##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934  For the quarterly period ended December 4, 2004  OR o 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 þ                                          No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes o                                          No þ 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 January 14, 2005Class A Common Stock
    
    100,000




---



PIERRE FOODS, INC. INDEX Page No.Part I. Financial Information:Item 1. Financial StatementsConsolidated Balance Sheets - December 4, 2004 and March 6, 2004
    
    
    3 - 4Consolidated Statements of Operations - for the Thirteen Weeks ended
December 4, 2004 and for the Thirteen Weeks Ended November 29, 2003
    
    
    5Consolidated Statements of Operations - for the periods from March 7,
2004 through June 30, 2004 and July 1, 2004 through December 4, 2004
and for the Thirty-Nine Weeks Ended November 29, 2003
    
    
    6Consolidated Statement of Shareholders Equity - for the period from
March 6, 2004 through December 4, 2004
    
    
    7Consolidated Statements of Cash Flows - for the periods from March 7, 2004
through June 30, 2004 and July 1, 2004 through December 4, 2004 and
for the Thirty-Nine Weeks Ended November 29, 2003
    
    
    8 - 9Notes to Consolidated Financial Statements
    
    
    10 - 21Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operation
    
    
    22 - 28Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    30Part II. Other Information:Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31Signatures
    
    
    32Exhibit 10.1Exhibit 10.2Exhibit 31.1Exhibit 31.2Exhibit 32EX-10.1EX-10.2EX-31.1EX-31.2EX-32
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS PIERRE FOODS, INC. AND SUBSIDIARIES 
 Consolidated Balance Sheets (Unaudited)Successor Pierre
    
    
    
    Predecessor PierreDecember 4, 2004
    
    
    March 6, 2004ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    2,143,507
    
    

    $
    204,865Certificates of deposit
    
    
    
    
    
    
    
    1,240,000Accounts receivable, net
    
    
    29,337,895
    
    
    
    
    25,641,608Inventories
    
    
    42,990,953
    
    
    
    
    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)
    
    
    3,161,729
    
    
    
    
    3,236,867Total current assets
    
    
    82,214,754
    
    
    
    
    72,867,124PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    57,183,030
    
    
    
    
    60,695,455OTHER ASSETS:Other intangibles, net
    
    
    164,788,788
    
    
    
    
    38,808,636Goodwill
    
    
    178,335,440
    
    
    
    
    Note receivable  related party
    
    
    
    
    
    
    
    993,247Deferred income taxes
    
    
    
    
    
    
    
    482,215Deferred loan origination fees, net
    
    
    8,583,273
    
    
    
    
    1,627,601Other
    
    
    
    
    
    
    
    296,694Total other assets
    
    
    351,707,501
    
    
    
    
    42,208,393Total Assets
    
    $
    491,105,285
    
    

    $

    175,770,972
 See accompanying notes to unaudited consolidated financial statements. 3




---



##### Table of Contents



PIERRE FOODS, INC. AND SUBSIDIARIES (Unaudited)Successor Pierre
    
    
    
    Predecessor PierreDecember 4, 2004
    
    

    March 6, 2004LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current installments of long-term debt
    
    $
    282,037
    
    

    $
    1,628,276Trade accounts payable
    
    
    8,911,912
    
    
    
    
    7,170,004Accrued interest
    
    
    5,399,957
    
    
    
    
    3,242,623Accrued payroll and payroll taxes
    
    
    5,512,313
    
    
    
    
    5,745,950Accrued promotions
    
    
    3,113,331
    
    
    
    
    3,064,769Income taxes payable
    
    
    
    
    
    
    
    39,248Accrued taxes (other than income and payroll)
    
    
    1,030,813
    
    
    
    
    901,693Other accrued liabilities (includes related party liabilities of
$4,503,219 at March 6, 2004)
    
    
    1,257,972
    
    
    
    
    4,964,703Total current liabilities
    
    
    25,508,335
    
    
    
    
    26,757,266LONG-TERM DEBT, less current installments
    
    
    267,471,180
    
    
    
    
    142,065,760DEFERRED INCOME TAXES
    
    
    40,961,532
    
    
    
    
    OTHER LONG-TERM LIABILITIES
    
    
    10,523,216
    
    
    
    
    327,411SHAREHOLDERS EQUITY:Common stock  Class A, 100,000 shares authorized, issued
and outstanding at December 4, 2004 and March 6, 2004
    
    
    150,023,000
    
    
    
    
    29,438,172Retained deficit
    
    
    (3,381,978
    )
    
    
    
    (17,817,637
    )Note receivable  related party
    
    
    
    
    
    
    
    (5,000,000
    )Total shareholders equity
    
    
    146,641,022
    
    
    
    
    6,620,535Total Liabilities and Shareholders Equity
    
    $
    491,105,285
    
    

    $
    175,770,972
 See accompanying notes to unaudited consolidated financial statements. 4




---



##### Table of Contents



PIERRE FOODS, INC. AND SUBSIDIARIES 
 Consolidated Statements of Operations (Unaudited) Predecessor Pierre
    
    
    
    Successor PierreThirteen Weeks
    
    Thirteen WeeksEnded
    
    EndedNovember 29, 2003
    
    
    December 4, 2004REVENUES
    
    $
    93,824,930
    
    

    $
    111,968,412COSTS AND EXPENSES:Cost of goods sold (includes related party transactions
totaling $1,383,924 for the thirteen weeks ended
November 29, 2003)
    
    
    66,502,119
    
    
    
    
    80,147,774Selling, general and administrative expenses (includes
related party transactions totaling $7,814,502 for
the thirteen weeks ended November 29, 2003)
    
    
    19,739,796
    
    
    
    
    15,409,997Loss on disposition of property, plant and equipment, net
    
    
    22,253
    
    
    
    
    Depreciation and amortization
    
    
    1,165,673
    
    
    
    
    8,145,886Total costs and expenses
    
    
    87,429,841
    
    
    
    
    103,703,657OPERATING INCOME
    
    
    6,395,089
    
    
    
    
    8,264,755OTHER INCOME (EXPENSE):Interest expense
    
    
    (3,670,889
    )
    
    
    
    (5,202,314
    )Other income, net
    
    
    
    
    
    
    
    12,405Other expense, net
    
    
    (3,670,889
    )
    
    
    
    (5,189,909
    )INCOME BEFORE INCOME TAX PROVISION
    
    
    2,724,200
    
    
    
    
    3,074,846INCOME TAX PROVISION
    
    
    (955,872
    )
    
    
    
    (1,008,549
    )NET INCOME
    
    $
    1,768,328
    
    

    $
    2,066,297NET INCOME PER COMMON SHARE  BASIC
AND DILUTED
    
    $
    17.68
    
    

    $
    20.66WEIGHTED AVERAGE SHARES OUTSTANDING-BASIC
AND DILUTED
    
    
    100,000
    
    
    
    
    100,000
 See accompanying notes to unaudited consolidated financial statements. 5




---



##### Table of Contents



PIERRE FOODS, INC. AND SUBSIDIARIES 
 Consolidated Statements of Operations (Unaudited) Predecessor Pierre
    
    
    
    Successor PierrePredecessor Pierre
    
    
    For the Period
    
    
    
    For the PeriodThirty-Nine Weeks
    
    
    March 7, 2004
    
    
    
    July 1, 2004Ended
    
    
    Through
    
    
    
    ThroughNovember 29, 2003
    
    
    June 30, 2004
    
    

    December 4, 2004REVENUES
    
    $
    256,552,851
    
    
    $
    115,548,564
    
    

    $
    187,407,827COSTS AND EXPENSES:Cost of goods sold (includes related party transactions
totaling $3,913,364 for the thirty-nine weeks ended
November 29, 2003)
    
    
    180,931,201
    
    
    
    87,025,521
    
    
    
    
    139,580,046Selling, general and administrative expenses (includes
related party transactions totaling $23,222,709 for the
thirty-nine weeks ended November 29, 2003)
    
    
    58,801,353
    
    
    
    26,446,857
    
    
    
    
    24,964,958Loss on disposition of property, plant and equipment, net
    
    
    22,885
    
    
    
    339,921
    
    
    
    
    Depreciation and amortization
    
    
    3,480,652
    
    
    
    1,544,903
    
    
    
    
    13,675,310Total costs and expenses
    
    
    243,236,091
    
    
    
    115,357,202
    
    
    
    
    178,220,314OPERATING INCOME
    
    
    13,316,760
    
    
    
    191,362
    
    
    
    
    9,187,513OTHER INCOME (EXPENSE):Interest expense
    
    
    (13,001,529
    )
    
    
    (6,537,519
    )
    
    
    
    (14,231,418
    )Other income, net
    
    
    
    
    
    
    1,784
    
    
    
    
    12,405Other expense, net
    
    
    (13,001,529
    )
    
    
    (6,535,735
    )
    
    
    
    (14,219,013
    )INCOME (LOSS) BEFORE INCOME TAX (PROVISION)
BENEFIT
    
    
    315,231
    
    
    
    (6,344,373
    )
    
    
    
    (5,031,500
    )INCOME TAX (PROVISION) BENEFIT
    
    
    (104,783
    )
    
    
    2,080,338
    
    
    
    
    1,649,522NET INCOME (LOSS)
    
    $
    210,448
    
    
    $
    (4,264,035
    )
    

    $
    (3,381,978
    )NET INCOME (LOSS) PER COMMON SHARE  BASIC
AND DILUTED
    
    $
    2.10
    
    
    $
    (42.64
    )
    

    $
    (33.82
    )WEIGHTED AVERAGE SHARES OUTSTANDING-BASIC
AND DILUTED
    
    
    100,000
    
    
    
    100,000
    
    
    
    
    100,000
 See accompanying notes to unaudited consolidated financial statements. 6




---



##### Table of Contents



PIERRE FOODS, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY FOR THE PERIOD FROM MARCH 6, 2004 THROUGH DECEMBER 4, 2004 Common
    
    
    Retained
    
    
    Receivable
    
    
    TotalStock
    
    
    Earnings
    
    
    From
    
    
    ShareholdersClass A
    
    
    (Deficit)
    
    
    Shareholder
    
    
    EquityPREDECESSOR PIERRE BALANCE 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
    )PREDECESSOR PIERRE 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
PIERRE INITIAL PURCHASE ALLOCATION
    
    
    145,577,253
    
    
    
    
    
    
    
    
    
    
    
    145,577,253Additional purchase allocation
    
    
    4,445,747
    
    
    
    
    
    
    
    
    
    
    
    4,445,747Net loss
    
    
    
    
    
    
    (3,381,978
    )
    
    
    
    
    
    
    (3,381,978
    )SUCCESSOR PIERRE BALANCE AT DECEMBER 4, 2004
    
    $
    150,023,000
    
    
    $
    (3,381,978
    )
    
    $
    
    
    
    $
    146,641,022
 See accompanying notes to unaudited consolidated financial statements. 7




---



##### Table of Contents



PIERRE FOODS, INC. AND SUBSIDIARIES 
 Consolidated Statements of Cash Flows (Unaudited) Predecessor Pierre
    
    
    
    Successor PierrePredecessor Pierre
    
    
    For the Period
    
    
    
    For the PeriodThirty-Nine Weeks
    
    
    March 7, 2004
    
    
    
    July 1, 2004Ended
    
    
    Through
    
    
    
    ThroughNovember 29, 2003
    
    
    June 30, 2004
    
    

    December 4, 2004CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    210,448
    
    
    $
    (4,264,035
    )
    

    $
    (3,381,978
    )Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    3,480,652
    
    
    
    1,544,903
    
    
    
    
    13,675,310Amortization of deferred loan origination fees
    
    
    594,879
    
    
    
    716,478
    
    
    
    
    569,092Change in deferred income taxes
    
    
    
    
    
    
    (675,222
    )
    
    
    
    (864,803
    )Write-off of deferred loan origination fees
    
    
    1,233,530
    
    
    
    
    
    
    
    
    4,283,122Loss on disposition of property, plant and equipment, net
    
    
    22,885
    
    
    
    339,921
    
    
    
    
    Decrease in other assets
    
    
    53,574
    
    
    
    296,694
    
    
    
    
    Increase (decrease) in other long-term liabilities
    
    
    (271,880
    )
    
    
    (94,477
    )
    
    
    
    205,615Changes in operating assets and liabilities:Receivables
    
    
    (425,974
    )
    
    
    5,660,719
    
    
    
    
    (9,357,006
    )Inventories
    
    
    (5,389,658
    )
    
    
    (4,911,529
    )
    
    
    
    2,915,543Refundable income taxes, prepaid expenses and other
current assets
    
    
    1,368,562
    
    
    
    (455,532
    )
    
    
    
    (1,774,836
    )Trade accounts payable and other accrued liabilities
    
    
    5,181,418
    
    
    
    2,227,855
    
    
    
    
    2,556,338Total adjustments
    
    
    5,847,988
    
    
    
    4,649,810
    
    
    
    
    12,208,375Net cash provided by operating activities
    
    
    6,058,436
    
    
    
    385,775
    
    
    
    
    8,826,397CASH FLOWS FROM INVESTING ACTIVITIESProceeds from sales of property, plant and equipment
    
    
    77,400
    
    
    
    
    
    
    
    
    Capital expenditures
    
    
    (8,613,505
    )
    
    
    (2,084,160
    )
    
    
    
    (1,746,791
    )Net cash used in investing activities
    
    
    (8,536,105
    )
    
    
    (2,084,160
    )
    
    
    
    (1,746,791
    )
 See accompanying notes to unaudited consolidated financial statements. 8




---



##### Table of Contents



Predecessor Pierre
    
    
    
    Successor PierrePredecessor Pierre
    
    
    For the Period
    
    
    
    For the PeriodThirty-Nine Weeks
    
    
    March 7, 2004
    
    
    
    July 1, 2004Ended
    
    
    Through
    
    
    
    ThroughNovember 29, 2003
    
    
    June 30, 2004
    
    
    
    December 4, 2004CASH FLOWS FROM FINANCING ACTIVITIESRepayment of revolving credit agreement with former lender
    
    $
    (15,085,146
    )
    
    $
    
    
    

    $
    Borrowings (repayments) of revolving credit agreement
    
    
    9,986,655
    
    
    
    7,712,901
    
    
    
    
    (18,492,886
    )Borrowings under equipment term loan subline
    
    
    5,000,000
    
    
    
    
    
    
    
    
    Borrowings under real estate term loan subline
    
    
    5,000,000
    
    
    
    
    
    
    
    
    Principal payments on long-term debt
    
    
    (359,134
    )
    
    
    (673,526
    )
    
    
    
    (11,101,957
    )Loan origination fees
    
    
    (663,356
    )
    
    
    (3,371,999
    )
    
    
    
    (9,152,366
    )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
    
    
    
    
    
    
    
    
    
    
    
    (100,576,960
    )Distributions of special purpose leasing entity
    
    
    (233,000
    )
    
    
    
    
    
    
    
    Net cash provided by (used in) financing activities
    
    
    3,646,019
    
    
    
    3,667,376
    
    
    
    
    (7,109,955
    )NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    1,168,350
    
    
    
    1,968,991
    
    
    
    
    (30,349
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    274,329
    
    
    
    204,865
    
    
    
    
    2,173,856CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    1,442,679
    
    
    $
    2,173,856
    
    

    $
    2,143,507
 See accompanying notes to unaudited consolidated financial statements. 9




---



##### Table of Contents



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 Pierre Holding Corp. (Holding), 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. The
Companys current accounting policies are consistent with those
described in the notes to the Companys March 6, 2004
audited consolidated financial statements except for stock-based
compensation (see Note 2, Stock-Based Compensation)
and goodwill and other intangible assets (see Note 6,
Goodwill and Other Intangible Assets). Included in this report are interim unaudited consolidated financial statements that contain
all adjustments necessary to present fairly the financial position as of December 4, 2004 and March
6, 2004, the results of operations for the thirteen week periods ended December 4, 2004 and
November 29, 2003, the results of operations for the periods from March 7, 2004 through June 30,
2004 and July 1, 2004 through December 4, 2004 and the thirty-nine weeks ended November 29, 2003,
and the cash flows of the Company for the periods of March 7, 2004 through June 30, 2004 and July
1, 2004 through December 4, 2004 and the thirty-nine weeks ended November 29, 2003. The thirteen
week periods ended December 4, 2004 and November 29, 2003 are referred to as successor third
quarter 2005 and predecessor third quarter 2004, respectively. The periods from March 7, 2004
through June 30, 2004 and July 1, 2004 through December 4, 2004 and the thirty-nine weeks ended
November 29, 2004 are referred to as predecessor fiscal 2005, successor fiscal 2005 and
predecessor fiscal 2004, respectively. The thirty-nine
weeks ended December 4, 2004 is referred to as predecessor
fiscal 2005 and successor fiscal 2005 combined. 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 the
Company from Holding 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. 10




---



##### Table of Contents



2. Stock-Based Compensation On June 30, 2004, Holding adopted a stock option plan, pursuant to which the Board of
Directors of Holding may grant options to purchase an aggregate of 163,778 shares of common stock
of Holding. Such options may be granted to directors, employees and consultants of Holding and its
subsidiaries, including the Company. At December 4, 2004, options to purchase a total of 127,397
shares of common stock of Holding had been issued to members of management of the Company (the Options) and
36,381 were reserved for future issuance. All outstanding options were granted at $10 per share
and expire ten years from the date of grant. A portion of each outstanding option vests daily on a
pro-rata basis over a five-year period from the date of grant and the remaining portion of each
outstanding option vests seven years from the date of grant, subject to accelerated vesting based
on the achievement of certain performance measures. The following table summarizes changes in shares for predecessor fiscal 2005 and successor
fiscal 2005: Weighted AverageShares
    

    
    Exercise Price Per ShareAdoption of
Plan on June 30, 2004
    
    
    Options granted
    
    
    127,397
    
    
    $
    10.00Balance at December 4, 2004
    
    
    127,397
    
    
    $
    10.00Shares
available for grant at December 4, 2004
    
    
    36,381
 The Company treats the Options as stock-based employee compensation for employees of the
Company. As permitted under United States Generally Accepted Accounting Principles (GAAP), the
Company accounts for the Options under the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related
Interpretations using the intrinsic value method. Accordingly, no compensation expense has been
recognized for the Options in its consolidated statements of operations. Had compensation expense
for the Options been determined in accordance with the minimum value approach as defined by Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation
(SFAS 123), as amended by SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure  an amendment of SFAS 123 (SFAS 148), the Companys net income (loss) and earnings
(loss) per share would have been the following: Successor PierreFor the PeriodSuccessor Pierre
    
    
    July 1, 2004Thirteen Weeks Ended
    
    
    ThroughDecember 4, 2004
    
    
    December 4, 2004Net income (loss) as reported
    
    $
    2,066,297
    
    
    $
    (3,381,978
    )Minimum value of stock-based
compensation, net of tax
    
    
    (9,540
    )
    
    
    (14,326
    )Net income (loss) pro forma
    
    $
    2,056,757
    
    
    $
    (3,396,304
    )Basic and diluted income (loss) per
share, as reported
    
    $
    20.66
    
    
    $
    (33.82
    )Basic and diluted income (loss) per
share, pro forma
    
    $
    20.57
    
    
    $
    (33.96
    )
 11




---



##### Table of Contents



The Company engaged an independent third party to perform a valuation analysis of the employee
stock options. The estimated total stock-based employee compensation expense was determined using
the Black-Scholes-Merton option pricing model with the following weighted average assumptions: Dividend yield
    
    
    Term to expiration
    
    10 yearsExpected life
    
    6.3 yearsExpected volatility
    
    
    Risk free interest rate
    
    
    3.93
    %Weighted
average minimum value per share of options granted
    
    $
    2.24
 In December of 2004, the FASB issued Statement of Financial Accounting Standards No. 123
(Revision 2004), Share-Based Payment (SFAS 123R) which is effective for reporting periods for
non-public companies (as defined in SFAS 123R) beginning after December 15, 2005. The new statement
requires compensation expense associated with share-based payments to employees to be recognized in
the financial statements based on their fair values.The Company currently accounts for the
Options under the recognition and measurement principles of APB 25 and related Interpretations using the
intrinsic value method. Accordingly, no compensation expense has been recognized for the Options in
its consolidated statements of operations. Upon the adoption of SFAS 123R, the Company will be
required to apply the provisions of the statement prospectively for any newly issued, modified or
settled award after the date of initial adoption. As the Company
currently uses the intrinsic value
method to value the Options, the fair value assigned to any newly issued, modified or settled
awards after the adoption of SFAS 123R is expected to be significantly greater due to the
differences in valuation methods. 3. 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 Holding. 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 5,
Long-Term Debt.
    The Company terminated its few remaining related party transactions (described in Note
10, Related Party Transactions), transferred miscellaneous assets to Messrs. Richardson
and Clark, our former Chairman and Vice Chairman, respectively, including the Companys
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 5, Long-Term Debt). 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. 12




---



##### Table of Contents



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 management investors, 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, invested approximately $4.9 million in a deferred compensation plan.
This deferred compensation plan is funded through a rabbi trust that owns preferred stock
of Holding with an aggregate liquidation value of approximately $4.9 million.
    In addition to the base purchase price, the stock purchase agreement entitles the
selling shareholders to earn-out cash payments, which includes an additional aggregate
amount of $13.0 million in the event that, at the end of any fiscal quarter during the
fiscal year ending March 5, 2005, the Company achieves EBITDA (as defined in the stock
purchase agreement) for the prior four fiscal quarters then ended of $56.0 million or more.
No portion of the additional amount will be payable if this EBITDA target is not met. The following table presents unaudited pro forma information for predecessor third quarter
2004, as if the Acquisition had occurred on March 2, 2003. PredecessorThirdQuarter 2004Actual
    
    
    Pro FormaRevenues
    
    $
    93,824,930
    
    
    $
    93,776,063Net income
    
    $
    1,768,328
    
    
    $
    334,533
 The following table presents unaudited pro forma information for predecessor fiscal 2004, and
for predecessor fiscal 2005 and successor fiscal 2005 combined, as if the Acquisition had occurred
on March 2, 2003 and March 7, 2004, as applicable. Predecessor andPredecessor
    
    
    SuccessorFiscal
    
    
    Fiscal 20052004
    
    
    CombinedActual
    
    
    Pro Forma
    
    
    Actual
    
    
    Pro FormaRevenues
    
    $
    256,552,851
    
    
    $
    256,458,030
    
    
    $
    302,956,391
    
    
    $
    302,947,787Net income (loss)
    
    $
    210,448
    
    
    $
    (4,218,721
    )
    
    $
    (7,646,013
    )
    
    $
    (10,852,795
    )
 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. 13




---



##### Table of Contents



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 predecessor third quarter 2004, these fees amounted to $357,630. No such fees
existed for the successor third quarter 2005. For predecessor fiscal 2004 and for combined
predecessor fiscal 2005 and successor fiscal 2005, these fees amounted to $1,540,650 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 predecessor third quarter 2004, these fees amounted to
$278,255. No such fees existed for successor third quarter 2005. For predecessor fiscal 2004
and for combined predecessor fiscal 2005 and successor fiscal 2005, these fees amounted to $512,394
and $600,653, respectively. Also included in the pro forma results for predecessor fiscal 2005 and successor fiscal 2005
combined are certain Acquisition expenses related to the sale of the Company to MDP. These
transaction expenses include professional fees of $956,000 for predecessor fiscal 2005 and
successor fiscal 2005 combined. Other predecessor fiscal 2005 and successor fiscal 2005 combined
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 predecessor fiscal 2005 and successor fiscal 2005 combined 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 allocation of the purchase price is as follows: Current assets
    
    $
    75,727,665Plant, property and equipment
    
    
    57,857,942Non-current assets
    
    
    4,283,121Goodwill
    
    
    178,335,440Other intangibles
    
    
    175,900,000Debt and other liabilities assumed
    
    
    (231,186,607
    )Net assets acquired
    
    $
    260,917,561
 The initial allocation of the purchase price to specific assets and liabilities was based, in
part, upon preliminary appraisals, and was therefore subject to change. Net assets acquired
totaling $255,096,826 were previously reported in the Companys 10-Q for the period ended September
4, 2004. The increase in net assets acquired is due to the final working capital adjustment and
other miscellaneous adjustments. The Company has obtained outside appraisals of acquired assets
and liabilities in fiscal 2005. Deferred tax liabilities have been finalized based on the final
allocation of the purchase price and the determination of the tax basis of the assets and
liabilities acquired. 4. Inventories A summary of inventories, by major classifications, follows: 14




---



##### Table of Contents



December 4, 2004
    
    
    March 6, 2004Manufacturing supplies
    
    $
    1,705,816
    
    
    $
    1,572,212Raw materials
    
    
    7,218,494
    
    
    
    5,427,936Finished goods
    
    
    34,060,143
    
    
    
    31,972,713Work in process
    
    
    6,500
    
    
    
    1,157Total
    
    $
    42,990,953
    
    
    $
    38,974,018
 5. Long - Term Debt Long-term debt is comprised of the following: December 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 January 15 and July 15 of each
year, maturing on July 15, 2012
    
    
    125,000,000
    
    
    
    $150 million term loan, with floating
interest rates maturing 2010
    
    
    141,500,000
    
    
    
    New revolving line of credit, maximum
borrowings of $40 million with
floating interest rates maturing 2009
    
    
    
    
    
    
    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
    
    
    
    
    
    
    270,9834.60% to 11.49% capitalized lease
obligations maturing through 2011
    
    
    1,253,217
    
    
    
    244,713Total long-term debt
    
    
    267,753,217
    
    
    
    143,694,036Less current installments
    
    
    282,037
    
    
    
    1,628,276Long-term debt, less current installments
    
    $
    267,471,180
    
    
    $
    142,065,760
 As of December 4, 2004, the Company had no outstanding borrowings under its new revolving
credit facility and borrowing availability of approximately $35.4 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 party transactions, except for certain specifically-permitted
transactions (see Note 10, 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. 15




---



##### Table of Contents



On June 30, 2004, the shareholders of PF Management closed the sale of their shares of stock
of PF Management to Holding (see Note 3, Acquisition). 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 December 4, 2004 was 6.5% (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.  In addition to the
scheduled quarterly payment, prepayments on the term loan totaling $7.8 million were made
during successor third quarter 2005. 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 3, Acquisition) 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 3, Acquisition and redeeming the Old Notes not tendered. 6. 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 (SFAS 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 SFAS 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. The gross carrying value of goodwill and the gross carrying value and accumulated amortization
of other intangible assets are as follows: 16




---



##### Table of Contents



As of December 4, 2004
    
    
    As of March 6, 2004Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationAmortizable
intangible assets:Formulas
    
    $
    95,000,000
    
    
    $
    6,524,718
    
    
    $
    
    
    
    $
    Tradename and
trademarks
    
    
    20,100,000
    
    
    
    885,869
    
    
    
    
    
    
    
    Customer
relationships
    
    
    28,500,000
    
    
    
    3,049,699
    
    
    
    
    
    
    
    Licensing
agreements
    
    
    12,100,000
    
    
    
    650,926
    
    
    
    
    
    
    
    Total amortizable
intangible assets
    
    $
    155,700,000
    
    
    $
    11,111,212
    
    
    $
    
    
    
    $
    
 Gross
    
    
    
    
    
    
    GrossCarrying
    
    
    Accumulated
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationUnamortizable
intangible assets:Tradename
    
    $
    20,200,000
    
    
    $
    
    
    
    $
    38,808,636
    
    
    $
    Goodwill
    
    
    178,335,440
    
    
    
    
    
    
    
    
    
    
    
    Total unamortizable
intangible
assets
    
    $
    198,535,440
    
    
    $
    
    
    
    $
    38,808,636
    
    
    $
    
 Activity related to goodwill during predecessor fiscal 2005 and successor fiscal 2005 combined
was as follows: Goodwill: Balance as of March 7, 2004
    
    $
    Purchase Price Allocation
    
    
    178,335,440Balance as of December 4, 2004
    
    $
    178,335,440
 The initial allocation of the purchase price to specific assets and liabilities was based, in
part, upon preliminary appraisals, and was therefore subject to change. During the quarter ended
December 4, 2004, a final working capital adjustment and other
miscellaneous adjustments related to
the Acquisition resulted in an
increase in goodwill of $5,820,736. 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
    
    

    
    2,391Licensing
agreements
    
    
    1,678
    
    
    
    1,569
    
    
    
    1,495
    
    
    
    1,426
    
    
    
    1,361
 17




---



##### Table of Contents



7. Comprehensive Income Total
comprehensive income (loss) is comprised solely of net income (loss) in successor third quarter 2005,
predecessor fiscal 2005, successor fiscal 2005, predecessor third quarter 2004 and predecessor
fiscal 2004. 18




---



##### Table of Contents



8. Supplemental Cash Flow Disclosures -  Cash Paid During the Period and Non-Cash Transactions Predecessor Pierre
    
    
    Successor PierrePredecessor Pierre
    
    
    For the Period
    
    
    For the PeriodThirty-Nine Weeks
    
    
    March 7, 2004
    
    
    July 1, 2004Ended
    
    
    Through
    
    
    ThroughNovember 29, 2003
    
    
    June 30, 2004
    
    
    December 4, 2004Cash paid during the period for:Interest
    
    $
    8,184,764
    
    
    $
    7,915,332
    
    
    $
    5,082,683Income taxes, net of refunds received
    
    $
    (197,977
    )
    
    $
    
    
    
    $
    52,973Non-cash transactionsRestructuring transactionsAssumption 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
    
    
    $
    Other
    
    $
    
    
    
    $
    174,874
    
    
    $
    
    
    
    
    Acquisition transactions
    
    
    
    
    
    
    
    
    
    
    Elimination of Predecessor Pierre capital
and retained earnings
    
    $
    
    
    
    $
    
    
    
    $
    3,307,415Cancellation of receivable from previous
shareholder
    
    $
    
    
    
    $
    
    
    
    $
    5,000,000Distribution of plant, property and
equipment
    
    $
    
    
    
    $
    
    
    
    $
    8,476,080Distribution of other current assets
    
    $
    
    
    
    $
    
    
    
    $
    9,255Deferred taxes related to distributed assets
    
    $
    
    
    
    $
    
    
    
    $
    1,576,000Equity from parent
    
    $
    
    
    
    $
    
    
    
    $
    250,599,960Tax sharing liability to previous
shareholders
    
    $
    
    
    
    $
    
    
    
    $
    10,317,601Valuation of goodwill and other intangibles
    
    $
    
    
    
    $
    
    
    
    $
    315,426,804Deferred tax liability
    
    $
    
    
    
    $
    
    
    
    $
    45,752,427Adjustment of inventory to fair value
    
    $
    
    
    
    $
    
    
    
    $
    2,020,948Adjustment of plant, property and equipment
to fair value
    
    $
    
    
    
    $
    
    
    
    $
    4,438,984Other transactionsCapital
lease additions
    
    $
    
    
    
    $
    1,013,300
    
    
    $
    142,395
 9. Recently Issued Accounting Guidance In December of 2003, the Financial Accounting Standards Board (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. 19




---



##### Table of Contents



In December of 2004, the FASB issued Statement of Financial Accounting Standards No. 123
(Revision 2004), Share-Based Payment (SFAS
123R), which is effective for reporting periods for
non-public companies (as defined in SFAS 123R) beginning after December 15, 2005. The new statement
requires compensation expense associated with share-based payments to employees to be recognized in
the financial statements based on their fair values.The Company currently accounts for the
Options to purchase shares of common stock of Holding issued to employees of the Company
under the recognition and measurement principles of APB 25, and related Interpretations using
the intrinsic value method. Accordingly, no compensation expense has been recognized for the Options
in its consolidated statements of operations. Upon the adoption of SFAS 123R, the Company will be
required to apply the provisions of the statement prospectively for any newly issued, modified or
settled award after the date of initial adoption. As the Company
currently uses the intrinsic value
method to value the Options, the fair value assigned to any newly issued, modified or settled
awards after the adoption of SFAS 123R is expected to be significantly greater due to the
differences in valuation methods. 10. Related Party Transactions As described in Note 5, 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
    
    
    763,998Other
    
    
    (174,874
    )Total
    
    $
    (10,663,915
    )
 20




---



##### Table of Contents



Allocated to the following accounts:Transactions with common shareholder
    
    $
    10,324,276Common Stock
    
    
    339,639Total
    
    $
    10,663,915
 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 Holding, all related party transactions were terminated as
described in Note 3, Acquisition. 11. Subsequent Events Effective
December 27, 2004, the interest rate under the Companys
New Notes increased by 0.25% per annum as a result of the
Companys Registration Statement on Form S-4 relating to
the exchange of the New Notes (the S-4) not being
declared effective by the Securities and Exchange Commission (the
SEC) on or before such date. The delay in effectiveness
relates to the Companys request for confidential treatment of
portions of certain material contracts. The interest rate will
continue to increase an additional 0.25% per annum at the end of
each subsequent 90-day period during which the S-4 has not been
declared effective by the SEC, up to a maximum increase of 1.0% per
annum. The interest rate will decrease to its original rate upon the
S-4 being declared effective. 21




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS Results of Operations Successor Third Quarter 2005 Compared to Predecessor Third Quarter 2004 Revenues, net.Net revenues increased by $18.1 million in successor third quarter 2005
compared to predecessor third quarter 2004, or 19.3%. 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 existing customers. Included in predecessor third quarter 2004
are revenues of $48,867 related to Compass Outfitters, LLC., which was retained by the selling
shareholders. Cost of goods sold.Cost of goods sold increased by $13.6 million in successor third quarter
2005 compared to predecessor third quarter 2004, or 20.5%. As a percentage of revenues, cost of
goods sold increased from 70.9% to 71.6%. This increase was primarily due to increased raw material
prices ($2.5 million), the continued growth of lower margin, high volume business with an existing
customer and the impact of a $0.4 million purchase accounting adjustment on beginning inventory (as
a result of the Acquisition). The increase was 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 during predecessor
third quarter 2004 were $1.5 million. 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 $4.3 million in successor third quarter 2005 compared to predecessor third quarter 2004, or
21.9%. As a percentage of revenues, selling, general and administrative expenses decreased from
21.0% to 13.8%. This decrease was primarily due to the elimination of PF Distribution fees and a
decrease in former affiliate expenses, partially offset by increased distribution costs. Expenses
associated with the previous shareholders in predecessor third quarter 2004 that were not present
in successor third quarter 2005 and are not expected to be incurred in the future include the
following: PredecessorThird Quarter2004(dollars in millions)Distribution expenses (a)
    
    
    $
    2.6House lease (b)
    
    
    
    0.1Compensation expense (c)
    
    
    
    0.7Travel and entertainment (d)
    
    
    
    0.5Office expense(e)
    
    
    
    0.3Aircraft expense (f)
    
    
    
    0.3Compass Outfitters (g)
    
    
    
    0.1Professional fees (h)
    
    
    
    0.4Previous shareholders other expenses (i)
    
    
    
    0.3Total
    
    
    $
    5.3
 22




---



##### Table of Contents



Distribution expenses (a) were 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 expense incurred in connection with an asset that was retained by the selling
shareholders. The professional fees (h) primarily 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. Operational selling, general, and administrative expenses were higher in successor third
quarter 2005 by $1.0 million compared to predecessor third quarter 2004 due to higher costs for
the storage of increased inventory, higher fuel surcharges impacted by the price of crude oil and an
increase in promotional expenses. These increases were offset, in part, by lower corporate
training expense and a decrease in warehouse club demos. Included in successor third quarter 2005
is a non-cash deferred compensation charge of $0.1 million related to managements investment in
the acquisition of the Company. Depreciation and Amortization.Depreciation and amortization expense increased in successor
third quarter 2005 compared to predecessor third quarter 2004 by $7.0 million. This is due to the
amortization of other intangible assets in successor third quarter 2005, amounting to $6.6 million. 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 successor third quarter 2005 compared with
predecessor third quarter 2004 by $1.5 million, or 41.4%. This is due to the additional debt
incurred as a result of the Acquisition. Income taxes. The effective tax rate for the successor third quarter 2005 was 32.8% compared
to 35.1% for predecessor third quarter 2004. The decrease in the effective tax rate is primarily
due to a decrease in non-deductible expenses in the current period over the same period in the
prior year. Predecessor Fiscal 2005 and Successor Fiscal 2005 Combined Compared to Predecessor Fiscal 2004 Revenues net.Net revenues increased by $46.4 million, or 18.1%. 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 predecessor fiscal 2004 are revenues of $94,821 related
to Compass Outfitters, LLC. Included in predecessor fiscal 2005 and successor fiscal 2005 combined
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 $45.7 million in predecessor fiscal 2005
and successor fiscal 2005 combined compared to predecessor fiscal 2004, or 25.2%. As a percentage
of revenues, cost of goods sold increased from 70.5% to 74.8%. This increase was primarily due to
increased raw material prices ($8.5 million), the impact of a $1.9 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 lower margin, high volume national accounts business. In predecessor fiscal 2005
and successor fiscal 2005 combined, beef, pork, chicken and cheese prices increased approximately
1.5%, 46.1%, 39.0% and 26.5%, 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 $3.8 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. 23




---



##### Table of Contents



Selling, general and administrative. Selling, general and administrative expenses decreased
by $7.4 million, or 12.6%. As a percentage of revenues, selling, general and administrative
expenses decreased from 22.9% to 17.0%. This decrease was primarily due to the elimination of PF
Distribution fees of $8.4 million and a decrease in former 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 predecessor fiscal 2005 and successor fiscal
2005 combined and predecessor fiscal 2004 that are not expected to be incurred in the future
include the following: Predecessor Fiscal2005And SuccessorFiscal 2005
    
    
    
    PredecessorCombined
    
    
    
    Fiscal 2004(dollars in millions)Distribution expenses (a)
    
    
    $
    
    
    
    
    $
    8.4House lease(b)
    
    
    
    
    
    
    
    
    0.1Compensation expense (c)
    
    
    
    1.2
    
    
    
    
    2.1Travel and entertainment (d)
    
    
    
    1.0
    
    
    
    
    1.5Office expense(e)
    
    
    
    0.2
    
    
    
    
    0.5Aircraft expense (f)
    
    
    
    0.8
    
    
    
    
    1.0Compass Outfitters (g)
    
    
    
    0.1
    
    
    
    
    0.6Professional fees (h)
    
    
    
    2.6
    
    
    
    
    1.5Previous shareholders other expenses (i)
    
    
    
    0.7
    
    
    
    
    0.5Previous shareholders transaction fees (j)
    
    
    
    1.0
    
    
    
    
    Consulting services (k)
    
    
    
    0.8
    
    
    
    
    Endorsement termination (l)
    
    
    
    0.3
    
    
    
    
    Other (m)
    
    
    
    0.1
    
    
    
    
    Total
    
    
    $
    8.8
    
    
    
    $
    16.2
 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 expenses incurred in connection with 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 remained constant for the two
year-to-date periods. Included in successor fiscal 2005 is a non-cash deferred compensation charge
of $0.2 million related to managements investment in the acquisition of the Company. 24




---



##### Table of Contents



Depreciation and Amortization.Depreciation and amortization expense increased by $11.7
million. The increase is due primarily to amortization of intangible
assets in successor fiscal 2005 as a result of
the Acquisition. Loss
on Disposal of Assets.Loss on disposal of assets increased by $0.3 million. The
increase is due to the recording of losses related to affiliate 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 $7.8 million, or 59.6%. This increase was primarily due to
expenses as a result of the Acquisition, including $4.3 million for the write-off of deferred loan
origination fees, $0.6 million for the repayment of the Old Notes and $0.5 million for the
repayment of our former revolving credit facility combined with the increased debt and borrowings
under our new revolving credit facility. See Liquidity and Capital Resources below. Income taxes. The effective tax rate for both predecessor fiscal 2005 and successor fiscal
2005 was 32.8%, compared to 33.2% for predecessor fiscal 2004. The decrease in the effective tax
rate is primarily due to a decrease in non-deductible expenses in the current period over the same
period in the prior year. 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 of 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. (SFAS) 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 SFAS 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 25




---



##### Table of Contents



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. 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 22.1%, 28.8% and 23.9% of revenues for successor
third quarter 2005, predecessor fiscal 2005 and successor fiscal 2005, respectively. Accounts
receivable at December 4, 2004 included receivables from the Companys largest customer totaling
$3.4 million. Stock-Based Compensation. The Company treats the Options as stock-based employee compensation
for employees of the Company. As permitted under United States Generally Accepted Accounting
Principles (GAAP), the Company accounts for the Options under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), and related Interpretations
using the minimum value method. Accordingly, no compensation expense has been
recognized for the Companys stock option plan in its consolidated statements of operations. 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. In December of 2004, the FASB issued Statement of Financial Accounting Standards No. 123
(Revision 2004), Share-Based Payment (SFAS 123R) which is effective for reporting periods for
non-public companies (as defined in SFAS 123R) beginning after December 15, 2005. The new statement
requires compensation expense associated with share-based payments to employees to be recognized in
the financial statements based on their fair values.The Company currently accounts for the
options to purchase shares of common stock of Holding issued to employees of the Company
(Options) under the recognition and measurement principles of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (APB 25), and related Interpretations using
the intrinsic value method. Accordingly, no compensation expense has been recognized for the Options
in its consolidated statements of operations. Upon the adoption of SFAS 123R, the Company will be
required to apply the provisions of the statement prospectively for any newly issued, modified or
settled award after the date of initial adoption. As the Company
currently uses the intrinsic value
method to value the Options, the fair value assigned to any newly issued, modified or settled
awards after the adoption of SFAS 123R is expected to be significantly greater due to the
differences in valuation methods. Liquidity and Capital Resources Net cash provided by operating activities for predecessor fiscal 2005 and successor fiscal
2005 was $0.4 million and $8.8 million, respectively, compared to $6.1 million for predecessor
fiscal 2004. The primary components of the net cash provided by operating activities for 26




---



##### Table of Contents



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 provided
by operating activities for successor fiscal 2005 were: (1) a decrease in inventories of $2.9
million and (2) an increase in trade accounts payable and other accrued liabilities of $2.6 million
offset by (3) an increase in accounts receivable of $9.4 million and (4) an increase in refundable
income taxes, prepaid expenses and other current assets of $1.8 million. Net cash used in investing activities for predecessor fiscal 2005 and successor fiscal 2005
was $2.1 million and $1.7 million, respectively, compared to $8.5 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 (used in) financing activities for predecessor fiscal 2005 and successor
fiscal 2005 was $3.7 million and ($7.1) million, respectively, compared to $3.6 million for
predecessor fiscal 2004. Net 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. Net cash used in financing activities for successor fiscal
2005 was due primarily to: (1) payoff of Old Notes; (2) return of capital to parent of $100.6
million; (3) repayment of debt in conjunction with the Acquisition of $29.0 million; (4) repayment
of the revolving credit agreement of $18.5 million; (5) principal payments on long-term debt of
$11.1 million and (6) loan origination fees of $9.2 million; offset by (7) borrowings under the new
term loan of $150.0 million; (8) issuance of New Notes of $125.0 million and (9) the termination of
a certificate of deposit for $1.3 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 December 4, 2004 was 6.5% (prime plus 1.5%). As of December 4, 2004, the Company had cash and cash equivalents on hand of $2.1 million, no
outstanding borrowings under its revolving credit facility and borrowing availability of
approximately $35.4 million. Also as of December 4, 2004, the Company had borrowings under its term
loan of $141.5 million. The Company has budgeted approximately $1.0 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. 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 3). 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. 27




---



##### Table of Contents



On June 30, 2004, the shareholders of PF Management closed the sale of their shares of stock
of PF Management to Holding (see Note 3). 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 December 4, 2004 was 6.5% (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. Prepayments on the term
loan totaling $7.8 million were made during successor third quarter 2005, in addition to the
scheduled quarterly payment. 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 9?% 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 3) 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 3 and redeeming the Old Notes not tendered. Effective
December 27, 2004, the interest rate under the Companys
New Notes increased by 0.25% per annum as a result of the
Companys Registration Statement on Form S-4 relating to
the exchange of the New Notes (the S-4) not being
declared effective by the Securities and Exchange Commission (the
SEC) on or before such date. The delay in effectiveness
relates to the Companys request for confidential treatment of
portions of certain material contracts. The interest rate will
continue to increase an additional 0.25% per annum at the end of
each subsequent 90-day period during which the S-4 has not been
declared effective by the SEC, up to a maximum increase of 1.0% per
annum. The interest rate will decrease to its original rate upon the
S-4 being declared effective. 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. 28




---



##### Table of Contents



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 December 4, 2004 or March 6, 2004. Certain of the Companys outstanding nonderivative financial
instruments at December 4, 2004 are subject to interest rate risk, but not subject to foreign
currency or commodity price risk. In predecessor fiscal 2005 and successor fiscal 2005 combined,
beef, pork, chicken and cheese prices increased approximately 12%, 51%, 22% and 18%, 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
December 4, 2004 have not changed materially since March 6, 2004. Of the long-term debt outstanding
at December 4, 2004, the $125.0 million of New Notes accrue interest at a fixed interest rate,
while the $141.5 million outstanding borrowings under the Term B Loan facility and the revolving
credit facility accrue interest at a variable interest rate. At December 4, 2004, there was no
outstanding balance under the revolving credit facility. 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
$180,884. 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. 29




---



##### Table of Contents



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 fiscal third quarter
ended December 4, 2004, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting. 30




---



##### Table of Contents



PART II. OTHER INFORMATION 
 ITEM 5. OTHER INFORMATION On June 30, 2004, Pierre Holding Corp., the indirect parent of the Company (Holding),
adopted a stock option plan, pursuant to which the Board of Directors of Holding may grant options
to purchase an aggregate of 163,778 shares of common stock of Holding. Such options may be granted
to directors, employees and consultants of Holding and its subsidiaries, including the Company. At
December 4, 2004, options to purchase a total of 127,397 shares of common stock of Holding had been
issued to management of the Company and 36,381 were reserved for future issuance. See Note 2
Stock-Based Compensation to the consolidated financial statement for further discussion. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a)      
Exhibits 10.1    Pierre Holding Corp. 2004 Stock Option Plan dated June 30, 2004 10.2   
Form of Option Agreement 31.1    Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer 31.2    Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer 32      Section 1350 Certifications of the Chief Executive Officer and the Principal
Financial Officer 31




---



##### Table of Contents



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. WoodhamsBy: Norbert E. WoodhamsIts: Chief Executive OfficerDated: January 18, 2005/s/ Joseph W. MeyersBy: Joseph W. MeyersIts: Vice President, FinanceDated: January 18, 2005
 32