 4, 2004 was 6.0% (prime plus 1.5%). Repayment of
borrowings under the term loan is $375,000 per quarter beginning on September
4, 2004, with a balloon payment of $141.4 million due on June 5, 2010. The
maturity date of the $40 million revolving credit facility is June 30, 2009.
In addition, the Company is required to satisfy certain financial covenants
regarding cash flow and capital expenditures. Also in connection with the sale of the Company, the Company issued $125.0
million of 9-7/8% Senior Subordinated Notes due 2012 (the New Notes). The
proceeds of the New Notes, together with the equity contributions from MDP and
certain members of management (see Note 2) and borrowings under our new senior
credit facility, were used to finance the Acquisition of the Company and to
repay outstanding indebtedness, including paying off debt of PF Management
assumed by the Company under the Fourth Supplemental Indenture, paying for the
Old Notes tendered in connection with the tender offer described in Item 5,
Other InformationSale of Company and redeeming the Old Notes not tendered.
The indenture governing the New Notes contains restrictive covenants,
including, among others, restrictions on the ability of the Company to make
dividends, enter into affiliate transactions, incur indebtedness and make
investments. Seasonality Except for sales to school districts, which represent approximately 19% of
the Companys total sales and which decline significantly during summer, late
November and December, there is no other significant seasonal variation in the
Companys sales. 26




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As discussed in the Companys annual report on Form 10-K for the fiscal
year ended March 6, 2004, the Company is exposed to market risks stemming from
changes in interest rates, foreign exchange rates and commodity prices.
Changes in these factors could cause fluctuations in the Companys financial
condition, results of operations and cash flows. The Company owned no
derivative financial instruments or nonderivative financial instruments held
for trading purposes at September 4, 2004 or March 6, 2004. Certain of the
Companys outstanding nonderivative financial instruments at September 4, 2004
are subject to interest rate risk, but not subject to foreign currency or
commodity price risk. In fiscal 2005, beef, pork, chicken and cheese prices
increased approximately 10%, 46%, 45% and 19.7%, respectively, compared to the
prices at the fiscal year ended March 6, 2004. The Company manages commodity
price risk through purchase orders, non-cancelable contracts and by passing on
such cost increases to customers. The Companys major market risk exposure is potential loss arising from
changing interest rates and its impact on long-term debt. The Companys policy
is to manage interest rate risk by maintaining a combination of fixed and
variable rate financial instruments in amounts and with maturities that
management considers appropriate. The risks associated with long-term debt at
September 4, 2004 have not changed materially since March 6, 2004. Of the
long-term debt outstanding at September 4, 2004, the $125.0 million of New
Notes accrue interest at a fixed interest rate, while the $2.5 million
outstanding borrowings under the revolving credit facility accrue interest at a
variable interest rate. A rise in prevailing interest rates could have adverse
effects on the Companys financial condition and results of operations. A 25
basis point increase in the reference rates for the Companys average variable
rate debt outstanding during fiscal 2005 would have decreased net income for
that period by approximately $87,630. Cautionary Statement As To Forward Looking Information Certain statements made in this report are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve risks and uncertainties that may cause
actual results to differ materially from expected results. These risks and
uncertainties include: adverse changes in food costs and availability of
supplies; our significant level of indebtedness; restrictions imposed by the
Companys debt instruments; competition in the food industry; competitive
considerations; government regulation; dependence on significant customers;
consolidation of our customers; general risks of the food industry, including
risk of contamination, mislabeling of food products, a decline in meat
consumption and outbreak of disease among cattle, chicken or pigs; dependence
on key personnel; potential labor disruptions and other factors, risks and
uncertainties identified in Exhibit 99.1 to our Annual Report on Form 10-K
filed with the SEC on March 9, 2004 and in our other filings with the SEC.
This list of risks and uncertainties is not exhaustive. Also, new risk factors
emerge over time. Investors should not place undue reliance on the predictive
value of forward-looking statements. 27




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##### 



ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this report, we performed an
evaluation, under the supervision and with the participation of our management
including the chief executive officer and the principal accounting officer, of
the effectiveness of our disclosure controls and procedures. Based on that
evaluation, our management, including the chief executive officer and principal
accounting officer, concluded that our disclosure controls and procedures were
effective. There have been no changes in internal control over financial
reporting during our most recently completed fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. 28




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PART II. OTHER INFORMATION 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  (a)
    
    Exhibits  10.4
    
    Credit Agreement, dated as of June 30, 2004, among Pierre Merger
Corp., Wachovia Bank, National Association, as administrative and
collateral agent, Wachovia Capital Markets, LLC and Banc of America
Securities LLC, as joint lead arrangers and book-running managers,
and a syndicate of banks, financial institutions and other
institutional lenders party thereto (incorporated by reference to Exhibit 10.14 to the Companys
Form S-4 filed September 27, 2004)31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer32
    
    Section 1350 Certifications of the Chief Executive Officer and the Principal Financial Officer 29




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. PIERRE FOODS, INC./s/ Norbert E. Woodhams, Sr.By: Norbert E. Woodhams, Sr.Its: Chief Executive OfficerDated: October 25, 2004/s/ Joseph W. MeyersBy: Joseph W. MeyersIts: Vice President, FinanceDated: October 25, 2004
 30