** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

 

#### **FORM 10-K**

 

**(Mark One)**

**ý****        ****ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the fiscal year ended:  March 5, 2005**

 

**OR**

 

**o****        ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from                               to                               **

 

**Commissionfile number 0-7277**

 

**PIERREFOODS, INC.**

(Exact Name of Registrant asSpecified in Its Charter)

 
| **North Carolina**                                               | ** ** | **56-0945643**                         |
|------------------------------------------------------------------|------------|----------------------------------------|
| (State or  Other Jurisdiction  of Incorporation or Organization) |       | (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**

 

Securities registered pursuantto Section 12(b) of the Act:  **None.**

 

Securities registered pursuantto Section 12(g) of the Act:  **None.**

 

Indicate by check mark whether theregistrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the precedingtwelve months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.     Yes ý  No  o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of the registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.     ý

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Exchange Act Rule 12b-2).  Yes o No ý

 

The aggregate market value of the voting andnon-voting common equity held by non-affiliates as of the last business day ofthe registrant’s most recently completed second quarter (September 3,2004) was $0.00.

 

As of April 30, 2005, there were 100,000 Class ACommon Shares of the registrant outstanding.

 

DocumentsIncorporated by Reference:

 

**None.**

 

 

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**TABLE OFCONTENTS**

 
| **Item  Number**   |                                                                                                                   |   |
|--------------------|------------------------------------------------------------------------------------------------------------------------|--------|
|               |                                                                                                                   |   |
| **PART I**    |                                                                                                                   |
|               |                                                                                                                   |   |
| Item 1.            | Description of Business                                                                                                |   |
|               | General Development of Business                                                                                        |   |
|               | Narrative Description of the Business                                                                                  |   |
| Item 2.            | Properties                                                                                                             |   |
| Item 3.            | Legal Proceedings                                                                                                      |   |
| Item 4.            | Submission of Matters to a Vote of Security  Holders                                                                   |   |
|               |                                                                                                                   |   |
| **PART II**   |                                                                                                                   |
|               |                                                                                                                   |   |
| Item 5.            | Market for the Registrant’s Common Equity,  Related Stockholder Matters and Issuer Purchases of Equity Securities |   |
| Item 6.            | Selected Financial Data                                                                                                |   |
| Item 7.            | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                            |   |
|               | Results of Operations                                                                                                  |   |
|               | Critical Accounting Policies and Estimates                                                                             |   |
|               | Liquidity and Capital Resources                                                                                        |   |
|               | Commercial Commitments, Contingencies and  Contractual Obligations                                                     |   |
|               | Inflation                                                                                                              |   |
| Item 7A.           | Quantitative and Qualitative Disclosures  About Market Risk                                                            |   |
| Item 8.            | Financial Statements and Supplementary Data                                                                            |   |
| Item 9.            | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosure                                  |   |
| Item 9A.           | Controls and Procedures                                                                                                |   |
| Item 9B.           | Other Information                                                                                                      |   |
|               |                                                                                                                   |   |
| **PART III**  |                                                                                                                   |
|               |                                                                                                                   |   |
| Item 10.           | Directors and Executive Officers of the  Registrant                                                                    |   |
| Item 11.           | Executive Compensation                                                                                                 |   |
| Item 12.           | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters                        |   |
| Item 13.           | Certain Relationships and Related Party Transactions                                                                   |   |
| Item 14.           | Principal Accountant Fees and Services                                                                                 |   |
|               |                                                                                                                   |   |
| **PART IV**   |                                                                                                                   |
|               |                                                                                                                   |   |
| Item 15.           | Exhibits and Financial Statement Schedules                                                                             |   |
|               |                                                                                                                   |   |
| Signatures         |                                                                                                                   |   |
| Index  to Exhibits |                                                                                                                   |   |
|                    |                                                                                                                        |        |  |

 

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**Cautionary Statements RegardingForward-Looking Statements**

 

This report includes “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended, including statements about the business, operations, financialresults and future prospects of Pierre Foods, Inc. (the “Company”).  Forward-looking statements relate to futureevents or future financial performance. In some cases, you can identify forward-looking statements byterminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,”“estimate,” “predict,” “potential” or “continue,” the negative of such terms orother comparable terminology.  Thesestatements may involve risks and uncertainties related to, among other things:

 

•                  changesin economic and business conditions in the world;

•                  adversechanges in food costs and availability of supplies or costs of distribution;

•                  theCompany’s level of indebtedness;

•                  restrictionsimposed by the Company’s debt instruments;

•                  increasedcompetitive activity;

•                  governmentregulation;

•                  dependenceon significant customers;

•                  consolidationof the Company’s customers;

•                  generalrisks of the food industry, including risk of contamination, mislabeling offood products, a decline in meat consumption and outbreak of disease among cattle,chicken or pigs;

•                  adversechange in the Company’s Cincinnati, Ohio or Claremont, North Carolina facility;

•                  dependenceon key personnel; and

•                  potentiallabor disruptions.

 

This list of risks and uncertainties is notexhaustive.  Also, new risk factorsemerge over time.  It is not possible forthe Company to predict all risks and uncertainties, nor can the Company assessthe extent to which any factor, or combination of factors, may cause actualresults to differ from those contained in forward-looking statements.  Any forward-looking statements in this reportare based on certain assumptions and analyses made by the Company in light ofits experience and perception of historical trends, current conditions, expectedfuture developments and other factors it believes are appropriate in thecircumstances.  Such statements are not aguarantee of future performance and actual results or developments may differmaterially from those projected.

 

The Company is not under any duty to updateany forward-looking statements after the date of this report to conform suchstatements to actual results or to changes in the Company’s expectations.  All forward-looking statements contained inthis report and any subsequently filed reports are expressly qualified in theirentirety by these cautionary statements.

 

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**PART I**

 

**Item  1.  *Description of Business***

 

**General Development of Business**

 

Pierre Foods, Inc. (the “Company” or “Pierre”)is a manufacturer and marketer of high-quality, differentiated processed foodsolutions, focusing on formed, pre-cooked protein products and hand-heldconvenience sandwiches.  The Company’sproducts include beef, poultry, pork and bakery items.  Pierre offers comprehensive food solutions toits customers, including proprietary product development, special ingredientsand recipes, as well as custom packaging and marketing programs.  Pierre’s pre-cooked proteins includeflamebroiled burger patties, homestyle meatloaf, chicken strips and boneless,barbecued pork rib products.  Pierremarkets its pre-cooked protein products to a broad array of customers thatincludes restaurant chains, schools and other foodservice providers.

 

The Company’s predecessor was founded as aNorth Carolina corporation in 1966 to own and operate restaurants. The Company’sfood processing business was originally developed to support its restaurants,but grew independently to become its principal business. In recognition of thisfact, in May 1998, the Company, then known as “WSMP, Inc.,” changedits name to “Fresh Foods, Inc.” In June 1998, the Company consummatedthe purchase of substantially all of the business in Cincinnati, Ohio, and aportion of the business in Caryville, Tennessee (collectively, “PierreCincinnati”), conducted by the Pierre Foods Division of Hudson Foods, Inc.(“Hudson”), a subsidiary of Tyson Foods, Inc. (“Tyson”). Pierre Cincinnatiwas a value-added food processor selling principally to the foodservice andpackaged foods markets.  In September 1998,the Company implemented a tax-exempt reorganization of its corporate structure.The reorganization established Fresh Foods, Inc. as a holding company,consolidated 32 subsidiaries into 12 subsidiaries and separated the Company’sfood processing and restaurant businesses. In July 1999, the Company sold its ham curing business, and in October 1999,the Company disposed of its restaurant segment. Subsequent to the disposal of the restaurant segment, Pierre operatessolely in the food processing business, its sole segment. In December 1999,the Company implemented another tax-exempt reorganization of its corporatestructure to further streamline its operations into one subsidiary. In July 2000,the Company, then known as “Fresh Foods, Inc.,” changed its name to “PierreFoods, Inc.”

 

*Restructuring.*  On March 8, 2004, following a consentsolicitation in which consents of holders of $112.4 million in aggregateprincipal amount of the Company’s then outstanding notes (“Old Notes”),representing 97.74% of the outstanding Old Notes, consented to a FourthSupplemental Indenture between the Company and the Trustee thereunder, theCompany entered into the Fourth Supplemental Indenture with the Trustee.  Among other things, the Fourth SupplementalIndenture increased the annual interest rate on the Old Notes from 10.75% to12.25% through March 31, 2005 and 13.25% thereafter; required the paymentof a cash consent fee of $3.5 million (3% of the principal amount of Old Notesheld by each consenting noteholder); granted to the noteholders liens on theassets of the Company and its subsidiaries, such liens being junior to thesenior liens securing the Company’s credit facility, granted to noteholders arepurchase right allowing all of the noteholders to require the Company to repurchasetheir Old Notes at par plus accrued interest on March 31, 2005; providedfor the payment of a portion of certain cash flow of the Company (referred toas “excess cash”) to reduce the principal amount of Old Notes outstanding atthe end of the Company’s fiscal years; added restrictive covenants limiting thecompensation payable to certain senior executives of the Company and limitingfuture related party transactions; required the termination of all relatedparty transactions, except for certain specifically-permitted transactions;provided for the assumption by the Company of approximately $15.3 million ofsubordinated debt of PF Management; Inc., the sole shareholder of the Company (“PFMI”),required the Company to comply with certain corporate governance standards,including appointing an independent director acceptable to the Company and thenoteholders to its board and hiring an independent auditor to monitor theCompany’s compliance with the Indenture; and waived any and all defaults of theIndenture existing as of March 8, 2004.

 

The restrictive covenants limitingcompensation payable to certain senior executives of the Company permitted forbonus payments to those executives above the compensation limitations.  The bonus payments were based on theprofitability of the Company and cash payments made on the Old Notes.

 

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Concurrently with the execution of the FourthSupplemental Indenture, the Company took title to an aircraft transferred froma related party subject to $5.6 million of existing purchase money debt;assumed $15.3 million of debt from PFMI; cancelled the $1.0 million relatedparty note receivable against the debt assumed from PFMI; cancelled thebalances owed by the Company to certain related parties, as follows: $0.5million 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 PFDistribution in connection with the Fourth Supplemental Indenture.

 

In this document, unless the contextotherwise requires, the term “Company” refers to Pierre Foods, Inc. andits current and former subsidiaries.  Asa result of the Acquisition discussed below, on June 30, 2004, the Company’sfiscal year ended March 5, 2005 is comprised of two short periods.  The periods of March 7, 2004 through June 30,2004 and July 1, 2004 through March 5, 2005 are referred to as “predecessorfiscal 2005” and “successor fiscal 2005,” respectively.  These two short periods collectively are referredto as “predecessor fiscal 2005 and successor fiscal 2005 combined.”   The Company’s fiscal year ended March 6,2004 is referred to as “predecessor fiscal 2004” and its fiscal year ended March 1,2003 is referred to as “predecessor fiscal 2003.”

 

*Acquisition. *On June 30,2004, Pierre Holding Corp. (“Holding”) acquired 100% of the shares of theCompany’s parent, PFMI.  Such acquisitionis referred to herein as the “Acquisition”. In connection with the Acquisition, the following occurred:

 

•                  The Company merged with Pierre Merger Corp., anaffiliate of Madison Dearborn Partners, LLC (“MDP”), with the Company being thesurviving corporation following the merger.

 

•                  The Company terminated its three-year variable-rate$40 million revolving credit facility and obtained a $190 million creditfacility from a new lender which includes a six-year variable-rate $150 millionterm loan and a five-year variable rate $40 million revolving credit facilitywith a $10 million letter of credit subfacility.  See Note 7, “Financing Arrangements,” to theCompany’s Consolidated Financial Statements.

 

•                  The Company terminated its few remaining relatedparty transactions (described in Note 16, “Transactions with Related Parties,”to the Consolidated Financial Statements), transferred miscellaneous assets to Messrs. Richardsonand Clark, the Company’s 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 consentsolicitation for the Company’s Old Notes. Holders of approximately $106.3 million, or approximately 92%, ofaggregate principal amount of the Company’s outstanding Old Notes tenderedtheir Old Notes.  The Company, as thesurviving corporation of the merger with Pierre Merger Corp., accepted and paidfor all Old Notes tendered pursuant to the tender offer.  A redemption notice for the Old Notes nottendered (approximately $8.7 million) was issued on June 30, 2004 andthese Old Notes were redeemed on July 20, 2004.

 

•                  The Company issued $125.0 million of 9-7/8% SeniorSubordinated Notes due 2012 (the “New Notes”). The proceeds of the New Notes,together with the equity contributions from MDP and certain members ofmanagement (as described below) and borrowings under the Company’s new seniorcredit facility, were used to finance the Acquisition and to repay outstandingindebtedness.

 

•                  The Company’s President and Chief Executive Officer,Norbert E. Woodhams, and its Senior Vice President of Sales, Marketing and NewProduct Development, Robert C. Naylor, signed employment agreements committingthem to continue working for the Company after the Acquisition. The stated termof employment for each executive is one year, but each agreement will renewautomatically and continuously year-to-year unless terminated.

 

•                  The management investors, the Company’s Presidentand Chief Executive Officer, Norbert E. Woodhams, and its Senior Vice Presidentof Sales, Marketing and New Product Development, Robert C. Naylor, investedapproximately $4.9 million in a deferred compensation plan.  This deferred compensation plan is fundedthrough a rabbi trust that owns preferred stock of Holding with an aggregateliquidation value of approximately $4.9 million.

 

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•                  In addition to the base purchase price, the stockpurchase agreement entitled the selling shareholders to earn-out cash payments,which included an additional aggregate amount of $13.0 million in the eventthat, at the end of any fiscal quarter during the fiscal year ended March 5,2005, the Company achieved 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 is payableas of March 5, 2005, as this EBITDA target was not met.

 

The Acquisition was recorded under thepurchase method of accounting. The purchase price has been allocated to assetsacquired and liabilities assumed based on the estimated fair market value at thedate of Acquisition. The allocation of the purchase price is as follows:

 
| Current  assets                     |   | $            | 75,727,665  |   |
|-------------------------------------|--------|--------------|-------------|--------|
| Plant,  property and equipment      |   | 57,857,942   |        |
| Non-current  assets                 |   | 4,283,121    |        |
| Goodwill                            |   | 186,535,050  |        |
| Other  intangibles                  |   | 175,900,000  |        |
| Debt and other  liabilities assumed |   | (239,899,080 | )           |
|                                |   |         |        |
| Net assets  acquired                |   | $            | 260,404,698 |   |

 

The Company has obtained outside appraisalsof acquired assets and liabilities in successor fiscal 2005. Deferred taxliabilities have been finalized based on the final allocation of the purchaseprice and the determination of the tax basis of the assets and liabilitiesacquired.

 

**Narrative Description of the Business**

 

The Company manufactures and markets a widevariety of high-quality, differentiated processed food solutions, focusing onformed, pre-cooked protein products and hand-held convenience sandwiches.  Products primarily consist of specialty beef,poultry, pork and bakery items.  Pierreoffers comprehensive food solutions to its customers, including proprietary productdevelopment, special ingredients and recipes, as well as custom packaging andmarketing programs.  Pierre’s pre-cookedproteins include flamebroiled burger patties, homestyle meatloaf, chickenstrips and boneless, barbecued pork rib products.  The Company markets its pre-cooked proteinproducts to a broad array of customers that includes restaurant chains, schoolsand other foodservice providers.

 

The Company’s product line consists of over800 stock keeping units (“SKUs”).  Pierremanufactures its pre-cooked proteins, hand-held convenience sandwiches andbakery items in its two manufacturing facilities located in Ohio and NorthCarolina.  Pierre forms, portions,seasons, cooks and freezes beef, poultry and pork in its facility located inCincinnati, Ohio.  These frozen productsare either shipped to customers or sent to the Company’s sandwich assemblyfacility in Claremont, North Carolina. Pierre’s Claremont, North Carolina plant houses high-speed baking andsandwich assembly lines.

 

The followingtable sets forth the Company’s net revenue and percent of revenue contributedduring the past three fiscal years by its various product channels andclasses.  Note that as a result of theAcquisition, the results for predecessor fiscal 2005 and successor fiscal 2005are combined in the table below in order to provide a more meaningfulperiod-to-period comparison.

 

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| ** **                     | ** ** | **Net Revenues by  Source**                                       | ** ** |
|--------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                     | ** ** | **Predecessor Fiscal 2005  And  Successor Fiscal 2005  Combined** | ** ** | **Predecessor  Fiscal 2004** | ** ** | **Predecessor  Fiscal 2003** | ** ** |
| ** **                     | ** ** | **(in millions)**                                                 | ** ** | **%** | ** ** | **(in millions)** | ** ** | **%** | ** ** | **(in millions)** | ** ** | **%** | ** ** |
|                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| Food  Processing:              |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| Fully-Cooked  Protein Products |       | $                                                                 | 255.3      |   | 62.2 |   | $ | 214.7 |   | 59.9 |   | $ | 149.3 |   | 54.0 |   |
| Microwaveable  Sandwiches      |       | 147.3                                                             |       | 35.9 |   | 136.4 |   | 38.0 |   | 119.1 |   | 43.1 |   |
| Bakery and  Other Products     |       | 7.8                                                               |       | 1.9 |   | 7.5 |   | 2.1 |   | 7.9 |   | 2.9 |   |
| Total Food  Processing:        |       | $                                                                 | 410.4      |   | 100.0 |   | $ | 358.6 |   | 100.0 |   | $ | 276.3 |   | 100.0 |   |

 

*Significant Customer. *Sales to CKERestaurants, Inc. (“CKE”) accounted for approximately 25%, 24% and 11% ofthe Company’s net sales in predecessor fiscal 2005 and successor fiscal 2005combined, predecessor fiscal 2004 and predecessor fiscal 2003,respectively.  No other customeraccounted for 10% or more of net sales during predecessor fiscal 2005 andsuccessor fiscal 2005 combined, predecessor fiscal 2004 and predecessor fiscal2003.

 

*Sales, Marketing and New ProductDevelopment. *TheCompany’s team of sales and marketing professionals has significant experiencein the Company’s markets for fully-cooked protein products, packaged sandwichesand bakery products.  The sales,marketing and new product development functions are organized predominantly bydistribution channel.  In addition to itsdirect sales force, the Company utilizes a nationwide network of over 122independent food brokers, all of whom are compensated primarily by payment ofsales commissions.

 

The Company’s marketing strategy includesdistributor and consumer promotions, trade promotions, advertising andparticipation in trade shows and exhibitions. The Company participates in numerous conferences and is a member of morethan 15 industry organizations.  Certainmembers of the Company’s management serve on the boards of a number of industryorganizations, including the American Meat Institute, the American School FoodService Association, the American Commodity Distribution Association and theNational Association of Convenience Stores.

 

The Company is actively involved in allaspects of developing food solutions systems to meet customers’ needs.  The Company’s sales force works directly withcustomers to define product and menu needs, assess market opportunities andcreate and implement packaging, merchandising and marketing strategies.  The Company’s ability to develop andimplement innovative food solutions is an important aspect of the Company’ssuccess.

 

The Company employs seven food technologistsand a Ph.D. corporate chef in the product and process developmentdepartment.  Ongoing food productionresearch and development activities include development of new products,improvement of existing products and refinement of food productionprocesses.  These activities resulted inthe launch of approximately 239 new SKUs in predecessor fiscal 2005 andsuccessor fiscal 2005 combined. Approximately 23.5% of the Company’s predecessor fiscal 2005 andsuccessor fiscal 2005 combined net revenues were derived from product SKUsdeveloped during the last two fiscal years. In predecessor fiscal 2005 and successor fiscal 2005 combined,predecessor fiscal 2004 and predecessor fiscal 2003, the Company spentapproximately $1,650,000, $1,286,000 and $1,030,000, respectively, on productdevelopment programs.

 

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*Raw Materials*.  The primary materials used in the Company’sfood processing operations include boneless beef, chicken, pork, flour, yeast,seasonings, cheese, breading, soy proteins and packaging supplies.  Meat proteins are generally purchased underseven day payment terms, with the exception of a few that require payment atthe time the product is shipped. Historically, the Company has not hedged in the futures markets, andover time, the Company’s raw material costs have fluctuated with movement in therelevant commodity markets.  Prices forbeef, chicken and pork, the Company’s principal protein raw materials, reachedhistorical highs during predecessor fiscal 2005 and successor fiscal 2005. TheCompany manages such fluctuations through purchase orders, non-cancelablecontracts and by passing on such cost increases to customers.

 

The Company purchases all of its raw materials fromoutside sources.  The Company does notdepend on a single source for any significant item except for, as requested bya customer, the utilization of a single source raw material supplier forproduction specific to that customer. The single source supplier allows for consistent supply and competitivepricing for the Company.  The Companybelieves that its sources of supply for raw materials are adequate for itspresent needs and does not anticipate any difficulty in acquiring suchmaterials in the future.

 

*Trademarksand Licensing. *TheCompany markets food products under a variety of brand names, includingPierreTM, Fast Choice®, Rib-B-Q®, Hot ‘n’ Ready® and Big AZ®.  The Company regards its trademarks andservice marks as having significant value in marketing its food products.  The Company also has proprietary rights, includingtrade secret and other intellectual property protection, in formulations andprocesses used to make its products.  Inaddition, the Company has licenses to produce and sell packaged sandwichesunder brands such as Checkers®, Krystal®, Tony Roma’s®, NASCAR®, NASCAR CAFE®and Nathan’s Famous®.  The term of eachsuch license is subject to renewal and satisfaction of sales volumerequirements.

 

*Seasonality*.  The Company experiences seasonal fluctuationsin sales and operating results as a result of sales to school districts, whichrepresent approximately 18% of the Company’s total sales.  Sales to school districts declinesignificantly during summer, late November and December.

 

*Competition.* The food production business is highlycompetitive and is often affected by changes in tastes and eating habits of thepublic, economic conditions affecting the public’s spending habits and otherdemographic factors.  The Companycompetes with manufacturers and distributors of value-added meat products andpackaged sandwich suppliers.  In sales ofits protein products, the Company faces competition from a variety of meatprocessing companies, including Advance Food Company, Zartic, Inc., Tyson,Gorges/Quick To Fix and from smaller local and regional operations.  The sandwich industry, however, is extremelyfragmented, with few large direct competitors but indirect competition in theform of numerous other products.  Ourcompetitors in the sandwich industry include Sara Lee/Jimmy Dean Foods,Bridgford Foods Corp., Deli Express and Landshire.  In sales of biscuit and yeast roll products,we compete with a number of large bakeries in various parts of the country.

 

## ***Government Regulation. ***The food production industry issubject to extensive federal, state and local regulations. The Company’s foodprocessing facilities and food products are subject to frequent inspection bythe United States Department of Agriculture (“USDA”), the Food and DrugAdministration (“FDA”) and various state and local health and agriculturalagencies. Applicable statutes and regulations governing food products include rules foridentifying the content of specific types of foods, the nutritional value ofthat food and its serving size, as well as rules that protect againstcontamination of products by food-borne pathogens and sanitation requirements.Many jurisdictions also require that food manufacturers adhere to goodmanufacturing practices (the definition of which may vary by jurisdiction) withrespect to production processes. Recently, the food safety practices andprocedures in the meat processing industry have been subject to more intensescrutiny and oversight by the USDA and future outbreaks of diseases amongcattle, poultry or pigs could lead to further governmental regulation.  In July 1996, the USDA issued strict newpolicies against contamination by food-borne pathogens and established theHazard Analysis and Critical Control Points (“HACCP”) system.  The Company is in compliance with allapplicable FDA and USDA regulations, including HACCP standards.

 

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In addition, the Company’s operations aregoverned by laws and regulations relating to workplace health and safety that,among other things, establish noise standards and regulate fire codes and theuse of hazardous chemicals in the workplace. The Company is also subject to numerous federal, state and localenvironmental laws. Under applicable environmental laws, the Company may beresponsible for remediation of environmental conditions and may be subject toassociated liabilities relating to its facilities and the land on which itsfacilities are or had been situated, regardless of whether the Company leasesor owns the facilities or land in question and regardless of whether suchenvironmental conditions were created by the Company or by a prior owner ortenant.  The Company does not believethat compliance with environmental laws will have a substantial material effectupon the capital expenditures, earnings or competitive position of the Company.

 

The Company’s operations aresubject to licensing and regulation by a number of state and local governmentalauthorities, which include health, safety, sanitation, building and fireagencies.  Operating costs are affectedby increases in costs of providing health care benefits, the minimum hourlywage, unemployment tax rates, sales taxes and other similar matters over whichthe Company may have no control.  TheCompany is subject to laws governing relationships with employees, includingminimum wage requirements, overtime, working conditions and citizenshiprequirements.

 

## ***Employees. ***As of March 5, 2005, theCompany employed approximately 1,700 persons. The Company’s employees are non-unionized.  The Company has experienced no work stoppage attributableto labor disputes, and considers employee relations to be good.

## ** **

**Item  2.  *Properties***

 

*Principal Offices. *The Company’s mainoffice is located in a facility it owns in Cincinnati, Ohio.  The Company also owns and uses a 23,000square foot building in Claremont, North Carolina for additional office space.  Prior to the Acquisition on June 30,2004, the Company also leased 6,000 square feet of executive office space inHickory, North Carolina from an affiliated party for $116,000 per year at termsno less favorable than those which could be obtained from an unaffiliated thirdparty.  This lease was terminated inconjunction with the Acquisition.

 

*Food Processing Plants. *The Company producesits fully-cooked meat products, packaged sandwiches and specialty breadproducts at facilities it owns in Cincinnati, Ohio and Claremont, NorthCarolina. The Cincinnati facility occupies buildings totaling approximately225,000 square feet, following a 25,000 square foot building expansion duringpredecessor fiscal 2003.  The Claremontfacility occupies buildings totaling approximately 150,000 square feet.

 

The Company is highly committed to thequality of its products and the safety of its operations.  The Company’s modern equipment allows for afully automated contaminant removal procedure. As a result of this procedure, in addition to the continuous rawmaterial inspections that the Company performs, the Company has received thetotal quality control designation from the USDA since 1987.

 

The Company believes that its facilities aregenerally in good condition and that they are suitable for their currentuses.  The Company nevertheless engagesperiodically in construction and other capital improvement projects that theCompany believes are necessary to expand and improve the efficiency of itsfacilities.

 

**Item  3.  *Legal Proceedings***

 

Pierre is a party in variouslawsuits arising in the ordinary course of business.  Although management cannot predict theoutcome of these lawsuits, management believes the disposition of these matterswill not have a material adverse effect on the Company’s financial condition,results of operations or cash flows.

 

**Item  4.  *Submission of Matters to aVote of Security Holders***

 

On January 11, 2005, PFMI, the sole shareholderof Pierre, elected Scott Meader to the Board of Directors of Pierre.  Mr. Meader was elected as the fifthdirector of the Company.  Messrs. Alexos,Peinado, Selati and Woodhams also continued as directors following Mr. Meader’selection.

 

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**PART II**

 

**Item  5.  *Market for the Registrant’s Common Equity, Related Stockholder Mattersand IssuerPurchases of Equity Securities***

 

Since the Company’s going-private transaction on July 26,2002, the Company has been a wholly-owned subsidiary of PFMI; accordingly,there is no public trading market for the Company’s common stock.  The Company did not declare a cash dividendduring predecessor fiscal 2005 and successor fiscal 2005 combined orpredecessor fiscal 2004.  The Company’sdebt instruments restrict its ability to pay dividends.  See “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Liquidity and Capital Resources”and Note 7, “Financing Arrangements,” to the Company’s Consolidated FinancialStatements.  Regardless of the scope ofsuch restrictions, the Company’s policy is to reinvest any earnings rather thanpay dividends.  The Company has nocompensation plans or individual arrangements under which equity securities ofthe Company are authorized for issuance; however, Holding, the sole stockholderof PFMI, implemented a stock option plan pursuant to which options to purchaseshares of common stock of Holding may be issued to officers, employees andconsultants of the Company.  See Note 11,“Stock-Based Compensation,” to the Consolidated Financial Statements.

 

No equity securities of the Company were soldby the Company during predecessor fiscal 2005 and successor fiscal 2005combined.

 

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**Item 6.****           *SelectedFinancial Data***

 

The following selected historical financialinformation has been derived from audited consolidated financial statements ofthe Company.  Such financial informationshould be read in conjunction with the consolidated financial statements of theCompany, the notes thereto and the other financial information containedelsewhere herein.  See “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” andthe Company’s Consolidated Financial Statements and supplementary data.

 
| ** **                                                | ** ** | **Successor**   | ** ** | ** ** | **Predecessor**                                    | ** ** |
|-----------------------------------------------------------|------------|-----------------|------------|------------|----------------------------------------------------|------------|
| ** **                                                | ** ** | **Fiscal 2005** | ** ** | ** ** | **Fiscal 2005**                                    | ** ** | **Fiscal 2004** | ** ** | **Fiscal 2003** | ** ** | **Fiscal 2002** | ** ** | **Fiscal 2001** | ** ** |
| ** **                                                | ** ** | ** **      | ** ** | ** ** | **(dollars in thousands, except  per share data)** | ** ** |
|                                                      |       |            |       |       |                                               |       |   |   |   |   |   |   |   |   |
| STATEMENT OF  OPERATIONS DATA:                            |       |            |       |       |                                               |       |   |   |   |   |   |   |   |   |
| Revenues,  net                                            |       | $               | 294,867    |       |                                               | $          | 115,549 |   | $ | 358,549 |   | $ | 276,339 |   | $ | 243,278 |   | $ | 203,475 |   |
| Cost of  goods sold                                       |       | 217,323         |       |       | 87,025                                             |       | 254,235 |   | 184,092 |   | 160,781 |   | 133,385 |   |
| Selling,  general and administrative                      |       | 39,826          |       |       | 26,447                                             |       | 79,982 |   | 71,352 |   | 62,399 |   | 55,752 |   |
| Net loss on  disposition of property, plant and equipment |       | 5               |       |       | 340                                                |       | 11 |   | 89 |   | 84 |   | 27 |   |
| Depreciation  and amortization                            |       | 23,170          |       |       | 1,545                                              |       | 4,605 |   | 4,125 |   | 6,438 |   | 6,238 |   |
| Operating  income                                         |       | 14,543          |       |       | 192                                                |       | 19,716 |   | 16,681 |   | 13,576 |   | 8,073 |   |
| Interest  expense                                         |       | (19,493         | )          |       | (6,538                                             | )          | (16,979 | ) | (14,228 | ) | (13,206 | ) | (13,334 | ) |
| Other  income, net                                        |       | 24              |       |       | 2                                                  |       | — |   | 447 |   | 364 |   | 281 |   |
| Income tax  benefit (provision)                           |       | 597             |       |       | 2,080                                              |       | (1,303 | ) | (1,122 | ) | (733 | ) | 767 |   |
| Income  (loss) from continuing operations                 |       | (4,329          | )          |       | (4,264                                             | )          | 1,434 |   | 1,778 |   | 1 |   | (4,213 | ) |
| Extraordinary  item (1)                                   |       | —          |       |       | —                                             |       | — |   | — |   | — |   | (455 | ) |
| Cumulative  effect of accounting change (2)          |       | —          |       |       | —                                             |       | — |   | (18,605 | ) | — |   | — |   |
| Net income  (loss)                                        |       | $               | (4,329     | )          |                                               | $          | (4,264 | ) | $ | 1,434 |   | $ | (16,827 | ) | $ | 1 |   | $ | (4,668 | ) |
|                                                      |       |            |       |       |                                               |       |   |   |   |   |   |   |   |   |
| NET INCOME  (LOSS) PER SHARE - BASIC AND DILUTED:         |       |            |       |       |                                               |       |   |   |   |   |   |   |   |   |
| Income  (loss) from continuing operations                 |       | $               | (43.29     | )          |                                               | $          | (42.64 | ) | $ | 14.34 |   | $ | 17.78 |   | $ | 0.01 |   | $ | (42.13 | ) |
| Extraordinary  item                                       |       | —          |       |       | —                                             |       | — |   | — |   | — |   | (4.55 | ) |
| Cumulative  effect of accounting change                   |       | —          |       |       | —                                             |       | — |   | (186.05 | ) | — |   | — |   |
| Net income  (loss)                                        |       | $               | (43.29     | )          |                                               | $          | (42.64 | ) | $ | 14.34 |   | $ | (168.27 | ) | $ | 0.01 |   | $ | (46.68 | ) |
|                                                      |       |            |       |       |                                               |       |   |   |   |   |   |   |   |   |
| OTHER DATA:                                               |       |            |       |       |                                               |       |   |   |   |   |   |   |   |   |
| Capital  expenditures                                     |       | $               | 3,677      |       |                                               | $          | 2,084 |   | $ | 10,041 |   | $ | 16,216 |   | $ | 5,994 |   | $ | 2,764 |   |
|                                                      |       |            |       |       |                                               |       |   |   |   |   |   |   |   |   |
| BALANCE  SHEET DATA:                                      |       |            |       |       |                                               |       |   |   |   |   |   |   |   |   |
| Working  capital                                          |       | $               | 62,662     |       |                                               | n/a        |   | $ | 46,110 |   | $ | 40,716 |   | $ | 37,061 |   | $ | 35,890 |   |
| Total assets                                              |       | 496,588         |       |       | n/a                                                |       | 175,771 |   | 168,781 |   | 169,821 |   | 160,308 |   |
| Total debt                                                |       | 263,580         |       |       | n/a                                                |       | 143,694 |   | 136,348 |   | 121,231 |   | 115,165 |   |
| Shareholders’  equity                                |       | 146,023         |       |       | n/a                                                |       | 6,621 |   | 8,998 |   | 27,207 |   | 26,867 |   |

 

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(1)          Reflectsan extraordinary loss from early extinguishment of debt in the amount of $455in predecessor fiscal 2001.

 

(2)          Reflectsa loss due to cumulative effect of accounting change in the amount of $18,605in predecessor fiscal 2003.

See Note 2, “Summary of SignificantAccounting Policies,” to the Consolidated Financial Statements.

 

8

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**Item  7.  *Management’s Discussionand Analysis of Financial Condition and Results of Operations***

 

The following discussion relates to thefinancial condition and results of operations for successor fiscal 2005,predecessor fiscal 2005, predecessor fiscal 2004 and predecessor fiscal2003.  Successor fiscal 2005 andpredecessor fiscal 2005 collectively are referred to as “predecessor fiscal2005 and successor fiscal 2005 combined.” This section should be read inconjunction with the Company’s Consolidated Financial Statements and consideredwith “Risk Factors” discussed in Item 7A below, “Quantitative and QualitativeDisclosures About Market Risk” and “Cautionary Statements Regarding ForwardLooking Statements,” which precedes Part I, Item 1 above.

 

Pierre operates on a 52-week or 53-weekfiscal year ending on the first Saturday in March or if the last day of February isa Saturday, the last day of February. Each quarter of the fiscal year contains 13 weeks except for theinfrequent fiscal years with 53 weeks. The results for predecessor fiscal 2005 and successor fiscal 2005combined contain 52 weeks.  The resultsfor predecessor fiscal 2004 contain 53 weeks. The results for predecessor fiscal 2003 contain 52 weeks.

 

**Results ofOperations**

 

Results for successor fiscal 2005,predecessor fiscal 2005, predecessor fiscal 2004 and predecessor fiscal 2003are shown below:

 
| ** **                                                                   | ** ** | **Successor**     | ** ** | ** ** | **Predecessor**   | ** ** |
|------------------------------------------------------------------------------|------------|-------------------|------------|------------|-------------------|------------|
| ** **                                                                   | ** ** | **Fiscal 2005**   | ** ** | ** ** | **Fiscal 2005**   | ** ** | **Fiscal 2004** | ** ** | **Fiscal 2003** | ** ** |
| ** **                                                                   | ** ** | **(in millions)** | ** ** | ** ** | **(in millions)** | ** ** | **(in millions)** | ** ** | **(in millions)** | ** ** |
|                                                                         |       |              |       |       |              |       |   |   |   |   |
| Revenues,  net                                                               |       | $                 | 294.9      |       |              | $          | 115.5 |   | $ | 358.6 |   | $ | 276.3 |   |
| Cost of  goods sold                                                          |       | 217.3             |       |       | 87.0              |       | 254.2 |   | 184.1 |   |
| Selling,  general and administrative                                         |       | 39.8              |       |       | 26.4              |       | 80.0 |   | 71.3 |   |
| Net loss on  disposition of property, plant and Equipment                    |       | —            |       |       | 0.4               |       | 0.1 |   | 0.1 |   |
| Depreciation  and amortization                                               |       | 23.2              |       |       | 1.5               |       | 4.6 |   | 4.1 |   |
| Operating  income                                                            |       | 14.6              |       |       | 0.2               |       | 19.7 |   | 16.7 |   |
| Interest and  other expense, net                                             |       | (19.5             | )          |       | (6.5              | )          | (17.0 | ) | (13.8 | ) |
| Income (loss) before income tax, and cumulative effect of accounting  change |       | (4.9              | )          |       | (6.3              | )          | 2.7 |   | 2.9 |   |
| Income tax benefit (provision)                                               |       | 0.6               |       |       | 2.0               |       | (1.3 | ) | (1.1 | ) |
| Income  (loss) before cumulative effect of accounting change                 |       | (4.3              | )          |       | (4.3              | )          | 1.4 |   | 1.8 |   |
| Cumulative effect of accounting change                                       |       | —            |       |       | —            |       | — |   | (18.6 | ) |
| Net income (loss)                                                            |       | $                 | (4.3       | )          |              | $          | (4.3 | ) | $ | 1.4 |   | $ | (16.8 | ) |

 

***Predecessor Fiscal 2005 and Successor Fiscal2005 Combined Compared to Predecessor Fiscal 2004***

 

As a result of the Acquisition as describedin Note 1, “Basis of Presentation and Acquisition,” to the ConsolidatedFinancial Statements and elsewhere in this report, the following resultsof operations comparisons demonstrate a significant difference between comparedperiods.  The Acquisition on June 30,2004 was accounted for under the purchase method of accounting resulting in anincrease in the basis of our assets.  Dueto the change in basis, our results of operations and those of our predecessorare not considered comparable.  Ourresults of operations include amortization related to the identifiableintangible assets and interest expense related to the borrowings incurred inconnection with the Acquisition.  For thepurpose of comparing comparable time periods the results for predecessorfiscal 2005 and successor fiscal 2005 are combined in the discussion below inorder to provide a more meaningful period-to-period comparison.

 

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*Revenues net. *Net revenues increased by$51.9 million, or 14.5%.  Theincrease in net revenues was the result of increases in sales across most ofthe Company’s end-market segments, including the substantial development ofnational business with existing customers and the advent of business with a newcustomer, in addition to net revenue of approximately $6.4 million due to netprice increases to customers, offset by additional revenues of $7.9 million inthe prior year due to predecessor fiscal 2004 being a 53 week year, compared tothe 52 week period in predecessor fiscal 2005 and successor fiscal 2005combined.  Included in predecessor fiscal2005 and successor fiscal 2005 combined and predecessor fiscal 2004 arenon-recurring revenues of $8,604 and $104,127, respectively, related to CompassOutfitters, LLC.  These revenues will notbe present in future periods due to Compass Outfitters, LLC being retained bythe selling shareholders following the Acquisition.

 

*Cost of goods sold. *Cost of goods sold increased by $50.1 million in predecessorfiscal 2005 and successor fiscal 2005 combined compared to predecessorfiscal 2004, or 19.7%. As a percentage of revenues, cost of goods sold increasedfrom 70.9% to 74.2%. This increase was primarily due to increased raw materialprices ($13.9 million), the impact of a $2.0 million purchaseaccounting adjustment on beginning inventory (as a result of the Acquisition)and start-up costs of $3.1 million related to the development of new lowermargin, high volume national accounts business. In predecessor fiscal 2005 andsuccessor fiscal 2005 combined, beef, pork, chicken and cheese prices increasedapproximately 7.3%, 49.4%, 22.5% and 25.0%, respectively, compared topredecessor fiscal 2004. These increases were partially offset by priceincreases passed on to customers, as noted above, and the elimination ofcommissions as a result of the termination of the Company’s purchasingagreement with PF Purchasing. Commissions paid to PF Purchasing totaled$5.3 million during predecessor fiscal 2004. This affiliate relationshipwas terminated in conjunction with the Restructuring.

 

*Selling, general andadministrative*. Selling, general and administrative expenses decreased by$13.7 million, or 17.1%. As a percentage of revenues, selling, general andadministrative expenses decreased from 22.3% to 16.1%. This decrease wasprimarily due to the elimination of PF Distribution fees of $11.6 millionand a decrease in former affiliate expenses offset, in part, by expensesassociated with the Acquisition that are not expected to repeat in futureperiods. Expenses associated with the previous shareholders in predecessorfiscal 2005 and successor fiscal 2005 combined and predecessor fiscal 2004 thatare not expected to be incurred in the future include the following: 

 
| ** **                                        | ** ** | **Predecessor  Fiscal 2005 and  Successor Fiscal  2005  Combined** | ** ** | **Predecessor Fiscal  2004** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                        | ** ** | **(dollars in millions)**                                          | ** ** |
| Distribution  expenses (a)                        |       | $                                                                  | —     |                         | $          | 11.6 |   |
| House  lease(b)                                   |       | —                                                             |       | 0.1                          |       |
| Compensation  expense (c)                         |       | 1.2                                                                |       | 2.8                          |       |
| Travel and  entertainment (d)                     |       | 1.0                                                                |       | 2.0                          |       |
| Office  expense(e)                                |       | 0.2                                                                |       | 0.6                          |       |
| Aircraft  expense (f)                             |       | 0.8                                                                |       | 1.5                          |       |
| Compass  Outfitters (g)                           |       | 0.1                                                                |       | 0.7                          |       |
| Professional  fees (h)                            |       | 2.6                                                                |       | 2.4                          |       |
| Previous  shareholders’ other expenses (i)   |       | 0.7                                                                |       | 1.1                          |       |
| Previous  shareholders’ transaction fees (j) |       | 1.0                                                                |       | —                       |       |
| Consulting  services (k)                          |       | 0.8                                                                |       | —                       |       |
| Endorsement  termination (l)                      |       | 0.3                                                                |       | —                       |       |
| Other (m)                                         |       | 0.1                                                                |       | —                       |       |
| Total                                             |       | $                                                                  | 8.8        |                         | $          | 22.8 |   |

 

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Distribution expenses (a) incurred underrelated party agreements that were terminated in March 2004 as part of theRestructuring.  The house lease (b) relatesto rent expense, maintenance and other occupancy costs paid to related partiespursuant to a lease that was terminated in connection with the Restructuring.Compensation expense (c) relates to personnel who were terminated inconnection with the Acquisition and will not be replaced. Travel andentertainment (d) relates to expenses incurred by personnel who wereterminated and will not be replaced as a result of the Acquisition. Officeexpense (e) relates to rent expense, maintenance and other occupancy costsassociated with the lease of an office building from a related party that wasterminated in connection with the Acquisition. Aircraft expense (f) relatesto the leasing of an aircraft owned by Columbia Hill Aviation, LLC which wasformerly a subsidiary of PFMI, which was retained by the selling shareholders.Compass Outfitters (g) relates to expenses incurred in connection with anasset that was retained by the selling shareholders. The professional fees (h) primarilyare related to the Restructuring and to the Acquisition. The previousshareholders’ 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 Acquisition. The consulting services(k) consist of the fee paid to the selling shareholders’ adviser for hisrole in the Acquisition. The endorsement termination (l) relates to thetermination of the contract between the Company and Crawford Race Cars, LLC.Other (m) includes employee travel and other expenses incurred as a resultof the debt placement for the Acquisition.

 

Operational selling, general, andadministrative expenses in total remained constant for the two year-to-dateperiods due to the increase in distribution costs of $2.4 million being offsetby a decrease in bonus payments of $2.1 million and efficiencies related toincreased national account business. Included in successor fiscal 2005 is a non-cash compensation charge of $0.3million related to the Holding deferred compensation arrangement for managementfollowing the Acquisition.

 

*Depreciation andAmortization. *Depreciation and amortization expenseincreased by $20.1 million.  Theincrease is due primarily to amortization of intangible assets and additionaldepreciation expense related to a step-up in the value of fixed assets due topurchase accounting, both occurring in successor fiscal 2005 as a result of theAcquisition.

 

*Loss on Disposal ofAssets. *Loss on disposal ofassets increased by $0.3 million. The increase is due to the recording of losses related to affiliatecompanies as a consequence of the Restructuring.

 

*Other Expense*.  Other expense consists primarily of intereston fixed and variable rate long-term debt and interest on a revolving loan, bothof which exist as a result of the Acquisition. Other expense increased by$9.0 million, or 53.2%.  Thisincrease was primarily due to expenses as a result of the Acquisition,including $4.3 million for the write-off of deferred loan origination fees, $0.6million for the repayment of the Old Notes and $0.5 million for the repaymentof our former revolving credit facility combined with the increased debt andborrowings under our new revolving credit facility.  See “Liquidity and Capital Resources” below.

 

*Income taxes*.  The effective tax rate for predecessor fiscal2005 and successor fiscal 2005 combined was 23.8%, compared to 47.6% forpredecessor fiscal 2004.  The decrease inthe effective tax rate is primarily due to a change in the tax rated used toprovide for deferred taxes.

 

***Predecessor Fiscal 2004 Compared toPredecessor Fiscal 2003***

 

*Revenues, net.*   Net revenues increased by $82.2 million, or29.7%.  The increase in net revenues wasprimarily due to the substantial development of national business with anexisting customer, increased retail business with an existing customer, shortterm co-packing operations and an increase in sales of existing productlines.  Among our six end markets, ournational accounts had the greatest increase in demand. Revenues in predecessorfiscal 2004 included $0.1 million of revenues from Compass Outfitters,which was retained by the selling shareholders following the Acquisition.

 

*Cost of goods sold.*   Cost of goods soldincreased by $70.1 million, or 38.1%. As a percentage of net revenues, cost of goods sold increased from 66.6%to 70.9%. This increase primarily was due to a change in product mix to lowermargin products and increased raw material prices (particularly beef prices),offset by allocating fixed costs over increased production as a result of theCincinnati plant expansion.  Inpredecessor fiscal 2004, beef, chicken and pork prices increased byapproximately 13%, 2% and 32%, respectively, compared to predecessor fiscal2003. Cost of goods sold included $5.3 million and $4.1 million ofcommissions paid to PF Purchasing in predecessor fiscal 2004 and predecessorfiscal 2003, respectively.  The paymentof these commissions was terminated in the Restructuring.

 

11

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*Selling, general and administrative expenses.* Selling, general and administrative expenses increased by$8.6 million, or 12.1%, primarily due to an increase in distributionexpense on higher product volumes and increased marketing costs.  As a percentage of net revenues, selling,general and administrative expenses decreased from 25.8% to 22.3%.  Selling, general and administrative expensesincluded $22.8 million and $15.6 million in predecessor fiscal 2004and predecessor fiscal 2003, respectively, of expenses that will not be paidfollowing the Acquisition, including (1) distribution expenses paid to PFDistribution in excess of the cost of such services of $11.6 million and$2.9 million, respectively, (2) rent expense, maintenance and otheroccupancy costs under a lease that was terminated of $144,000 and $48,000,respectively, (3) compensation expense paid to personnel terminated inconnection with the Acquisition of $2.8 million and $6.1 million,respectively, (4) travel and entertainment expenses incurred by personnelterminated in connection with the Acquisition of $2.0 million and$1.6 million, respectively, (5) expenses of leasing of an aircraftretained by the selling shareholders following the Acquisition of$1.5 million and $1.0 million, respectively, (6) expenses of$0.6 million and $0.4 million, respectively, associated with thelease of an office building from a related party that was terminated inconnection with the Acquisition, and (7) losses of Compass Outfitters,which was retained by the selling shareholders following the Acquisition.

 

*Depreciation and amortization.*   Depreciation andamortization increased by $0.5 million, or 11.6%, primarily due to thefull-year impact in predecessor fiscal 2004 of the Cincinnati plant expansionin predecessor fiscal 2003.  As apercentage of net revenues, depreciation and amortization decreased from 1.5%to 1.3%.

 

*Interest expense and other income, net.*   The primary component ofinterest expense and other income, net for predecessor fiscal 2004 and predecessorfiscal 2003 was interest expense. Interest expense consists primarily of interest on fixed and variablerate long-term debt, in addition to expense incurred due to the earlyextinguishment of our $50.0 million revolving credit loan in predecessorfiscal 2004.  Interest expense and otherincome, net increased by $3.2 million or 23.2% in predecessor fiscal 2004due to increased borrowings under our revolving credit facility and due to thewrite-off of loan commitment fees and a prepayment penalty associated with thechange in credit facilities and early extinguishment of that credit facility,both of which were charged to interest expense. See “Liquidity and Capital Resources” below.

 

*Income tax provision.*   The effective tax rate forpredecessor fiscal 2004 was 47.6% compared to 38.7% for predecessor fiscal2003.  The increase in the effective taxrate is primarily due to an increase in state tax expense of 3.4% and adecrease in the benefit realized from Columbia Hill Aviation.

 

**Critical Accounting Policies and Estimates**

 

Thepreparation of financial statements in conformity with accounting principles generally accepted in theUnited States of America (“GAAP”) requires the appropriate application of certain accountingpolicies, many of which require the Company to make estimates and assumptionsabout future events and their impact on amounts reported in the financialstatements and related notes.  Sincefuture events and the impact of those events cannot be determined withcertainty, the actual results will inevitably differ from the Company’sestimates.  Such differences could bematerial to the financial statements.

 

The Company believes its application ofaccounting policies, and the estimates inherently required therein, arereasonable.  These accounting policiesand estimates are constantly reevaluated, and adjustments are made when factsand circumstances dictate a change. Historically, the Company’s application of accounting policies has beenappropriate, and actual results have not differed materially from thosedetermined using necessary estimates.

 

The following critical accounting policiesaffect the Company’s more significant judgments and estimates used in thepreparation of its financial statements.

 

*Revenue Recognition. *Revenue from sales of food processingproducts 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 bereceived after deductions for estimated discounts, product returns and otherallowances.  These estimates are based onhistorical trends and expected future payments (see also *Promotions*below).

 

12

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*****Goodwilland Other Intangible Assets. *********InJune 2001, the Financial Accounting Standards Board (“FASB”) issuedFinancial Accounting Standard No. (“SFAS”) 142, “Goodwill and OtherIntangible Assets,” which was effective for the beginning of predecessor fiscal2003. ****As prescribed under SFAS 142, the Companytested goodwill for impairment during predecessor fiscal 2003 using a two-stepprocess.  The first step of the goodwillimpairment test is used to identify potential impairment by comparing the fairvalue of the entity with its net asset value (or carrying amount), includinggoodwill.  If the fair value of theentity exceeds its net asset value, goodwill of the entity is considered notimpaired and the second step of the goodwill impairment test is notneeded.  If the net asset value of theentity exceeds the fair market value, the second step of the goodwillimpairment test is performed to measure the amount of impairment loss, ifany.  The second step of the goodwillimpairment test compares the implied fair value of the entity’s goodwill withthe carrying amount of that goodwill.  Ifthe carrying amount of the entity’s goodwill exceeds the implied fair value ofthat goodwill, an impairment loss is recognized in an amount equal to thatexcess.  Subsequent to recognizing an impairmentloss, the adjusted carrying amount of the intangible asset shall be its newaccounting basis.  Reversal of apreviously recognized impairment loss is prohibited.

 

During predecessor fiscal 2003, upon adoption ofSFAS 142, the Company utilized a valuation technique based on market values ofpublicly-traded equity, as adjusted, plus publicly-owned subordinated notes,which were determined in conjunction with the management buyout in predecessorfiscal 2003.  See Note 1, “Basis ofPresentation and Acquisition,” to the Consolidated Financial Statements.  The Company’s analysis showed that thecarrying value of the goodwill exceeded its fair value, requiring the Companyto determine the implied fair value of its goodwill.  Upon completion of that analysis, managementdetermined that the entire net carrying value of its goodwill wasimpaired.  The carrying amount, $29.0million, net of the related effect on income taxes, $10.4 million, waswritten-off by the Company and reported as the Cumulative Effect of anAccounting Change, net of income taxes in the statement of operations.  See Note 2, “Summary of SignificantAccounting Policies,” to the Consolidated Financial Statements for furtherdiscussion.

 

In conjunction with the Acquisition, theCompany engaged an independent party to perform valuations for financialreporting purposes of the Company’s goodwill and other intangibles. Assetsidentified through this valuation process included goodwill, formulas, customerrelationships, licensing agreements and certain trade names and trademarks.

 

In accordance with SFAS 142—Goodwill andOther Intangible Assets, the Company tests recorded goodwill and intangibleswith indefinite lives for impairment at least annually.  All other intangible assets with finite livesare amortized over their estimated economic or estimated useful lives.  In addition, all other intangible assets arereviewed for impairment in accordance with SFAS 144, “Accounting for theImpairment or Disposal of Long-Lived Assets”.  As of March 5, 2005, the Companyperformed the annual impairment review of goodwill and indefinite-livedintangible assets and also assessed whether the indefinite-lived intangibleassets continue to have indefinite lives. The Company engaged an independent party to perform valuations to assistin the impairment review.  There were notany impairment charges as a result of this review.

 

The Company’s amortizable intangible assetsare amortized using accelerated amortization methods that match the expectedbenefit derived from the assets.  Theaccelerated amortization methods allocate amortization expense in proportion toeach year’s expected revenues to the total expected revenues over theestimated useful lives of the assets.

 

*Promotions*. Promotional expenses associated with rebates, marketingpromotions and special pricing arrangements are recorded as a reduction ofrevenues or selling expense at the time the sale is recorded.  Certain of these expenses are estimated basedon historical trends, expected future payments to be made under these programsand expected future customer deductions to be taken under these programs.  The Company believes the estimates recordedin the financial statements are reasonable estimates of the Company’s liabilityunder the programs.

 

13

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*Concentration ofCredit Risk and Significant Customers*.  Financial instruments that potentiallysubject the Company to concentrations of credit risk consist primarily of tradereceivables.  The Company performs periodiccredit evaluations of its customers’ financial condition and generally does notrequire collateral.  The Companyencounters a certain amount of credit risk as a result of a concentration ofreceivables among a few significant customers. Sales to the Company’s largest customer were approximately 25%, 24% and11% of revenues for predecessor fiscal 2005 and successor fiscal 2005 combined,predecessor fiscal 2004 and predecessor fiscal 2003, respectively.  Accounts receivable at March 5, 2005 andMarch 6, 2004 included receivables from the Company’s largest customertotaling $3.7 million and $2.8 million, respectively.

 

*Stock-Based Compensation*.  The Company treats the options to purchaseshares of common stock of Holding issued to employees of the Company (“Options”)as stock-based compensation for employees of the Company.  As permitted under GAAP, the Company accountsfor the Options under the recognition and measurement principles of AccountingPrinciples 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 beenrecognized for the stock option plan in the Company’s consolidated statementsof operations.

 

*New Accounting Pronouncements*.  In December of2003, the FASB issued FIN 46R, “Consolidation of Variable Interest Entities” (“FIN46R”), which replaces the same titled FIN 46 that was issued in January 2003.FIN 46R addresses how to identify variable interest entities and the criteriathat requires a company to consolidate such entities in its financialstatements. FIN 46R is effective for the first reporting period that ends afterMarch 15, 2004. This statement did not have an impact on the Company’sfinancial statements.

 

In November 2004, FASB issued SFAS  151, “InventoryCosts—an amendment of ARB No. 43, Chapter 4” (“SFAS 151”).SFAS 151 amends ARB 43, Chapter 4, to clarify that abnormalamounts of idle facility expense, freight, handling costs and wasted materials(spoilage) should be recognized as current-period charges. In addition,SFAS 151 requires that allocation of fixed production overheads to thecosts of conversion be based on the normal capacity of the productionfacilities. The Company will adopt the provisions of SFAS 151, effective March 5,2006 for its fiscal 2007 consolidated financial statements. Managementcurrently believes that adoption of the provisions of SFAS 151 will not have amaterial impact on the Company’s Consolidated Financial Statements.

 

**Liquidity and Capital Resources**

 

*Net Cash Provided by Operating Activities.*  Net cash provided by operating activities was$12.9 million, $0.4 million, $3.3 million and $0.04 million for successorfiscal 2005, predecessor fiscal 2005, predecessor fiscal 2004 and predecessorfiscal 2003, respectively.

 

The primary components of net cash providedby operating activities for successor fiscal 2005 were: (1) depreciationand amortization, including amortization of deferred loan origination fees totaling,$24.2 million; (2) an increase in deferred income taxes of $0.4 million; (3) thewrite-off of deferred loan origination fees of $4.3 million; (4) anincrease in trade accounts payable and other accrued liabilities of$0.9 million and (5) a decrease in inventory of $0.5 million; offsetby (6) an increase in accounts receivable of $9.6 million and (7) anincrease in refundable income taxes, prepaid expenses and other current assetsof $3.6 million.

 

The primary components of net cash providedby operating activities for predecessor fiscal 2005 were: (1) a decreasein accounts receivable of $5.7 million; (2) depreciation and amortization,including amortization of deferred loan origination fees, totaling $2.3 millionand (3) an increase in trade accounts payable and other accruedliabilities of $2.2 million and (4) a decrease in refundable incometaxes, prepaid expenses and other current assets of $0.9 million offset;by (5) an increase in inventory of $4.9 million and (6) an increasein deferred income taxes of $2.1 million.

 

The primary components of net cash providedby operating activities for predecessor fiscal 2004 were: (1) depreciationand amortization, including amortization of deferred loan origination fees, totaling$5.4 million; (2) a decrease in deferred income taxes of $1.3 million; (3) anincrease in trade accounts payable and other accrued liabilities of $2.4million and (4) the write-off of deferred loan origination fees of $1.2million; offset by (5) an increase in inventories of $6.4 million and (6) anincrease in receivables of $2.0 million.

 

14

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The primary components of net cash providedby operating activities for predecessor fiscal 2003 were: (1) depreciationand amortization totaling $4.9 million; (2) an increase in inventories of$8.7 million; offset by (3) an increase in trade accounts payable andother accrued liabilities of $4.9 million; (4) an increase in accountsreceivable of $2.2 million and (5) an increase in refundable income taxes,prepaid expenses and other assets of $1.7 million.

 

*Net Cash Used in Investing Activities. *Net cash used ininvesting activities for successor fiscal 2005, predecessor fiscal 2005,predecessor fiscal 2004 and predecessor fiscal 2003 was $3.7 million, $2.1million, $9.8 million and $16.1 million, respectively.  The primary components for both successorfiscal 2005 and predecessor fiscal 2005 were routine capital expenditures.  The primary components for predecessor fiscal2004 were routine capital expenditures and a significant plant expansiontotaling $10.0 million.  The primarycomponents for predecessor fiscal 2003 were routine capital expenditures and asignificant plant expansion totaling $16.2 million.

 

*Net Cash Provided by (Used in) FinancingActivities*.  Netcash used in financing activities was $11.3 million for successor fiscal2005.  The primary components were:  (1) the payoff of the Old Notes of$115.0 million; (2) a return of capital to parent of $100.1 million; (3) therepayment of debt in conjunction with the Acquisition of $29.0 million; (4) netrepayment of the revolving credit agreement of $17.7 million; (5) principalpayments on long-term debt of $16.2 million and (6) loan origination feesof $10.0 million; offset by (7) borrowings under the new term loan of$150.0 million; (8) issuance of New Notes of $125.0 million; (9) thetermination of a certificate of deposit for $1.3 million and (10) acontribution from parent totaling $0.4 million.

 

Net cash provided by financing activities forpredecessor fiscal 2005, predecessor fiscal 2004 and predecessor fiscal 2003was $3.7 million, $6.4 million and $11.8 million, respectively.  The primary components for predecessor fiscal2005 were: (1) net borrowings under the revolving credit agreement withformer lender of $7.7 million; offset by (2) loan origination feesincurred in the amount of $3.4 million and (3) principal payments onlong-term debt in the amount of $0.7 million. The primary components for predecessor fiscal 2004 were: (1) borrowingsunder the equipment term loan subline and the real estate term loan subline of$5.0 million each, offset by (2) the net repayment of revolving creditagreement of $1.8 million; (3) principal payments on long-term debt of$0.8 million and (4) loan origination fees of $0.7 million.  The primary components for predecessor fiscal2003 were: (1) borrowing under the revolving credit facility of $15.1million; offset by (2) loan origination fees of $1.6 million; (3) specialpurpose entity distributions of $1.4 and (4) principal payments onlong-term debt of $0.3 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 OldNotes, representing 97.74% of the outstanding Old Notes, consented to a FourthSupplemental Indenture between the Company and U.S. Bank National Association,as trustee (the “Trustee”), the Company entered into the Fourth SupplementalIndenture with the Trustee. See Note 1, “Basis of Presentation and Acquisition,”to the Consolidated Financial Statements. Concurrently with the execution ofthe Fourth Supplemental Indenture, the Company took title to an aircrafttransferred from a related party subject to $5.6 million of existingpurchase money debt; cancelled the $1.0 million related party notereceivable from its former principal shareholders; cancelled the balances owedby the Company to certain related parties, as follows: $0.5 million owed toColumbia Hill Aviation; $3.5 million owed to PF Purchasing and $0.5 millionowed to PF Distribution; and assumed the operating leases of PF Distribution inconnection with the Fourth Supplemental Indenture. The Company assumed$15.3 million of subordinated debt of PFMI, the sole shareholder of theCompany, in connection with the execution of the Fourth Supplemental Indentureand cancelled the $1.0 million related party note receivable against thedebt assumed from PFMI.

 

15

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On June 30, 2004, the shareholders ofPFMI closed the Acquisition (see Note 1, “Basis of Presentation andAcquisition,” to the Consolidated Financial Statements).  Effective June 30, 2004, the Companyterminated its three-year variable-rate $40 million revolving creditfacility.  Existing debt issuance costsrelated 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 theamount of $0.4 million were charged to interest expense.  Also effective June 30, 2004, theCompany obtained a $190 million credit facility from a new lender whichincludes a six-year variable-rate $150 million term loan, a five-yearvariable rate $40 million revolving credit facility and a $10 millionletter of credit subfacility.  Fundsavailable under this new facility are available for working capitalrequirements, permitted investments and general corporate purposes.  Borrowings under the new facility bearinterest at floating rates based upon the interest rate option selected fromtime to time by the Company and are secured by a first-priority securityinterest in substantially all of the Company’s assets.  The interest rate for borrowings under thenew revolving credit facility at March 5, 2005 was 7.5% (prime plus1.75%).  Repayment of borrowings underthe term loan is $375,000 per quarter, which began on September 4, 2004,with a balloon payment of $141.4 million due on June 5, 2010.  In addition to the scheduled quarterlypayment, prepayments on the term loan totaling $12.4 million were made duringsuccessor fiscal 2005.  The maturity dateof the $40 million revolving credit facility is June 30, 2009.  In addition, the Company is required tosatisfy certain financial covenants regarding cash flow and capitalexpenditures.

 

Also in conjunction with the Acquisition, theCompany issued the New Notes. The proceeds of the New Notes, together with theequity contributions from MDP and certain members of management and borrowingsunder the Company’s new senior credit facility, were used to finance theAcquisition of the Company and to repay outstanding indebtedness, includingpaying off debt of PFMI assumed by the Company under the Fourth SupplementalIndenture (except capital leases), paying for the Old Notes tendered inconnection with the tender offer described in Note 1, “Basis of Presentationand Acquisition,” to the Consolidated Financial Statements, and redeeming theOld Notes not tendered.

 

As of March 5, 2005, the Company had nocash and cash equivalents on hand, outstanding borrowings under its revolvingcredit facility of $0.8 million and borrowing availability of approximately$34.7 million.  Also as of March 5,2005, the Company had borrowings under its term loan of $136.5 million and$125.0 million of the New Notes outstanding. As of March 6, 2004, the Company had $0.2 million in cash and cashequivalents on hand, had outstanding borrowings under its former revolvingcredit facility of $13.3 million and borrowing availability of approximately$12.9 million.  Also, as of March 6,2004, the Company had borrowings under the former real estate subline and theformer equipment subline of $4.7 million and $4.6 million, respectively.

 

The Company has budgeted approximately $14.5million for capital expenditures in fiscal 2006.  These expenditures include a provision forcapacity expansion, system upgrades and routine food processing capitalimprovement projects and other miscellaneous expenditures within the Company’sexisting facilities.  The Companybelieves that funds from operations and funds from its new $40 million revolvingcredit facility, as well as the Company’s ability to enter into capital oroperating leases, will be adequate to finance these capital expenditures.

 

If the Company continues its historicalrevenue growth trend as expected, then the Company will be required to raiseand invest additional capital for additional plant expansion projects toprovide operating capacity to satisfy increased demand.  Management believes that future cashrequirements for these plant expansion projects would need to be met throughother long-term financing sources.  Theincurrence of additional long-term debt is governed and restricted by theCompany’s existing debt instruments. Furthermore, there can be no assurance that additional long-termfinancing will be available on advantageous terms (or any terms) when needed bythe Company.

 

Significant assumptions underlie the belief that theCompany anticipates that its fiscal 2006 cash requirements for working capitaland debt service will be met through a combination of funds provided byoperations and borrowings under its new $40 million revolving credit facility,including, among other things, that there will be no material adversedevelopments in the business, liquidity or significant capital requirements ofthe Company.

 

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**CommercialCommitments, Contingencies and Contractual Obligations**

 

The Company provided a letter of credit in theamount of $4.5 million, $3.5 million and $1.5 million in predecessor fiscal2005 and successor fiscal 2005 combined, predecessor fiscal 2004 andpredecessor fiscal 2003, respectively, to its insurance carrier for theunderwriting of certain performance bonds. The current letter of credit expires in fiscal 2006.  The Company also provides secured letters ofcredit to its insurance carriers for outstanding and potential workers’compensation and general liability claims. Letters of credit for these claims totaled $110,000 in predecessorfiscal 2005 and successor fiscal 2005 combined and $75,000 in both predecessorfiscal 2004 and predecessor fiscal 2003. In addition, the Company provides secured letters of credit to a limitednumber of suppliers.  The Company had noletters of credit for suppliers in predecessor fiscal 2005 and successor fiscal2005 combined.  Letters of credit forsuppliers totaled $250,000 in both predecessor fiscal 2004 and predecessorfiscal 2003.

 

The Company is involved in various legalproceedings.  Management believes, basedon the advice of legal counsel, that the outcome of such proceedings will nothave a materially adverse effect on the Company’s financial position or futureresults of operations and cash flows.

 

The following tables summarize our contractualobligations and commitments as of March 5, 2005.

 
| ** **                                 | ** ** | **Commitments by Fiscal Year** | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|
| ** **                                 | ** ** | **Total**                      | ** ** | **Less than 1  Year** | ** ** | **1 – 3 Years** | ** ** | **3-5  Years** | ** ** | **More than  5 Years** | ** ** |
|                                       |       |                           |       |   |   |   |   |   |   |   |   |
| Letters of  credit                         |       | $                              | 4,560,000  |   | $ | 4,560,000 |   | $ | — |   | $ | — |   | $ | — |   |
| Purchase  commitments for capital projects |       | 1,612,500                      |       | 1,612,500 |   | — |   | — |   | — |   |
| Purchase commitments for electricity       |       | 2,474,640                      |       | 2,474,640 |   | — |   | — |   | — |   |
| Purchase commitments for raw materials     |       | 1,187,277                      |       | 1,187,277 |   | — |   | — |   | — |   |
| Purchase  commitments for natural gas      |       | 605,473                        |       | 605,473 |   | — |   | — |   | — |   |
| Total                                      |       | $                              | 10,439,890 |   | $ | 10,439,890 |   | $ | — |   | $ | — |   | $ | — |   |
|                                            |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                   | ** ** | **Contractual Obligations by  Fiscal Year** | ** **  |
|------------------------------|------------|---------------------------------------------|-------------|
| ** **                   | ** ** | **Total**                                   | ** **  | **Less than 1  Year** | ** ** | **1 – 3  Years** | ** ** | **3-5  Years** | ** ** | **More than  5 Years** | ** ** |
|                         |       |                                        |        |   |   |   |   |   |   |   |   |
| Long-term  debt              |       | $                                           | 262,290,000 |   | $ | — |   | $ | — |   | $ | 790,000 |   | $ | 261,500,000 |   |
| Capital  lease obligations   |       | 1,290,371                                   |        | 421,713 |   | 419,464 |   | 343,028 |   | 106,166 |   |
| Operating  lease obligations |       | 7,198,427                                   |        | 3,454,557 |   | 3,654,647 |   | 69,783 |   | 19,440 |   |
| Total                        |       | $                                           | 270,778,798 |   | $ | 3,876,270 |   | $ | 4,074,111 |   | $ | 1,202,811 |   | $ | 261,625,606 |   |

 

**In conjunction with the Acquisition, the Company and theselling shareholders entered into a tax sharing and indemnification agreementwhich contains certain representations and warranties of the sellingshareholders with respect to taxes.  Theagreement provides that any net operating loss carryforward (“NOL”) withrespect to periods before the Acquisition, and attributable to expensesrelating to the Acquisition, will be for the benefit of the sellingshareholders.  Accordingly, the Companywill pay to the selling shareholders the amount of any tax benefit attributableto such NOL, except that the first $4 million of such tax benefits shall bepaid into an escrow account that will secure the selling shareholdersindemnification obligations under the tax sharing agreement.  The Company has recorded a net long-termliability to the former shareholders totaling $10,190,051 as of March 5,2005 for the estimated obligations under the tax sharing agreement.  This amount is excluded from the table abovedue to the uncertainty of when such utilization of the NOL will occur.**

 

**SeeNote 14, “Commitments and Contingencies,” to the Consolidated FinancialStatements for further discussion.**

 

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**Inflation**

 

The Company believes that inflation has nothad a material impact on its results of operations for predecessor fiscal 2005and successor fiscal 2005 combined, predecessor fiscal 2004 or predecessor fiscal 2003.  In addition, the Company does not expectinflation to have a material impact on its results of operations for successorfiscal 2006.  However, the Companyexperienced significant raw material price increases in predecessor fiscal 2005and successor fiscal 2005 combined and predecessor fiscal 2004; see Item 7A. – “Quantitativeand Qualitative Disclosures About Market Risk.”

 

 **Item  7A.  *Quantitative and Qualitative Disclosures About Market Risk***

 

The Company is exposed to market riskstemming from changes in interest rates, foreign exchange rates and commodityprices.  Changes in these factors couldcause fluctuations in the Company’s financial condition, results of operationsand cash flows.  The Company owned noderivative financial instruments or nonderivative financial instruments heldfor trading purposes at March 5, 2005, March 6, 2004 or March 1,2003.  Certain of the Company’soutstanding nonderivative financial instruments at March 5, 2005 aresubject to interest rate risk, but not subject to foreign currency or commodityprice risk.  There was no significantchange in market risk from predecessor fiscal 2004 to predecessor fiscal 2005and successor fiscal 2005 combined.

 

##### *InterestRate Risk. *The Company’s major market riskexposure is potential loss arising from changing interest rates and its impacton long-term debt.  The Company’s policyis to manage interest rate risk by maintaining a combination of fixed andvariable rate financial instruments in amounts and with maturities thatmanagement considers appropriate.  Therisks associated with long-term debt at March 5, 2005 have not changedmaterially since March 6, 2004.  Ofthe long-term debt outstanding at March 5, 2005, the $125.0 millionof New Notes and the $1.3 million of capital leases accrue interest at fixedinterest rates, while the $136.5 million outstanding borrowings under theTerm B Loan facility and the revolving credit facility accrue interest at avariable interest rate.  At March 5,2005, the Company had outstanding borrowings under the revolving creditfacility of $0.8 million.   A rise inprevailing interest rates could have adverse effects on the Company’s financialcondition and results of operations.  A25 basis point increase in the reference rates for the Company’s averagevariable rate debt outstanding during predecessor fiscal 2005 and successorfiscal 2005 combined would have increased net loss for that period byapproximately $269,000.

##### * *

The following table summarizes the Company’smarket risks associated with long-term debt outstanding at March 5,2005.  The table presents principal cashoutflows and related interest rates by maturity date.

 
| ** ** | ** ** | **March 5, 2005  Expected Maturities in Fiscal Years  Long-Term Debt** | ** **  |
|------------|------------|-----------------------------------------------------------------------------|-------------|
| ** ** | ** ** | **Variable Rate  Long-Term Debt**                                           | ** **  | **Fixed Rate  Long-Term Debt** | ** ** | **Weighted  Average  Interest Rate** | ** ** |
| 2006       |       | $                                                                           | —      |   | $ | 421,713 |   | 8.02 | % |
| 2007       |       | —                                                                      |        | 229,171 |   | 8.28 | % |
| 2008       |       | —                                                                      |        | 190,293 |   | 8.37 | % |
| 2009       |       | —                                                                      |        | 167,576 |   | 8.41 | % |
| Thereafter |       | 137,290,000                                                                 |        | 125,281,618 |   | 8.41 | % |
| Total      |       | $                                                                           | 137,290,000 |   | $ | 126,290,371 |   | 7.67 | % |
|       |       |                                                                        |        |   |   |   |   |
| Fair Value |       | $                                                                           | 137,290,000 |   | $ | 133,165,371 |   | 7.67 | % |

 

##### *ForeignExchange Rate Risk. *The Company bills customers in foreigncountries in US dollars, with the exception of sales to Canada.  The Company does not believe the foreignexchange rate risk on Canadian sales is material.  However, a significant decline in the valueof currencies used in certain regions of the world as compared to the US dollarcould adversely affect product sales in those regions because the Company’sproducts may be more expensive for those customers to pay for in their localcurrency.  At March 5, 2005 and March 6,2004, all trade receivables were denominated in US dollars.

 

18

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##### *CommodityPrice Risk  *Certain raw materials used in foodprocessing operations are susceptible to commodity price changes.  Increases in the prices of certain commodityproducts could result in higher overall production costs.  The primary raw materials used in the Company’sfood processing operations are boneless beef, chicken and pork, flour, yeast,seasonings, cheese, breading, soy proteins and packaging supplies.  Prices for many of these raw materials are athistorical highs.  During predecessorfiscal 2005 and successor fiscal 2005 combined, the weighted average prices theCompany paid for beef, chicken, pork and cheese increased by approximately15.5%, 11.7%, 53.1% and 18.9%, respectively, over the weighted average pricesthe Company paid for these raw materials during the fourth quarter ofpredecessor fiscal 2004.  The Companymanages commodity pricing risks through purchase orders, non-cancelablecontracts and, to the extent they can, by passing on such cost increases tocustomers.  At March 5, 2005, the Company evaluated commoditypricing risks and determined it was not currently beneficial to use derivativefinancial instruments to hedge the Company’s current positions with respect tosuch pricing exposures.

##### * *

##### *FairValue of Financial Instruments. *The Company’s nonderivativefinancial instruments consist primarily of cash and cash equivalents, trade andnote receivables, trade payables and long-term debt.  Theestimated fair values of the financial instruments have been determined by theCompany using available market information and appropriate valuationtechniques.  Considerable judgment isrequired, however, to interpret market data to develop the estimates of fair value.  Accordingly, the estimates presented are notnecessarily indicative of the amounts that the Company could realize in acurrent market exchange.  The use ofdifferent market assumptions and/or estimation methodologies may have amaterial effect on the estimated fair value amounts.  See further discussion in Note 12, “DisclosuresAbout Fair Values of Financial Instruments,” to the Consolidated FinancialStatements.

##### * *

**Item  8.  *Financial Statements andSupplementary Data***

 

The Company’s Consolidated FinancialStatements required by this Item are on pages F-1 through F-31 of thisReport.

 

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**Item  9.  *Changes in andDisagreements with Accountants on Accounting and Financial Disclosure***

 

None.

 

**Item  9A.  *Controls and Procedures***

 

*Evaluation of DisclosureControls and Procedures*.  The Company’s President andChief Executive Officer and Principal Financial Officer have evaluated theeffectiveness of the Company’s disclosure controls and procedures (as such termis defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of theend of the period covered by this report. Based upon that evaluation, theCompany’s President and Chief Executive Officer and Principal Financial Officerhave concluded that, as of the end of the period covered by this report, theCompany’s disclosure controls and procedures are designed to ensure thatinformation relating to the Company (including its consolidated subsidiaries)that is required to be included in the Company’s reports filed or submittedunder the Exchange Act is accumulated and communicated to the Company’smanagement as appropriate to allow timely decisions regarding requireddisclosure.

 

*Changes in Internal Controls*.  Therehave been no changes in the Company’s internal controls over financial reporting during the Company’s fiscal fourth quarterended March 5, 2005 that have materially affected, or are reasonablylikely to materially affect, the Company’s internal control over financialreporting.

 

**Item  9B.  *Other Information***

 

None.

 

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**PART III**

 

**Item 10.  *Directorsand Executive Officers of the Registrant***

 

**Directors and Executive Officers**

 

ROBIN P.SELATI, DIRECTOR, age 39, became a director in June 2004 upon completionof the Acquisition.  Prior to co-foundingMDP in 1993, Mr. Selati was with Alex, Brown & SonsIncorporated.  Mr. Selati currentlyserves on the Board of Directors of Beverages & More, Inc.,Carrols Holdings Corporation, Cinemark, Inc., Family Christian Stores, Inc.,NWL Holdings, Inc., Peter Piper, Inc., Ruth’s Chris Steak House, Inc.and Tuesday Morning Corporation.

 

NICHOLAS W. ALEXOS, DIRECTOR, age 41, becamea director in June 2004 upon completion of the Acquisition.  Prior to co-founding MDP in 1993, Mr. Alexoswas with First Chicago Venture Capital for four years.  Mr. Alexos serves on the Board ofDirectors of Milnot Holding Company, National Mentor, Inc. and Team HealthHoldings, LLC.

 

GEORGE A. PEINADO, DIRECTOR, age 35, became adirector in June 2004 upon completion of the Acquisition.  Mr. Peinado currently serves as aDirector of MDP and has been employed by the firm since January 2004.  Prior to that, beginning in 1997, Mr. Peinadowas with Donaldson, Lufkin & Jenrette and DLJ Merchant Banking Partners.

 

SCOTT W. MEADER, DIRECTOR, age 43, became adirector in October 2004.  Mr. Meaderis currently the President and Chief Executive Officer of Milnot Holding Corp.,having served in that position since 1997. Prior to Milnot Holding Corp., Mr. Meader held various positionswith Burns Philps Foods PLC, Pet Incorporated, A.T. Kearney and Quaker Oats Co.

 

NORBERT E. WOODHAMS, PRESIDENT, CHIEFEXECUTIVE OFFICER, DIRECTOR AND CHAIRMAN OF THE BOARD, age 59, became theCompany’s President and Chief Executive Officer in December 1999 andbecame a director in June 2004 upon completion of the Acquisition.  He was elected as Chairman of the Board ofthe Company effective January 11, 2005. Immediately prior to his election to those offices, Mr. Woodhamswas President of Pierre Foods, LLC, the Company’s former operating subsidiary,having served in that position since the Company’s acquisition of PierreCincinnati in June 1998.  From 1994to 1998, he served as President of Hudson Specialty Foods, a food processingdivision of Hudson Foods, Inc.  Uponthe acquisition of Hudson by Tyson Foods in January 1998, Mr. Woodhamsbecame President of Pierre.  Mr. Woodhamsserved as a director from 1998 to September 2002.

 

ROBERT C. NAYLOR, SENIOR VICE PRESIDENT OFSALES, MARKETING AND NEW PRODUCT DEVELOPMENT, age 53, became the Company’sSenior Vice President of Sales, Marketing and New Product Development in December 1999.  Immediately prior, he was Senior VicePresident of Sales of Pierre Foods, LLC, the Company’s fomer operating subsidiary,having served in that position since the Company’s acquisition of PierreCincinnati in June 1998.  From 1978to 1998, he served in various sales positions for Pierre Cincinnati, includingVice President of Sales.

 

JOSEPH W. MEYERS, VICE PRESIDENT, FINANCE,age 38, has served as the Company’s Vice President, Finance since February 2003and has held various accounting and finance positions with the Company since1996.  Prior to this, Mr. Meyersheld the position of General Accounting Manager at OhSe Foods, Lunch MeatDivision of Hudson Foods in Topeka, Kansas from 1991 through 1996.  In 1996, OhSe Foods divested into HudsonFoods.  Prior to joining Hudson Foods, Mr. Meyersheld the position as staff accountant at PGT Trucking Inc. in Monaca, Pennsylvania.

 

**Audit Committee Financial Expert**

 

The Board of Directors of the Company hasdetermined that Nicholas W. Alexos is an “audit committee financial expert” asdefined in Item 401(b) of Regulation S-K promulgated by the Securities andExchange Commission (“SEC”); however Mr. Alexos is not considered “independent”as that term is defined under the applicable SEC rules.  Mr. Alexos is a Managing Director ofMadison Dearborn Partners, LLC, the general partner of Madison DearbornPartners IV, L.P., which is the general partner of Madison Dearborn CapitalPartners IV, L.P., which holds approximately 96% of the issued and outstandingcapital stock of Holding.

 

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**Code of Ethics**

 

The Board of Directors has not yet adopted aCode of Ethics. The Company is in the process of developing an appropriate Codeof Ethics and when this process is complete, will made a copy of the Codeavailable to the public.

 

**Item  11.  *Executive Compensation***

 

**Summary Compensation Table**

 

The following information presentscompensation information for services to the Company, for the fiscal yearsindicated, for its Chief Executive Officer and the Company’s other most highlycompensated Executive Officer and two former Executive Officers of the Company(collectively, the “Named Executive Officers”).

 
| ** **                                    | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | **Long-Term  Compensation  Awards**       | ** ** | ** **                  | ** ** |
|-----------------------------------------------|------------|------------------|------------|------------|------------|------------|------------|-------------------------------------------|------------|-----------------------------|------------|
| **Name and Principal  Position**              | ** ** | **Fiscal  Year** | ** ** | **Salary** | ** ** | **Bonus**  | ** ** | **Number of Shares  Underlying  Options** | ** ** | **All Other  Compensation** | ** ** |
|                                          |       |             |       |       |       |       |       |                                      |       |                        |       |
| Norbert E.  Woodhams                          |       | 2005             |       | $          | 367,019    |       | $          | 78,591                                    |       | 53,228                      | (2)        | $ | 75,207 | (3) |
| President  and Chief                          |       | 2004             |       | 356,731    |       | 518,213    |       | —                                    |       | 9,200                       | (6)        |
| Executive  Officer                            |       | 2003             |       | 350,000    |       | 678,563    |       | —                                    |       | 3,200                       | (6)        |
|                                          |       |             |       |       |       |       |       |                                      |       |                        |       |
| Robert C.  Naylor                             |       | 2005             |       | $          | 240,423    |       | $          | 41,971                                    |       | 32,756                      | (2)        | $ | 76,347 | (4) |
| Senior Vice  President of                     |       | 2004             |       | 224,231    |       | 314,592    | ** ** | **—**                                |       | 8,000                       | (6)        |
| Sales, Marketing and New Product  Development |       | 2003             |       | 220,000    |       | 427,140    |       | —                                    |       | 1,040                       | (6)        |
|                                          |       |             |       |       |       |       |       |                                      |       |                        |       |
| James C.  Richardson, Jr. (1)            |       | 2005             |       | $          | 319,486    |       |       |                                      | —     |                        | —     |   |
|                                          |       | 2004             |       | 1,020,046  |       | —     |       | —                                    |       | $                           | 188,652    | (5) |
|                                          |       | 2003             |       | 1,000,800  |       | $          | 1,615,000  |                                      | —     |                        | 276,947    | (5) |
|                                          |       |             |       |       |       |       |       |                                      |       |                        |       |
| David R.  Clark (1)                           |       | 2005             |       | $          | 319,486    |       | —     |                                      | —     |                        | $          | 1,683 | (6) |
|                                          |       | 2004             |       | 1,020,046  |       | —     |       | —                                    |       | 5,500                       | (6)        |
|                                          |       | 2003             |       | 1,000,800  |       | $          | 1,750,000  |                                      | —     |                        | 3,200      | (6) |

 

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(1)  Following the Acquisition, Messrs. Richardson and Clark,the former Chairman and Vice Chairman of the Company, respectively, are nolonger employed by the Company.

 

(2)  Represents shares of Holding awarded under the 2004 StockOption Plan.  See “Stock-BasedCompensation” below.

 

(3)  Represents $3,878 in contributions made by the Company to theCompany’s 401(k) plan and $71,329 in life insurance premiums.

 

(4)  Represents $5,018 in contributions made by the Company to theCompany’s 401(k) plan and $71,329 in life insurance premiums.

 

(5)  Represents the value of life insurance premiums.

 

(6)  Represents matching contributions made by the Company to theCompany’s 401(k) plan.

 

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**Stock-Based Compensation**

 

Following the consummation of the Acquisition,Holding’s board of directors and stockholders adopted the 2004 Stock OptionPlan (the “Option Plan”), pursuant to which a pool of approximately 10% ofHolding’s common stock, or 163,778 shares, are reserved for issuance tomanagement, employees and consultants of the Company in order to provideincentives to such persons.* *In the event that any participantin the Option Plan ceases to be employed by Holding or its subsidiaries,Holding may repurchase such participant’s option shares at fair market value(whether held by the participant or one or more of his transferees).  If for any reason, Holding does not elect topurchase all of such option shares, MDP and certain of its affiliates will beentitled to do so.  In addition, subjectto certain exceptions, any shares issued pursuant to the Option Plan will besubject to the stockholders agreement, which grants Holding certain rights offirst refusal in connection with certain transfers of such shares.  Upon a sale of Holding to an independentthird party, Holding’s board of directors, in its sole discretion, may permitthe acceleration of the vesting of the options of participants in the OptionPlan.* *Should any participant’s employment with Holding or its subsidiariesterminate prior to the vesting of options issued to such participant, anyunvested options expire and are forfeited by the participant.

 

Thefollowing table sets forth certain information regarding options granted insuccessor fiscal 2005 under the Option Plan to named executive officers whoparticipated therein.

 
| **Individual Grants(a)** | ** ** | **Potential Realizable Value  at Assumed Annual Rates of  Stock Price Appreciation for  Option Term** | ** ** |
|--------------------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| **Name**                 | ** ** | **No. of  Securities  Underlying  Options  Granted**                                             | ** ** | **% of Total  Options  Granted to  Employees in  Fiscal 2005** | ** ** | **Exercise  Price  Per Share** | ** ** | **Expiration  Date** | ** ** | **5%** | ** ** | **10%** | ** ** |
|                     |       |                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Norbert E.  Woodhams     |       | 53,228                                                                                                |       | 41.8 | % | $ | 10.00 |   | 6/30/14 |   | $ | 293,458 |   | $ | 848,317 |   |
|                     |       |                                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Robert C.  Naylor        |       | 32,756                                                                                                |       | 25.7 | % | $ | 10.00 |   | 6/30/14 |   | $ | 275,810 |   | $ | 522,046 |   |

 

----

(a)                                  In general, 40% of the option vests dailyover five years from the date of grant and 60% vests over seven years from thedate of grant, subject to accelerated vesting based on the achievement ofcertain performance measures.

 

**Aggregated Option Exercises In Last FiscalYear and Year-End Values**

 

The following table sets forth, for each ofthe Named Executive Officers, aggregated information concerning options topurchase shares of common stock of Holding granted to each and the value ofoutstanding options to purchase shares of common stock of Holding at March 5,2005.  No stock appreciation rights wereoutstanding at March 5, 2005.  Nooptions were exercised by Named Executive Officers in fiscal 2005.

 
| ** **           | ** ** | **Number of Securities  Underlying Unexercised  Options  At March 5, 2005** | ** ** | **Value of Unexercised  In-the-Money Options  At March 5, 2005 (a)** | ** ** |
|----------------------|------------|----------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| **Name**             | ** ** | **Exercisable**                                                                  | ** ** | **Unexercisable**                                                         | ** ** | **Exercisable** | ** ** | **Unexercisable** | ** ** |
|                 |       |                                                                             |       |                                                                      |       |   |   |   |   |   |   |
| Norbert E.  Woodhams |       | 2,890                                                                            |       | 50,338                                                                    |       | $ | 28,900 |   | $ | 503,380 |   |
|                 |       |                                                                             |       |                                                                      |       |   |   |   |   |   |   |
| Robert C.  Naylor    |       | 1,778                                                                            |       | 30,978                                                                    |       | $ | 17,780 |   | $ | 309,780 |   |

 

23

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----

(a)  There is no market for the shares and the values at March 5, 2005are based on the last valuation available to the Company.

 

**Deferred Compensation Plan**

 

Inconnection with the Acquisition, Mr. Woodhams and Mr. Naylor,invested approximately $4.9 million in a deferred compensation plan.  This deferred compensation plan is fundedthrough a rabbi trust that owns preferred stock of Holding with an aggregateliquidation value of approximately $5.2 million at March 5,2005.  See “Certain Relationships andRelated Transactions.”

 

**Compensation of Directors**

 

During predecessor fiscal 2005, directors were paid$5,000 per board meeting attended, except that directors who were employees ofthe Company received no payment for services as directors.  Following the Acquisition in successor fiscal2005, directors that are employees or affiliates of MDP did not receive feesfor services as directors.  The directorwho is neither the Company’s employee nor an affiliate of MDP receives $35,000annually plus related travel expenses.  All of the Company’s directors are reimbursed for out-of-pocket expensesincurred in connection with attending all board and other committee meetings.

 

###### **EmploymentContracts and Change in Control Agreements**

###### ** **

*Norbert E. Woodhams.  *In connectionwith the Acquisition, Norbert E. Woodhams entered into an Employment Agreementwith Holding, which provides for the employment of Mr. Woodhams asPresident and Chief Executive Officer of Pierre and Holding through June 29,2005.  The term of the EmploymentAgreement automatically renews for successive one-year terms unless eitherparty gives the other party written notice of its intent not to renew at least60 days prior to the expiration of the then-current term.  Pursuant to the Employment Agreement, Mr. Woodhams’base salary is $375,000 per year subject to annual adjustments forinflation.  In addition, Mr. Woodhamsis entitled to (i) participate in the annual bonus plan for seniorexecutives of Pierre, (ii) participate in employee benefit programs inwhich senior executives of Pierre are generally eligible to participate, (iii) usea company car, and (iv) obtain reimbursement of all reasonableout-of-pocket expenses.  If Mr. Woodhamsis terminated without cause, dies or becomes disabled, or he resigns for goodreason (each as defined in the Employment Agreement), he will be entitled toreceive his base salary for one year and to continue to participate in employeewelfare benefit plans.  The EmploymentAgreement contains customary nondisclosure of confidential informationprovisions and a covenant not to compete with Pierre for a period of one yearafter termination of employment.  TheEmployment Agreement supercedes the Incentive Agreement dated August 18,1999, as amended, between Mr. Woodhams and Pierre.

 

*Robert C. Naylor.  *Also in connection with the Acquisition,Robert C. Naylor entered into an Employment Agreement with Holding, whichprovides for the employment of Mr. Naylor as Senior Vice President ofSales and Marketing and New Product Development of Pierre and Holding through June 29,2005.  The Employment Agreementautomatically renews for successive one-year terms unless either party givesthe other party written notice of its intent not to renew at least 60 daysprior to the expiration of the then-current term.  Pursuant to the Agreement, Mr. Naylor’sbase salary is $250,000 per year subject to annual adjustments for inflation.  In addition, Mr. Naylor is entitled to (i) participatein the annual bonus plan for senior executives of Pierre, (ii) participatein employee benefit programs in which senior executives of Pierre are generallyeligible to participate, (iii) use a company car, and (iv) obtainreimbursement of all reasonable out-of-pocket expenses.  If Mr. Naylor is terminated withoutcause, dies or becomes disabled, or he resigned for good reason (each asdefined in the Agreement), he will be entitled to receive his base salary forone year and to continue to participate in employee welfare benefit plans.  The Employment Agreement contains customarynondisclosure of confidential information provisions and a covenant not to competewith Pierre for a period of one year after termination of employment.  The Employment Agreement supercedes theEmployment Agreement dated December 31, 2001 between Mr. Naylor andPierre.

 

*James C. Richardson, Jr. and David R. Clar*k. Each of James C. Richardson, Jr., the Company’s former Chairman,and David R. Clark, the Company’s former Vice Chairman, were parties to anEmployment Agreement with the Company that was terminated in connection withthe Acquisition.

 

24

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**Item  12.  *Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters***

 

**Securities Authorized for Issuance Under Equity Compensation Plans**

 

The following table sets forth the number of sharesof common stock of Holding subject to options granted pursuant to the OptionPlan, which is the only outstanding equity compensation plan relating to theCompany.

 
| **Plan Category**                                           | ** ** | **Number of Securities to be  Issued Upon Exercise of  Outstanding Options  (a)** | ** ** | **Weighted-Average  Exercise Price of  Outstanding Options  (b)** | ** ** | **Number of Securities Remaining  Available for Future Issuance  under Equity Compensation  Plans (excluding Securities  Reflected in Column (a))  (c)** | ** ** |
|-------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                        |       |                                                                              |       |                                                              |       |                                                                                                                                                     |       |   |
| Equity  Compensation Plans Approved by Security-Holders     |       | 127,397                                                                           |       | $                                                                 | 10.00      | (1)                                                                                                                                                      | 36,381     |   |
|                                                        |       |                                                                              |       |                                                              |       |                                                                                                                                                     |       |   |
| Equity  Compensation Plans Not Approved by Security Holders |       | -0-                                                                               |       | N/A                                                               |       | -0-                                                                                                                                                      |       |
|                                                        |       |                                                                              |       |                                                              |       |                                                                                                                                                     |       |
| TOTAL                                                       |       | 127,397                                                                           |       | $                                                                 | 10.00      | (1)                                                                                                                                                      | 36,381     |   |

 

----

(1) All outstanding options have an exercise price of $10.00 per share.

 

**Security Ownership of Principal Shareholders and Management**

 

All of the Company’s capital stock is owned by PFMI,which is a wholly-owned subsidiary of Holding.

 

The following table sets forth certain informationwith respect to the beneficial ownership of the common stock of Holding as of March 5,2005, by (1) each person known by the Company to own beneficially morethan five percent of the outstanding shares of common stock of Holding; (2) eachof the directors and executive officers of Holding; and (3) all of thedirectors and executive officers of Holding as a group.  Unless otherwise stated, each of the personsin the table has sole voting and investment power with respect to thesecurities beneficially owned. Percentage ownership is based on 1,477,500 shares of common stock ofHolding outstanding as of March 5, 2005.

 
| **Name And  Address of  Beneficial Owner**                   | ** ** | **Number of Shares  of Common Stock  Beneficially Owned** | ** ** | **Percent of Outstanding  Common Stock** | ** ** |
|--------------------------------------------------------------|------------|-----------------------------------------------------------|------------|------------------------------------------|------------|
|                                                         |       |                                                      |       |                                     |       |
| Madison  Dearborn Capital Partners IV, L.P.                  |       | 1,420,000                                                 | (1)        | 96.1                                     | %          |
|                                                         |       |                                                      |       |                                     |       |
| Norbert E.  Woodhams                                         |       | 29,589                                                    | (2)        | 2.0                                      | %          |
|                                                         |       |                                                      |       |                                     |       |
| Robert C.  Naylor                                            |       | 25,209                                                    | (3)        | 1.7                                      | %          |
|                                                         |       |                                                      |       |                                     |       |
| Nicholas W.  Alexos                                          |       | 1,420,000                                                 | (4)        | 96.1                                     | %          |
|                                                         |       |                                                      |       |                                     |       |
| Robin P.  Selati                                             |       | 1,420,000                                                 | (4)        | 96.1                                     | %          |
|                                                         |       |                                                      |       |                                     |       |
| All  directors and executive officers as a group (4 persons) |       | 1,475,160                                                 |       | 99.4                                     | %          |

 

25

----

 

----

(1) The listed shares are directly owned by Madison Dearborn Capital Partners IV,L.P. (“MDCP IV”).  Madison DearbornPartners IV , L.P. (“MDP IV”) is the general partner of MDCP IV and MadisonDearborn Partners, LLC (“MDP LLC”) is the general partner of MDP IV.  MDP IV and MDP LLC may therefore be deemed tohave shared voting and dispositive power with respect to all of the sharesowned by MDCP IV.  The address for MDCPIV, MDP IV, and MDP LLC is Three First National Plaza, Suite 3800,Chicago, Illinois 60602.

 

(2) Includes 3,589 shares subject to options exercisable within 60 days by Mr. Woodhams.

 

(3) Includes 2,209 shares subject to options exercisable within 60 days by Mr. Naylor.

 

(4) Messrs. Selati and Alexos are Managing Directors of MDP LLC, the generalpartner of MDP IV, which in turn is the general partner of MDCP IV.  Messrs. Selati and Alexos disclaimbeneficial ownership of those shares, except to the extent of any pecuniaryinterest therein.

 

**Item  13.  *Certain Relationships andRelated Party Transactions***

 

**Successor Pierre**

 

In conjunctionwith or subsequent to the Acquisition, the following relationships and relatedtransactions existed:

 

**•**                  Inconjunction with the Acquisition, John Grigg, one of the Company’s formerdirectors, was paid a fee at the closing, pursuant to his letter agreement withthe Company dated as of January 29, 2004, for professional servicesperformed on behalf of the Company and PFMI. The fee was approximately $781,000 and was paid from the proceeds to theselling shareholders.

 

**•**                  MadisonDearborn Partners IV, L.P. received a fee of $5.0 million at the closing of theAcquisition, plus out-of-pocket expenses incurred in connection with theAcquisition.  MDP may be paid additionalfees from time to time in the future for providing management, consulting oradvisory services and will be reimbursed for all future expenses incurred inconnection with its investment in Holding.

 

**•**                  In connection with the Acquisition, Mr. Woodhamsand Mr. Naylor, invested approximately $4.9 million in a deferredcompensation plan.  This deferredcompensation plan is funded through a rabbi trust that owns preferred stock ofHolding with an aggregate liquidation value of approximately $5.2 millionas of March 5, 2005.

 

**•**                  Inconjunction with the Acquisition, the Company and the selling shareholdersentered into a tax sharing and indemnification agreement which contains certainrepresentations and warranties of the selling shareholders with respect totaxes.  The agreement provides that anynet operating loss carryforward (“NOL”) with respect to periods before theAcquisition, and attributable to expenses relating to the Acquisition, will befor the benefit of the selling shareholders. Accordingly, the Company will pay to the selling shareholders the amountof any tax benefit attributable to such NOL, except that the first $4 millionof such tax benefits shall be paid into an escrow account that will secure theselling shareholders indemnification obligations under the tax sharingagreement.  The Company has recorded anet long-term liability to the former shareholders totaling $10,190,051 as of March 5,2005 for the estimated obligations under the tax sharing agreement.

 

•      Norbert J. Woodhams, one of the Company'sVice Presidents, is the son of Norbert E. Woodhams.  Norbert E. Woodhams is the Company'sPresident, Chief Executive Officer, Director and Chairman of the Board.  In predecessor fiscal 2005 and successorfiscal 2005 combined, Norbert J. Woodhams received a base salary of ninety-twothousand and seven hundred dollars and earned a bonus of forty-seven thousandand eight hundred dollars under the Company's bonus plan.  The base salary and bonus earned by NorbertJ. Woodhams is consistent with the earnings of other Company employees withsimilar responsibilities.

 

26

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**Predecessor Pierre**

 

As described in Note 1 to the Consolidated FinancialStatements, on March 8, 2004 the Company and the Trustee under the Company’sIndenture executed a Fourth Supplemental Indenture and, pursuant to the termsof the Fourth Supplemental Indenture, the Company terminated substantially allof its related party transactions.  Thefollowing related party transactions were specifically permitted under theterms of the Fourth Supplemental Indenture:

 

**•**                  Columbia Hill Land Company, LLC,owned 50% by each of Messrs. Richardson and Clark, leases office space tothe Company in Hickory, North Carolina, pursuant to a ten-year lease thatcommenced in September 1998.  Rentspaid under the lease were approximately $58,000 and $116,000 in predecessorfiscal 2005 and predecessor fiscal 2004, respectively.

 

**•**                  On August 13, 2003, the Companyobtained a three year variable rate $40 million revolving credit facility fromFleet Capital Corporation.  Messrs. Richardsonand Clark provided guarantees of value and validity of the collateral securingthis credit facility; they did not, however, guarantee payment of the facility,nor did they receive guarantee fees.

 

**•**                  On March 8, 2004 the Companytook title to an aircraft that was transferred from Columbia Hill Aviation, LLC(“CHA”), owned 100% by PFMI, subject to existing purchase money debt.  The aircraft was originally leased by theCompany from CHA beginning in the fourth quarter of predecessor fiscal2002.  Effective March 1, 2002, theoriginal lease was cancelled and replaced with a non-exclusive leaseagreement.  Pursuant to this new lease,the Company was obligated to make 16 quarterly lease payments of $471,500 eachfor the right to use the aircraft for up to 115 flight hours per quarter, basedon availability.  Under this leaseagreement, CHA was responsible for all expenses incurred in the operation ofthe use of the aircraft, except that the Company provided its own flightcrew.  During predecessor fiscal 2004,the Company paid CHA approximately $2.6 million in lease payments.  CHA was not a subsidiary of the Company;however, the Company considered CHA a non-independent special purpose leasingentity.  Accordingly, CHA’s financialcondition, results of operations and cash flows have been included in theCompany’s Consolidated Financial Statements included herein.  Under the terms of the operating lease withCHA, and the financing agreements between CHA and its creditor, the Company didnot maintain the legal rights of ownership to the aircraft, nor did CHA’screditor maintain any legal recourse to the Company.  Subsequently, as a result of the Acquisition,the aircraft was distributed to a former shareholder.

 

Any related party transactions described below thatwere in effect at March 6, 2004 were subsequently terminated as of March 8,2004 pursuant to the terms of the Fourth Supplemental Indenture.  As a result of the termination of theserelated party transactions, subsequent to March 8, 2004, the Companyperforms the purchasing and distribution services internally.  Other related party services are outsourcedas necessary at comparable cost.

 

**•**                  Columbia Hill Management, Inc. (“ColumbiaHill”), owned 50% by each of Messrs. Richardson and Clark, providedaccounting, tax and administrative services to Pierre, as well as professionalservices for the management of special projects.  Fees paid for these services wereapproximately $203,000 in predecessor fiscal 2004.

 

**•**                  During predecessor fiscal 2004, PFMIowed the Company as much as $993,247 pursuant to a promissory note payable ondemand and bearing interest at the prime rate. Prior to the Acquisition, PFMI was owned in part by Messrs. Richardsonand Clark, who have unconditionally guaranteed repayment of the note.  As of March 8, 2004, this note wasforgiven in connection with the Fourth Supplemental Indenture.

 

**•**                  Effective February 21, 2003, Messrs. Richardsonand Clark sold their net assets in Compass Outfitters, LLC, a company thatprovided team-building opportunities for customers and employees of theCompany, to the Company for a total of $270,983.  In exchange for the net assets, the Companyissued notes in the amount of $135,491 to each of Messrs. Richardson andClark.  The notes were five-year notes,bearing interest at 6% per annum, with interest and principal due atmaturity.  As of March 8, 2004, inconnection with the Fourth Supplemental Indenture, these notes were cancelled.

 

**•**                  PF Purchasing, LLC (“PFP”), previously owned 100% byPFMI, served as the exclusive purchasing agent for the Company, pursuant to athree-year agreement that commenced September 3, 2001.  Under the agreement, PFP made an incentivepayment of $100,000 per quarter to the Company in consideration of theopportunity to act as exclusive purchasing agent, and in exchange was entitledto receive all rebates or discounts receivable by Pierre from suppliers andvendors for orders negotiated and placed by PFP.  In predecessor fiscal 2004, net fees paid toPFP were approximately $2,122,000.

 

27

----

 

**•**                  Effective March 3, 2002, the Company enteredinto a logistics agreement with PF Distribution, LLC (“PFD”), owned 100% byPFMI.  Under the agreement, PFD served asthe exclusive logistics agent for the Company, and provided all warehousing,fulfillment and transportation services to the Company.  The cost of PFD’s services was based on flatrates per pound, which were calculated based on weight and volume characteristicsof products, inventory pounds maintained and inventory pounds shipped.  Rates were determined based on historicalcosts and industry standards.  Inpredecessor fiscal 2004, distribution expense recorded in selling, general andadministrative expense was approximately $31,126,000 of which approximately$30,999,000 million had been paid to PFD as of March 6, 2004.

 

**•**                  Atlantic Cold Storage of Mocksville, LLC (“ACS”),owned one-third each by Messrs. Richardson and Clark, planned to constructand finance a public cold storage warehouse which would lease space to theCompany as well as to others.  Theproposed agreement with the Company was for 10 years and a minimum of 4,000pallet positions to be leased as of the first date the facility became operational.  During predecessor fiscal 2001, the Companypaid $250,000 to ACS for specialized construction costs.  As of March 8, 2004, in connection withthe Fourth Supplemental Indenture, these costs were written-off.

 

**•**                  The following transactions were entered into on March 8,2004 as permitted by the Fourth Supplemental Indenture:

 
| Assumption  of PFMI debt                           |   | $          | (14,274,050 | )      |
|----------------------------------------------------|--------|------------|-------------|--------|
| Accrued  liabilities to PFP cancelled              |   | 3,479,007  |        |
| Assumption  of deferred tax liability for aircraft |   | (1,576,000 | )           |
| Note  receivable cancelled                         |   | (993,247   | )           |
| Accrued  liabilities to PFD cancelled              |   | 535,251    |        |
| Cash  received                                     |   | 763,998    |        |
| Other                                              |   | (174,874   | )           |
| Total                                              |   | $          | (12,239,915 | )      |
|                                               |   |       |        |
| Allocated to  the following accounts:              |   |       |        |
| Retained  Earnings                                 |   | $          | 11,900,276  |   |
| Common Stock                                       |   | 339,639    |        |
| Total                                              |   | $          | 12,239,915  |   |

 

The $339,639 charge represents theremoval of members’ equity of CHA.

 

All material transactions with affiliates ofthe Company were reviewed by the entire Board of Directors, where they wereapproved by a majority of the independent directors.  The directors obtained and relied uponinvestment banking “fairness” opinions when considering these transactions tothe extent required by the indenture governing the Old Notes.

 

On June 30, 2004, in conjunction withthe Acquisition, all previously existing related party transactions wereterminated as described in Note 1, “Basis of Presentation and Acquisition,” tothe Consolidated Financial Statements.

 

28

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**Item  14. Principal Accountant Fees and Services**

 

The following table presents fees billed forprofessional audit services rendered by Deloitte & Touche LLP for theaudit of our annual financial statements for predecessor fiscal 2005 andsuccessor fiscal 2005 combined and predecessor fiscal 2004, and for otherservices rendered by Deloitte & Touche LLP during those periods:

 
| ** **              | ** ** | **Predecessor Fiscal 2005  And  Successor Fiscal 2005  Combined** | ** ** | **Predecessor Fiscal 2004** | ** ** |
|-------------------------|------------|-------------------------------------------------------------------|------------|-----------------------------|------------|
|                    |       |                                                              |       |                        |       |
| Audit Fees  (1)         |       | $                                                                 | 326,900    |                        | $          | 281,000 |   |
| Audit  Related Fees (2) |       | 564,100                                                           |       | —                      |       |
| Tax Fees (3)            |       | 137,600                                                           |       | 80,700                      |       |
| All Other  Fees         |       | —                                                            |       | —                      |       |
|                    |       |                                                              |       |                        |       |
| Total                   |       | $                                                                 | 1,028,600  |                        | $          | 361,700 |   |

 

----

(1) Audit fees consisted of fees for servicesperformed in the audit of the financial statements, as well as work generallyonly the independent auditor can reasonably be expected to provide, such asstatutory audits.

 

(2) Audit related fees during predecessor 2005and successor 2005 combined include payment for services in connection with theAcquisition, including but not limited to the tender offer, the filing of theCompany’s registration statement and audits in connection with the Acquisition.

 

(3)  Tax fees include all tax services relatingto tax compliance, tax planning and reporting.

 

The Board of Directors of the Company considered theimpact on auditor’s independence in connection with non-audit services andconcluded there is no adverse effect on their independence.

 

**Policy on Board of Directors Pre-Approval of Audit and PermissibleNon-audit Services of Independent Auditors**

 

Consistent with SEC policies regarding auditorindependence, the Audit Committee of the Board of Directors of the Company hasresponsibility for appointing, setting compensation and overseeing the work ofthe independent auditor.  In recognitionof this responsibility, the Audit Committee of the Board of Directors hasestablished a policy to pre-approve all audit and permissible non-auditservices provided by the independent auditor**.**

 

29

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**PART IV**

 

**Item  15.  *Exhibits and FinancialStatement Schedules***

 

(a)                                  1.                                     FinancialStatements

 

The Financial Statements listed in theaccompanying Index on page F-1 are filed as a part of this Report.

 

2.                                     FinancialStatement Schedules

 

Financial statement schedules have beenomitted because they are not applicable or not required, or because therequired information is provided in the Company’s Consolidated FinancialStatements or notes thereto.

 

3.                                     Exhibits

 

See Index to Exhibits below.

 

30

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**SIGNATURES**

 

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

 
|   | PIERRE FOODS, INC. |
|--------|--------------------|
|   |               |
|   |               |
|   | By:                | /S/ JOSEPH  W. MEYERS |   |
|   |               | Joseph W.  Meyers |   |
|   |               | *Vice  President, Finance* |   |

 

Dated: June 3, 2005

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below by thefollowing persons on behalf of Pierre Foods, Inc., in the capacities andon the dates indicated.

 
| **Signature**           | ** ** | **Title**                         | ** ** | **Date**          |   |
|-------------------------|------------|-----------------------------------|------------|-------------------|--------|
|                    |       |                              |       |              |   |
| /S/ NORBERT E. WOODHAMS |       | Chief Executive Officer and       |       | June 3, 2005 |   |
| Norbert E. Woodhams     |       | President (Principal  Executive   |       |              |   |
|                    |       | Officer), Director and  Chairman  |       |              |   |
|                    |       | of the Board                      |       |              |   |
|                    |       |                              |       |              |   |
| /S/ JOSEPH W. MEYERS    |       | Vice President, Finance           |       | June 3, 2005 |   |
| Joseph W. Meyers        |       | (Principal Financial  Officer and |       |              |   |
|                    |       | Principal Accounting  Officer)    |       |              |   |
|                    |       |                              |       |              |   |
| /S/ NICHOLAS W. ALEXOS  |       | Director                          |       | June 3, 2005 |   |
| Nicholas W. Alexos      |       |                              |       |              |   |
|                    |       |                              |       |              |   |
| /S/ SCOTT W. MEADER     |       | Director                          |       | June 3, 2005 |   |
| Scott W. Meader         |       |                              |       |              |   |
|                    |       |                              |       |              |   |
| /S/ GEORGE A. PEINADO   |       | Director                          |       | June 3, 2005 |   |
| George A. Peinado       |       |                              |       |              |   |
|                    |       |                              |       |              |   |
| /S/ ROBIN P. SELATI     |       | Director                          |       | June 3, 2005 |   |
| Robin P. Selati         |       |                              |       |              |   |

 

31

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**INDEX TO EXHIBITS**

 
| ** ** | ** ** | **Description**                                                              | ** **                                                                                                                                                                                                                                                                                                                            | **Located at  Manually  Numbered Page** |
|------------|------------|------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------|
| (2)        |       | PLAN OF ACQUISITION,  REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION |                                                                                                                                                                                                                                                                                                                                  |                                    |
|       |       |                                                                         |                                                                                                                                                                                                                                                                                                                                  |                                    |   |
|       |       | 2.1                                                                          | Stock Purchase Agreement,  dated as of May 11, 2004, among PF Management, Inc., the PF Management, Inc.  Shareholders, David R. Clark, as Shareholders Agent, and Pierre Holding Corp.  (filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K, filed  with the Securities and Exchange Commission On May 17, 2004) |                                    | ** |
|       |       |                                                                         |                                                                                                                                                                                                                                                                                                                                  |                                    |   |
| (3)(i)     |       | ARTICLES OF INCORPORATION                                                    |                                                                                                                                                                                                                                                                                                                                  |                                    |
|       |       |                                                                         |                                                                                                                                                                                                                                                                                                                                  |                                    |   |
|       |       | 3(i).1                                                                       | Articles of Restatement of  Pierre Foods, Inc., dated July 30, 2002 incorporating Restated Articles  of Incorporation (filed as Exhibit 3.3 to the Company’s Quarterly Report on  Form 10-Q, filed with the Securities and Exchange Commission on October 15,  2002)                                                   |                                    | ** |
|       |       |                                                                         |                                                                                                                                                                                                                                                                                                                                  |                                    |   |
|       |       | 3(i).2                                                                       | Articles of Merger of  Pierre Foods, Inc. and Pierre Merger Corp., dated June 30, 2004 (filed  as Exhibit 3.2 to the Company’s Registration Statement on Form S-4, filed  with the Securities and Exchange Commission on September 27, 2004)                                                                           |                                    | ** |
|       |       |                                                                         |                                                                                                                                                                                                                                                                                                                                  |                                    |   |
|       |       | 3(i).3                                                                       | Articles of Organization  of Fresh Foods Properties, LLC, dated December 10, 1997 (filed as  Exhibit 3.4 to the Company’s Registration Statement on Form S-4, filed with  the Securities and Exchange Commission on September 27, 2004)                                                                                |                                    | ** |
|       |       |                                                                         |                                                                                                                                                                                                                                                                                                                                  |                                    |   |
| (3)(ii)    |       | BYLAWS                                                                       |                                                                                                                                                                                                                                                                                                                                  |                                    |
|       |       |                                                                         |                                                                                                                                                                                                                                                                                                                                  |                                    |   |
|       |       | 3(ii).1                                                                      | Amended and Restated  Bylaws of Pierre Foods, Inc., dated September 18, 2002 (filed as Exhibit  3.3 to the Amendment No. 2 to the Company’s Registration Statement on Form  S-4, filed with the Securities and Exchange Commission on February 3,  2005)                                                               |                                    | ** |
|       |       |                                                                         |                                                                                                                                                                                                                                                                                                                                  |                                    |   |
|       |       | 3(ii).2                                                                      | Operating Agreement of  Fresh Foods Properties, LLC (filed as Exhibit 3.5 to the Company’s  Registration Statement on Form S-4, filed with the Securities and Exchange Commission  on September 27, 2004)                                                                                                                   |                                    | ** |
|       |       |                                                                         |                                                                                                                                                                                                                                                                                                                                  |                                    |   |
| (4)        |       | INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING  INDENTURES   |                                                                                                                                                                                                                                                                                                                                  |                                    |
|       |       |                                                                         |                                                                                                                                                                                                                                                                                                                                  |                                    |   |
|       |       | 4.1                                                                          | Indenture, dated as of June 30,  2004, between Pierre Merger Corp. and U.S. Bank National Association, Trustee  (filed as Exhibit 4.1- to the Company’s Registration Statement on Form S-4,  filed with the Securities and Exchange Commission on September 27, 2004)                                                  |                                    | ** |
|       |       |                                                                         |                                                                                                                                                                                                                                                                                                                                  |                                    |   |
|       |       | 4.2                                                                          | First Supplemental  Indenture, dated as of June 30, 2004, among Pierre Foods, Inc., Fresh  Foods Properties, LLC and U.S. Bank National Association, Trustee (filed as  Exhibit 4.2 to the Company’s Registration Statement on Form S-4, filed with  the Securities and Exchange Commission on September 27, 2004)     |                                    | ** |

 

32

----

 
|   |   | 4.3                                                         | Registration Rights  Agreement, dated June 30, 2004, among Pierre Foods, Inc. and Banc of  America LLC and Wachovia Capital Markets, LLC (filed as Exhibit 4.3 to the  Company’s Registration Statement on Form S-4, filed with the Securities and  Exchange Commission on September 27, 2004) |   | **     |
|--------|--------|-------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                        |                                                                                                                                                                                                                                                                                                          |   |   |
| (10)   |   | MATERIAL CONTRACTS                                          |                                                                                                                                                                                                                                                                                                          |   |
|   |   |                                                        |                                                                                                                                                                                                                                                                                                          |   |   |
|   |   | Management Contracts and Compensatory Plans or Arrangements |                                                                                                                                                                                                                                                                                                          |   |
|   |   |                                                        |                                                                                                                                                                                                                                                                                                          |   |   |
|   |   | 10.1                                                        | Third Amendment to  Incentive Agreement, dated as of May 11, 2004, between the Company and  Norbert E. Woodhams (filed as Exhibit 10.13 to the Company’s Annual Report on  Form 10-K, filed with the Securities and Exchange Commission on May 17, 2004)                                                 |   | **     |
|   |   |                                                        |                                                                                                                                                                                                                                                                                                          |   |   |
|   |   | 10.2                                                        | Amendment to Employment  Agreement, dated as of May 11, 2004, between the Company and Robert C. Naylor  (filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K, filed  with the Securities and Exchange Commission on May 17, 2004)                                                         |   | **     |
|   |   |                                                        |                                                                                                                                                                                                                                                                                                          |   |   |
|   |   | 10.3                                                        | Pierre Foods, Inc. Fiscal  2006 Executive Incentive Compensation Plan (filed as Exhibit 10.1 to the  Company Current Report on Form 8-K, filed with the Securities and Exchange  Commission on March 15, 2005)                                                                                           |   | **     |
|   |   |                                                        |                                                                                                                                                                                                                                                                                                          |   |   |
|   |   | 10.4                                                        | Employment Agreement dated  as of May 11, 2004 between Pierre Holding Corp. and Norbert E. Woodhams  (filed as Exhibit 10.15 to the Company’s Registration Statement on Form S-4,  filed with the Securities and Exchange Commission on September 27, 2004)                                         |   | **     |
|   |   |                                                        |                                                                                                                                                                                                                                                                                                          |   |   |
|   |   | 10.5                                                        | Employment Agreement dated  as of May 11, 2004 between Pierre Holding Corp. and Robert C. Naylor (filed  as Exhibit 10.16 to the Company’s Registration Statement on Form S-4, filed  with the Securities and Exchange Commission on September 27, 2004)                                            |   | **     |
|   |   |                                                        |                                                                                                                                                                                                                                                                                                          |   |   |
|   |   | 10.6                                                        | Deferred Compensation Plan  (filed as Exhibit 10.17 to the Company’s Registration Statement on Form S-4,  filed with the Securities and Exchange Commission on September 27, 2004)                                                                                                                  |   | **     |
|   |   |                                                        |                                                                                                                                                                                                                                                                                                          |   |   |
|   |   | 10.7                                                        | Pierre Holding Corp. 2004  Stock Option Plan (filed as Exhibit 10.1 to the Company’s Quarterly Report on  Form 10-Q, filed with the Securities and Exchange Commission on January 18,  2005)                                                                                                        |   | **     |
|   |   |                                                        |                                                                                                                                                                                                                                                                                                          |   |   |
|   |   | 10.8                                                        | Form of Option Agreement  (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed  with the Securities and Exchange Commission on January 18, 2005)                                                                                                                            |   | **     |
|   |   |                                                        |                                                                                                                                                                                                                                                                                                          |   |   |
|   |   | Other Material Contracts                                    |                                                                                                                                                                                                                                                                                                          |   |
|   |   | 10.9                                                        | Assignment and Assumption  and Subordination Agreement dated as of March 8, 2004, between Pierre  Foods, Inc. and PF Management, Inc. (filed as Exhibit 10.20 to the Company’s  Annual Report on Form 10-K, filed with the Securities and Exchange Commission  on March 9, 2004)               |   | **     |
|   |   |                                                        |                                                                                                                                                                                                                                                                                                          |   |   |
|   |   | 10.10                                                       | Termination Agreement,  dated as of March 8, 2004, between Columbia Hill Aviation, LLC and  Pierre Foods, Inc. (filed as Exhibit 10.21 to the Company’s Annual Report on  Form 10-K, filed with the Securities and Exchange Commission March 9,  2004)                                         |   | **     |

 

33

----

 
|   |   | 10.11  | Termination Agreement,  dated as of March 8, 2004, between PF Purchasing, LLC and Pierre Foods,  Inc. (filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K,  filed with the Securities and Exchange Commission March 9, 2004)                                     |   | **     |
|--------|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |   |                                                                                                                                                                                                                                                                                            |   |   |
|   |   | 10.12  | Termination Agreement,  dated as of March 8, 2004, between PF Distribution, LLC and Pierre  Foods, Inc. (filed as Exhibit 10.23 to the Company’s Annual Report on Form  10-K, filed with the Securities and Exchange Commission March 9, 2004)                                   |   | **     |
|   |   |   |                                                                                                                                                                                                                                                                                            |   |   |
|   |   | 10.13  | Amended and Restated  Agreement, dated as of May 21, 2004, between the Company and Carl Karcher  Enterprises, Inc. (filed as Exhibit 10.8 to the Company’s Current Report on  Form 8-K, filed with the Securities and Exchange Commission on January 7,  2005)                        |   | **C    |
|   |   |   |                                                                                                                                                                                                                                                                                            |   |   |
|   |   | 10.14  | Amended and Restated  Formula Development Agreement, dated as of May 21, 2004, between the Company  and Carl Karcher Enterprises, Inc. (filed as Exhibit 10.9 to the Company’s  Current Report on Form 8-K, filed with the Securities and Exchange Commission  on January 7, 2005)    |   | **C    |
|   |   |   |                                                                                                                                                                                                                                                                                            |   |   |
|   |   | 10.16  | First Amendment Agreement,  dated as of June 27, 2004, between the Company and Carl Karcher  Enterprises, Inc. (filed as Exhibit 10.10 to the Company’s Current Report on  Form 8-K, filed with the Securities and Exchange Commission on December 2,  2004)                     |   | **C    |
|   |   |   |                                                                                                                                                                                                                                                                                            |   |   |
|   |   | 10.17  | Amended and Restated  Agreement, dated as of May 21, 2004, between the Company and Hardee’s Food  Systems, Inc. (filed as Exhibit 10.11 to the Company’s Current Report on Form  8-K, filed with the Securities and Exchange Commission on January 7,  2005)                     |   | **C    |
|   |   |   |                                                                                                                                                                                                                                                                                            |   |   |
|   |   | 10.18  | Amended and Restated  Formula Development Agreement, dated as of May 21, 2004, between the Company  and Hardee’s Food Systems, Inc. (filed as Exhibit 10.12 to the Company’s  Current Report on Form 8-K, filed with the Securities and Exchange Commission  on January 7, 2005) |   | **C    |
|   |   |   |                                                                                                                                                                                                                                                                                            |   |   |
|   |   | 10.19  | First Amendment Agreement,  dated as of June 27, 2004, between the Company and Hardee’s Food  Systems, Inc. (filed as Exhibit 10.13 to the Company’s Current Report on Form  8-K, filed with the Securities and Exchange Commission on December 2,  2004)                   |   | **C    |
|   |   |   |                                                                                                                                                                                                                                                                                            |   |   |
|   |   | 10.22  | Second Amendment  Agreement, dated as of September 30, 2004, between the Company and Carl  Karcher Enterprises, Inc. (filed as Exhibit 10.14 to the Company’s Current  Report on Form 8-K, filed with the Securities and Exchange Commission on December 2,  2004)               |   | **C    |
|   |   |   |                                                                                                                                                                                                                                                                                            |   |   |
|   |   | 10.23  | Second Amendment  Agreement, dated as of September 30, 2004, between the Company and  Hardee’s Food Systems, Inc. (filed as Exhibit 10.15 to the Company’s Current  Report on Form 8-K, filed with the Securities and Exchange Commission on December 2,  2004)             |   | **C    |

 

34

----

 
|   |   | 10.20                                             | 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 (filed as Exhibit 10.14 to the  Registration Statement on Form S-4, filed with the Securities and Exchange  Commission on September 27, 2004) |   | **                 |
|--------|--------|---------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|
|   |   |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |
|   |   | 10.21                                             | Tax Sharing and  Indemnification Agreement, dated as of May 11, 2004, among PF Management,  Inc., the PF Management, Inc. Shareholders, David R. Clark as Shareholders  Agent and Pierre Holding Corp. (filed as Exhibit 10.18 to the Registration  Statement on Form S-4, filed with the Securities and Exchange Commission on September 27,  2004)                                                                                                                                                                             |   | **                 |
|   |   |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |
| (12)   |   | CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
|   |   |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |
| (21)   |   | SUBSDIARIES OF THE REGISTRANT                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
|   |   |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |
|   |   | 21                                                | Subsidiaries of Pierre Foods, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |     |
|   |   |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |
| (31)   |   | RULE 13a - 14(a)/15(d)-14(a) CERTIFICATIONS       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
|   |   |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |
|   |   | 31.1                                              | Rule 13a-14(a)  Certification of Chief Executive Officer of the Company in accordance with Section 302  of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                        |   |     |
|   |   |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |
|   |   | 31.2                                              | Rule 13a-14(a)  Certification of Principal Financial Officer of the Company in accordance  with Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                    |   |     |
|   |   |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |
| (32)   |   | SECTION 1350 CERTIFICATIONS                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
|   |   |                                              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |               |
|   |   | 32                                                | Section 1350 Certification  of Chief Executive Officer and Principal Financial Officer of the Company in  accordance with Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                     |   |     |

 

----

**  Indicates thatExhibit is incorporated by reference in this Report from a previous filing withthe Commission.

 

“C” Confidential treatment requested as to certain portions, whichhave been filed separately with the Commission.

 

35

----

 

**INDEX TOFINANCIAL STATEMENTS**

 

**PIERREFOODS, INC.**

 
| REPORT OF INDEPENDENT REGISTERED PUBLIC  ACCOUNTING FIRM                                                                                                                                                                                       |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                           |   |
| CONSOLIDATED FINANCIAL STATEMENTS:                                                                                                                                                                                                             |   |
|                                                                                                                                                                                                                                           |   |
| Consolidated Balance Sheets - March 5, 2005 and March 6,  2004                                                                                                                                                                       |   |
|                                                                                                                                                                                                                                           |   |
| Consolidated Statements of Operations - for  the periods from March 7, 2004  through June 30, 2004 and July 1, 2004 through March 5, 2005  and for  the years ended March 6, 2004 and March 1, 2003              |   |
|                                                                                                                                                                                                                                           |   |
| Consolidated Statements of Shareholder’s  Equity - for the periods from  March 7, 2004 through June 30, 2004 and July 1, 2004 throughMarch 5, 2005 and for the years ended March 6, 2004 and March 1,  2003 |   |
|                                                                                                                                                                                                                                           |   |
| Consolidated  Statements of Cash Flows - for the periods from March 7, 2004  through June 30, 2004 and July 1, 2004 through March 5, 2005  and for the  years ended March 6, 2004 and March 1,  2003             |   |
|                                                                                                                                                                                                                                           |   |
| Notes to Consolidated Financial Statements                                                                                                                                                                                                     |   |

 

F-1

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

 

 

Tothe Board of Directors and Shareholder of

PierreFoods, Inc.

Cincinnati,Ohio

 

Wehave audited the accompanying consolidated balance sheets of Pierre Foods, Inc.and subsidiaries (the “Company”) as of March 5, 2005 and March 6,2004, and the related consolidated statements of operations, shareholder’sequity, and cash flows for the periods from July 1, 2004 through March 5,2005 and March 7, 2004 through June 30, 2004 and the years ended March 6,2004 and March 1, 2003.  Thesefinancial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of materialmisstatement.  The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting.  Ouraudits included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstancesbut not for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

Inour opinion, such consolidated financial statements present fairly, in allmaterial respects, the financial position of the Company at March 5, 2005and March 6, 2004, and the results of its operations and its cash flowsfor the periods from July 1, 2004 through March 5, 2005 and March 7,2004 through June 30, 2004 and the years ended March 6, 2004 and March 1,2003 in conformity with accounting principles generally accepted in the UnitedStates of America.

 

 

DELOITTE & TOUCHE LLP

Cincinnati, Ohio

June 2, 2005

 

F-2

----

 

**PIERRE FOODS, INC.**

 

**CONSOLIDATEDBALANCE SHEETS**

 
| ** **                                                                                                               | ** ** | **Successor**     | ** **  | ** ** | **Predecessor**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|-------------------|-------------|------------|-------------------|------------|
| ** **                                                                                                               | ** ** | **March 5,** | ** **  | ** ** | **March 6,** | ** ** |
| ** **                                                                                                               | ** ** | **2005**          | ** **  | ** ** | **2004**          | ** ** |
| **ASSETS**                                                                                                               |       |              |        |       |              |       |
| CURRENT  ASSETS:                                                                                                         |       |              |        |       |              |       |
| Cash and  cash equivalents                                                                                               |       | $                 | —      |       |              | $          | 204,865 |   |
| Certificate  of deposit                                                                                                  |       | —            |        |       | 1,240,000         |       |
| Accounts  receivable, net                                                                                                |       | 29,547,340        |        |       | 25,641,608        |       |
| Inventories                                                                                                              |       | 45,448,224        |        |       | 38,974,018        |       |
| Refundable  income taxes                                                                                                 |       | 2,906,502         |        |       | —            |       |
| Deferred  income taxes                                                                                                   |       | 5,764,233         |        |       | 3,569,766         |       |
| Prepaid  expenses and other current assets (includes related party amounts of $24,000  at March 6, 2004)            |       | 2,954,942         |        |       | 3,236,867         |       |
| Total  current assets                                                                                                    |       | 86,621,241        |        |       | 72,867,124        |       |
|                                                                                                                     |       |              |        |       |              |       |
| PROPERTY, PLANT  AND EQUIPMENT, NET                                                                                      |       | 56,284,482        |        |       | 60,695,455        |       |
| OTHER  ASSETS:                                                                                                           |       |              |        |       |              |       |
| Other  intangibles, net                                                                                                  |       | 158,223,072       |        |       | 38,808,636        |       |
| Goodwill                                                                                                                 |       | 186,535,050       |        |       | —            |       |
| Note  receivable-related party                                                                                           |       | —            |        |       | 993,247           |       |
| Deferred  income taxes                                                                                                   |       | —            |        |       | 482,215           |       |
| Deferred loan  origination fees, net                                                                                     |       | 8,923,688         |        |       | 1,627,601         |       |
| Other                                                                                                                    |       | —            |        |       | 296,694           |       |
| Total other  assets                                                                                                      |       | 353,681,810       |        |       | 42,208,393        |       |
| Total Assets                                                                                                             |       | $                 | 496,587,533 |       |              | $          | 175,770,972 |   |
|                                                                                                                     |       |              |        |       |              |       |
| **LIABILITIES  AND SHAREHOLDER’S EQUITY**                                                                           |       |              |        |       |              |       |
| CURRENT  LIABILITIES:                                                                                                    |       |              |        |       |              |       |
| Current  installments of long-term debt                                                                                  |       | $                 | 421,713     |       |              | $          | 1,628,276 |   |
| Trade  accounts payable                                                                                                  |       | 11,172,350        |        |       | 7,170,004         |       |
| Accrued  payroll and payroll taxes                                                                                       |       | 4,663,372         |        |       | 5,745,950         |       |
| Accrued  interest                                                                                                        |       | 1,832,374         |        |       | 3,242,623         |       |
| Accrued  promotions                                                                                                      |       | 3,499,230         |        |       | 3,064,769         |       |
| Income taxes  payable                                                                                                    |       | —            |        |       | 39,248            |       |
| Accrued  taxes (other than income and payroll)                                                                           |       | 949,572           |        |       | 901,693           |       |
| Other  accrued liabilities (includes related party amounts of $4,503,219 in fiscal  2004)                                |       | 1,420,979         |        |       | 4,964,703         |       |
| Total  current liabilities                                                                                               |       | 23,959,590        |        |       | 26,757,266        |       |
| LONG-TERM  DEBT, less current installments                                                                               |       | 263,158,658       |        |       | 136,772,418       |       |
| OBLIGATION  OF SPECIAL PURPOSE ENTITY                                                                                    |       | —            |        |       | 5,293,342         |       |
| DEFERRED  INCOME TAXES                                                                                                   |       | 52,929,534        |        |       | —            |       |
| OTHER  LONG-TERM LIABILITIES                                                                                             |       | 10,517,166        |        |       | 327,411           |       |
| COMMITMENTS  AND CONTINGENCIES                                                                                           |       | —            |        |       | —            |       |
| Total  liabilities                                                                                                       |       | 350,564,948       |        |       | 169,150,437       |       |
|                                                                                                                     |       |              |        |       |              |       |
| SHAREHOLDER’S  EQUITY:                                                                                              |       |              |        |       |              |       |
| Common stock  - Class A, 100,000 shares authorized, issued and outstanding at March 5,  2005 and March 6, 2004 |       | 150,351,972       |        |       | 29,438,172        |       |
| Accumulated  Deficit                                                                                                     |       | (4,329,387        | )           |       | (17,817,637       | )          |
| Note  receivable-related party                                                                                           |       | —            |        |       | (5,000,000        | )          |
| Total  shareholder’s equity                                                                                         |       | 146,022,585       |        |       | 6,620,535         |       |
| Total  Liabilities and Shareholder’s Equity                                                                         |       | $                 | 496,587,533 |       |              | $          | 175,770,972 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

F-3

----

 

**PIERRE FOODS, INC.**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

 
| ** **                                                                                                                                                      | ** ** | **Successor**          | ** **  | ** ** | **Predecessor**        | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|------------|------------------------|------------|
| ** **                                                                                                                                                      | ** ** | **Fiscal 2005**        | ** **  | ** ** | **Fiscal 2005**        | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                                                                      | ** ** | **For the Period**     | ** **  | ** ** | **For the Period**     | ** ** | **Fiscal 2004** | ** ** | **Fiscal 2003** | ** ** |
| ** **                                                                                                                                                      | ** ** | **July 1, 2004**  | ** **  | ** ** | **March 7, 2004** | ** ** | **For the Year** | ** ** | **For the Year** | ** ** |
| ** **                                                                                                                                                      | ** ** | **Through**            | ** **  | ** ** | **Through**            | ** ** | **Ended** | ** ** | **Ended** | ** ** |
| ** **                                                                                                                                                      | ** ** | **March 5, 2005** | ** **  | ** ** | **June 30,2004**  | ** ** | **March 6, 2004** | ** ** | **March 1, 2003** | ** ** |
|                                                                                                                                                            |       |                   |        |       |                   |       |   |   |   |   |
| REVENUES, NET:                                                                                                                                                  |       | $                      | 294,867,222 |       |                   | $          | 115,548,564 |   | $ | 358,549,316 |   | $ | 276,338,823 |   |
|                                                                                                                                                            |       |                   |        |       |                   |       |   |   |   |   |
| COSTS AND EXPENSES:                                                                                                                                             |       |                   |        |       |                   |       |   |   |   |   |
| Cost of goods sold  (includes net related party transactions totaling $5,295,036,and $4,283,025  in fiscal 2004 and 2003, respectively)                         |       | 217,322,673            |        |       | 87,025,521             |       | 254,235,016 |   | 184,091,572 |   |
| Selling, general and  administrative expenses (includes related party transactions totaling  $32,487,545 and $23,155,405 in fiscal 2004 and 2003, respectively) |       | 39,827,160             |        |       | 26,446,857             |       | 79,982,134 |   | 71,351,817 |   |
| Net loss on disposition of  property, plant and equipment                                                                                                       |       | 5,372                  |        |       | 339,921                |       | 11,042 |   | 88,937 |   |
| Depreciation and  amortization                                                                                                                                  |       | 23,169,814             |        |       | 1,544,903              |       | 4,604,954 |   | 4,124,641 |   |
| Total costs and expenses                                                                                                                                        |       | 280,325,019            |        |       | 115,357,202            |       | 338,833,146 |   | 259,656,967 |   |
| OPERATING INCOME                                                                                                                                                |       | 14,542,203             |        |       | 191,362                |       | 19,716,170 |   | 16,681,856 |   |
| OTHER INCOME (EXPENSE):                                                                                                                                         |       |                   |        |       |                   |       |   |   |   |   |
| Interest expense                                                                                                                                                |       | (19,493,148            | )           |       | (6,537,519             | )          | (16,979,028 | ) | (14,228,220 | ) |
| Other income, net  (includes related party income totaling $371,610 in fiscal 2003)                                                                             |       | 24,334                 |        |       | 1,784                  |       | — |   | 446,825 |   |
| Other expense, net                                                                                                                                              |       | (19,468,814            | )           |       | (6,535,735             | )          | (16,979,028 | ) | (13,781,395 | ) |
|                                                                                                                                                            |       |                   |        |       |                   |       |   |   |   |   |
| INCOME (LOSS) BEFORE  INCOME TAX AND CUMMULATIVE EFFECT OF ACCOUNTING CHANGE                                                                                    |       | (4,926,611             | )           |       | (6,344,373             | )          | 2,737,142 |   | 2,900,461 |   |
| INCOME TAX (PROVISION)  BENEFIT                                                                                                                                 |       | 597,224                |        |       | 2,080,338              |       | (1,303,347 | ) | (1,122,478 | ) |
|                                                                                                                                                            |       |                   |        |       |                   |       |   |   |   |   |
| INCOME (LOSS) BEFORE  CUMULATIVE EFFECT OF ACCOUNTING CHANGE                                                                                                    |       | (4,329,387             | )           |       | (4,264,035             | )          | 1,433,795 |   | 1,777,983 |   |
| CUMULATIVE EFFECT OF  ACCOUNTING CHANGE (net of income income tax benefit of $10,415,037)                                                                       |       | —                 |        |       | —                 |       | — |   | (18,604,534 | ) |
| NET INCOME (LOSS)                                                                                                                                               |       | $                      | (4,329,387  | )          |                   | $          | (4,264,035 | ) | $ | 1,433,795 |   | $ | (16,826,551 | ) |
|                                                                                                                                                            |       |                   |        |       |                   |       |   |   |   |   |
| NET INCOME (LOSS) PER  COMMON SHARE - BASIC AND DILUTED                                                                                                         |       |                   |        |       |                   |       |   |   |   |   |
| Income (loss) before  cumulative effect of accounting change                                                                                                    |       | $                      | (43.29      | )          |                   | $          | (42.64 | ) | $ | 14.34 |   | $ | 17.78 |   |
| Cumulative effect of  accounting change                                                                                                                         |       | —                 |        |       | —                 |       | — |   | (186.05 | ) |
| Net income (loss) per  common share - basic and diluted                                                                                                         |       | $                      | (43.29      | )          |                   | $          | (42.64 | ) | $ | 14.34 |   | $ | (168.27 | ) |
|                                                                                                                                                            |       |                   |        |       |                   |       |   |   |   |   |
| WEIGHTED AVERAGE SHARES  OUTSTANDING - BASIC AND DILUTED                                                                                                        |       | 100,000                |        |       | 100,000                |       | 100,000 |   | 100,000 |   |

 

See accompanying notes toconsolidated financial statements.

 

F-4

----

 

**PIERRE FOODS, INC.**

 

**CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY**

 
| ** **                                        | ** ** | **Common**  | ** **  | **Additional** | ** ** | **Retained**  | ** ** | **Receivable**  | ** ** | **Total**              | ** ** |
|---------------------------------------------------|------------|-------------|-------------|----------------|------------|---------------|------------|-----------------|------------|------------------------|------------|
| ** **                                        | ** ** | **Stock**   | ** **  | **Paid in**    | ** ** | **Earnings**  | ** ** | **From**        | ** ** | **Shareholder’s** | ** ** |
| ** **                                        | ** ** | **Class A** | ** **  | **Capital**    | ** ** | **(Deficit)** | ** ** | **Shareholder** | ** ** | **Equity**             | ** ** |
|                                              |       |        |        |           |       |          |       |            |       |                   |       |
| PREDECESSOR  PIERRE BALANCE AT MARCH 2, 2002 |       | $           | —      |           | $          | 23,656,692    |       | $               | 2,768,845  |                   | $          | (5,000,000 | ) | $ | 27,207,017 |   |
| Recapitalization                                  |       | 29,438,172  |        | (23,656,692    | )          | —        |       | —          |       | —                 |       |
| Net loss                                          |       | —      |        | —         |       | (16,826,551   | )          | —          |       | (16,826,551            | )          |
| Distributions  of special purpose entity          |       | —      |        | —         |       | (1,382,557    | )          | —          |       | (1,382,557             | )          |
|                                              |       |        |        |           |       |          |       |            |       |                   |       |
| PREDECESSOR  PIERRE BALANCE AT MARCH 1, 2003 |       | 29,438,172  |        | —         |       | (15,440,263   | )          | (5,000,000      | )          | 8,997,909              |       |
| Net income                                        |       | —      |        | —         |       | 1,433,795     |       | —          |       | 1,433,795              |       |
| Distribution  to parent - tax benefit             |       | —      |        | —         |       | (3,578,169    | )          | —          |       | (3,578,169             | )          |
| Distributions  of special purpose entity          |       | —      |        | —         |       | (233,000      | )          | —          |       | (233,000               | )          |
|                                              |       |        |        |           |       |          |       |            |       |                   |       |
| PREDECESSOR  PIERRE BALANCE AT MARCH 6, 2004 |       | 29,438,172  |        | —         |       | (17,817,637   | )          | (5,000,000      | )          | 6,620,535              |       |
| Net loss                                          |       | —      |        | —         |       | (4,264,035    | )          | —          |       | (4,264,035             | )          |
| Transaction  with common shareholder              |       | (339,639    | )           | —         |       | (11,900,276   | )          | —          |       | (12,239,915            | )          |
|                                              |       |        |        |           |       |          |       |            |       |                   |       |
| PREDECESSOR  PIERRE BALANCE AT JUNE 30, 2004 |       | 29,098,533  |        | —         |       | (33,981,948   | )          | (5,000,000      | )          | (9,883,415             | )          |
|                                              |       |        |        |           |       |          |       |            |       |                   |       |
| PURCHASE  ACCOUNTING ADJUSTMENT                   |       | (29,098,533 | )           | —         |       | 33,981,948    |       | 5,000,000       |       | 9,883,415              |       |
|                                              |       |        |        |           |       |          |       |            |       |                   |       |
| SUCCESSOR  PIERRE PURCHASE ALLOCATION             |       | 150,023,000 |        | —         |       | —        |       | —          |       | 150,023,000            |       |
| Net loss                                          |       | —      |        | —         |       | (4,329,387    | )          | —          |       | (4,329,387             | )          |
| Contribution  from parent                         |       | 350,000     |        |           |       |          |       |            |       | 350,000                |       |
| Expenses  paid on behalf of parent                |       | (21,028     | )           | —         |       | —        |       | —          |       | (21,028                | )          |
|                                              |       |        |        |           |       |          |       |            |       |                   |       |
| SUCCESSOR  PIERRE BALANCE AT MARCH 5, 2005   |       | $           | 150,351,972 |           | $          | —        |       | $               | (4,329,387 | )                      | $          | — |   | $ | 146,022,585 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

F-5

----

 

**PIERRE FOODS, INC.**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                                | ** ** | **Successor** | ** ** | ** ** | **Predecessor** | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------|------------|------------|-----------------|------------|
| ** **                                                                                | ** ** | **Fiscal**    | ** ** | ** ** | **Fiscal**      | ** ** | **Fiscal** | ** ** | **Fiscal** | ** ** |
| ** **                                                                                | ** ** | **2005**      | ** ** | ** ** | **2005**        | ** ** | **2004** | ** ** | **2003** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                      |       |          |       |       |            |       |   |   |   |   |
| Net income (loss)                                                                         |       | $             | (4,329,387 | )          |            | $          | (4,264,035 | ) | $ | 1,433,795 |   | $ | (16,826,551 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities: |       |          |       |       |            |       |   |   |   |   |
| Cumulative effect of accounting change                                                    |       | —        |       |       | —          |       | — |   | 18,604,534 |   |
| Depreciation and amortization                                                             |       | 23,169,814    |       |       | 1,544,903       |       | 4,604,954 |   | 4,124,641 |   |
| Amortization of deferred loan origination  fees                                           |       | 1,029,109     |       |       | 716,478         |       | 769,587 |   | 746,262 |   |
| Deferred income taxes                                                                     |       | 370,083       |       |       | (2,080,338      | )          | 1,296,247 |   | 1,286,191 |   |
| Write-off of deferred loan origination fees                                               |       | 4,283,122     |       |       | —          |       | 1,233,530 |   | — |   |
| Net loss on disposition of assets (net of  writedowns)                                    |       | 5,372         |       |       | 339,921         |       | 11,042 |   | 88,937 |   |
| Decrease in other assets                                                                  |       | —        |       |       | 296,694         |       | 72,806 |   | 79,831 |   |
| Increase (decrease) in other long-term  liabilities                                       |       | 199,565       |       |       | (94,477         | )          | (366,339 | ) | (338,946 | ) |
| Changes in operating assets and liabilities  providing (using) cash:                      |       |          |       |       |            |       |   |   |   |   |
| Receivables                                                                               |       | (9,566,451    | )          |       | 5,660,719       |       | (1,987,250 | ) | (2,170,878 | ) |
| Inventories                                                                               |       | 458,272       |       |       | (4,911,529      | )          | (6,389,241 | ) | (8,731,922 | ) |
| Refundable income taxes, prepaid expenses  and other assets                               |       | (3,636,860    | )          |       | 949,584         |       | 193,708 |   | (1,726,478 | ) |
| Trade accounts payable and other accrued  liabilities                                     |       | 867,917       |       |       | 2,227,855       |       | 2,388,092 |   | 4,906,862 |   |
| Total adjustments                                                                         |       | 17,179,943    |       |       | 4,649,810       |       | 1,827,136 |   | 16,869,034 |   |
| Net cash provided by operating activities                                                 |       | 12,850,556    |       |       | 385,775         |       | 3,260,931 |   | 42,483 |   |
|                                                                                      |       |          |       |       |            |       |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                      |       |          |       |       |            |       |   |   |   |   |
| Proceeds from sales of assets to others                                                   |       | —        |       |       | —          |       | 278,400 |   | 83,000 |   |
| Capital expenditures                                                                      |       | (3,677,259    | )          |       | (2,084,160      | )          | (10,040,768 | ) | (16,216,292 | ) |
| Net cash used in investing activities                                                     |       | (3,677,259    | )          |       | (2,084,160      | )          | (9,762,368 | ) | (16,133,292 | ) |
|                                                                                      |       |          |       |       |            |       |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                      |       |          |       |       |            |       |   |   |   |   |
| Net borrowings (repayments) of revolving  credit agreement                                |       | (17,702,886   | )          |       | 7,712,901       |       | (1,805,161 | ) | 15,085,147 |   |
| 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                                                      |       | (16,169,945   | )          |       | (673,526        | )          | (849,257 | ) | (311,967 | ) |
| Loan origination fees                                                                     |       | (9,952,798    | )          |       | (3,371,999      | )          | (680,609 | ) | (1,603,467 | ) |
| Payoff of Old Notes                                                                       |       | (115,000,000  | )          |       | —          |       | — |   | — |   |
| Issuance of New Notes                                                                     |       | 125,000,000   |       |       | —          |       | — |   | — |   |
| Borrowings under new term loan                                                            |       | 150,000,000   |       |       | —          |       | — |   | — |   |
| Repayment of debt in conjunction with the  Acquisition                                    |       | (29,048,031   | )          |       | —          |       | — |   | — |   |
| Termination of certificate of deposit                                                     |       | 1,262,245     |       |       | —          |       | — |   | — |   |
| Return of capital to parent                                                               |       | (100,085,738  | )          |       | —          |       | — |   | — |   |
| Distribution of special purpose leasing  entity                                           |       | —        |       |       |            |       | (233,000 | ) | (1,382,557 | ) |
| Contribution from parent                                                                  |       | 350,000       |       |       | —          |       | — |   | — |   |
| Net cash provided by (used in) financing  activities                                      |       | (11,347,153   | )          |       | 3,667,376       |       | 6,431,973 |   | 11,787,156 |   |
| NET INCREASE (DECREASE) IN CASH AND CASH  EQUIVALENTS                                     |       | (2,173,856    | )          |       | 1,968,991       |       | (69,464 | ) | (4,303,653 | ) |
| CASH AND CASH EQUIVALENTS, BEGINNING OF  YEAR                                             |       | 2,173,856     |       |       | 204,865         |       | 274,329 |   | 4,577,982 |   |
| CASH AND CASH EQUIVALENTS, END OF YEAR                                                    |       | $             | —     |       |            | $          | 2,173,856 |   | $ | 204,865 |   | $ | 274,329 |   |

 

See accompanying notes toconsolidated financial statements.

 

F-6

----

 

**PIERREFOODS, INC.**

 

###### **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

###### ** **

**1.****                                      BASISOF PRESENTATION AND ACQUISITION**

 

*Descriptionof Business.*** Pierre Foods, Inc. (the “Company” or “Pierre”)is a manufacturer and marketer of high-quality, differentiated processed foodsolutions, focusing on formed, pre-cooked protein products and hand-heldconvenience sandwiches.  The Company’sproducts include beef, poultry, pork and bakery items.  Pierre offers comprehensive food solutions toits customers, including proprietary product development, special ingredientsand recipes, as well as custom packaging and marketing programs.  Pierre’s pre-cooked proteins includeflamebroiled burger patties, homestyle meatloaf, chicken strips and boneless,barbecued pork rib products.  Pierremarkets its pre-cooked protein products to a broad array of customers thatincludes restaurant chains, schools and other foodservice providers under avariety of brand names, including PierreTM,Fast Choice®, Rib-B-Q®, Hot ‘n’ Ready® and Big AZ®.

 

The Company’s predecessor was founded as aNorth Carolina corporation in 1966 to own and operate restaurants. The Company’sfood processing business was originally developed to support its restaurants,but grew independently to become its principal business. In recognition of thisfact, in May 1998, the Company, then known as “WSMP, Inc.,” changed its name to“Fresh Foods, Inc.” In June 1998, the Company consummated the purchase ofsubstantially all of the business in Cincinnati, Ohio, and a portion of thebusiness in Caryville, Tennessee (collectively, “Pierre Cincinnati”), conductedby the Pierre Foods Division of Hudson Foods, Inc. (“Hudson”), a subsidiary ofTyson Foods, Inc. (“Tyson”). Pierre Cincinnati was a value-added food processorselling principally to the foodservice and packaged foods markets.  In September 1998, the Companyimplemented a tax-exempt reorganization of its corporate structure. Thereorganization established Fresh Foods, Inc. as a holding company, consolidated32 subsidiaries into 12 subsidiaries and separated the Company’s foodprocessing and restaurant businesses.  InJuly 1999, the Company sold its ham curing business, and in October 1999,the Company disposed of its restaurant segment. Subsequent to the disposal of the restaurant segment, Pierre operatessolely in the food processing business, its sole segment. In December 1999,the Company implemented another tax-exempt reorganization of its corporatestructure to further streamline its operations into one subsidiary. In July 2000,the Company, then known as “Fresh Foods, Inc.,” changed its name to “PierreFoods, Inc.”

 

*ManagementBuyout*. On July 26, 2002, management completed a going private transaction inwhich the Company’s shareholders approved the Amended and Restated Agreementand Plan of Share Exchange dated as of December 20, 2001, and amended as ofJune 20, 2002.  This going-privatetransaction resulted in the Company becoming a wholly-owned subsidiary of PFManagement, Inc. (“PFMI”); accordingly, there is no public market for theCompany’s common stock.  The Company had5,781,480 shares issued and outstanding immediately before the closing and 2,500,000shares of preferred stock authorized, none of which were outstanding. After theclosing, the Company amended and restated its Articles of Incorporation toauthorize the issuance of up to 100,000 shares of Class A common stock asthe only authorized class of capital stock of the Company.  All 100,000 shares of authorized common stockhave been issued to PFMI.  All per shareamounts have been retroactively restated in the accompanying ConsolidatedFinancial Statements and Notes to Consolidated Financial Statements for allperiods presented to reflect the transaction.

 

*Restructuring.*  On March 8, 2004, following a consentsolicitation in which consents of holders of $112.4 million in aggregateprincipal amount of the Company’s outstanding Notes (“Old Notes”), representing97.74% of the outstanding Notes, consented to a Fourth Supplemental Indenturebetween the Company and the Trustee thereunder, the Company entered into theFourth Supplemental Indenture with the Trustee. Among other things, the Fourth Supplemental Indenture increased theannual interest rate on the Old Notes from 10.75% to 12.25% through March 31,2005 and 13.25% thereafter; required the payment of a cash consent fee of $3.5million (3% of the principal amount of Old Notes held by each consentingnoteholder); granted to the noteholders liens on the assets of the Company andits subsidiaries, such liens being junior to the senior liens securing theCompany’s credit facility, granted to noteholders a repurchase right allowingall of the noteholders to require the Company to repurchase their Old Notes atpar plus accrued interest on March 31, 2005; provided for the payment of aportion of certain cash flow of the Company (referred to as “excess cash”) toreduce the principal amount of Old Notes outstanding at the end of the Company’sfiscal years; added restrictive covenants limiting the compensation payable tocertain senior executives of the Company and limiting future related partytransactions; required the termination of all related party transactions,except for certain specifically-permitted transactions; provided for theassumption by the Company of approximately $15.3 million of subordinated debtof PFMI, the sole shareholder of the Company, required the Company to complywith certain corporate governance standards, including appointing anindependent director acceptable to the Company and the noteholders to its boardand hiring an independent auditor to monitor the Company’s compliance with theIndenture; and waived any and all defaults of the Indenture existing as of March 8,2004.

 

The restrictive covenants limitingcompensation payable to certain senior executives of the Company permitted forbonus payments to those executives above the compensation limitations.  The bonus payments were based on theprofitability of the Company and cash payments made on the Old Notes.

 

F-7

----

 

Concurrently with the execution of the FourthSupplemental Indenture, the Company took title to an aircraft transferred froma related party subject to $5.6 million of existing purchase money debt;assumed $15.3 million of debt from PFMI; cancelled the $1.0 million relatedparty note receivable against the debt assumed from PFMI; cancelled thebalances owed by the Company to certain related parties, as follows: $0.5million 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 PFDistribution in connection with the Fourth Supplemental Indenture.

 

In this document, unless the contextotherwise requires, the term “Company” refers to Pierre Foods, Inc. and itscurrent and former subsidiaries.  As aresult of the Acquisition discussed below, on June 30, 2004, the Company’sfiscal year ended March 5, 2005 is comprised of two short periods.  The periods of March 7, 2004 through June 30,2004 and July 1, 2004 through March 5, 2005 are referred to “predecessorfiscal 2005” and “successor fiscal 2005,” respectively.  These two short periods collectively arereferred to as “predecessor fiscal 2005 and successor fiscal 2005 combined.”   The Company’s fiscal year ended March 6,2004 is referred to as “predecessor fiscal 2004” and its fiscal year ended March 1,2003 is referred to as “predecessor fiscal 2003.”

 

*Acquisition.** *On June 30, 2004, Pierre Holding Corp. (“Holding”)acquired 100% of the shares of the Company’s parent, PF Management, Inc. (“PFMI”).  Such acquisition is referred to herein as the“Acquisition”.  In connection with theAcquisition, the following occurred:

 

•                  The Company merged with Pierre Merger Corp., anaffiliate of Madison Dearborn Partners, LLC (“MDP”), with the Company being thesurviving corporation following the merger.

 

•                  The Company terminated its three-year variable-rate$40 million revolving credit facility and obtained a $190 million creditfacility from a new lender which includes a six-year variable-rate $150 millionterm loan and a five-year variable rate $40 million revolving credit facilitywith a $10 million letter of credit subfacility.  See Note 7, “Financing Arrangements,” to theConsolidated Financial Statements.

 

•                  The Company terminated its few remaining relatedparty transactions (described in Note 16, “Transactions with Related Parties,”to the Consolidated Financial Statements), transferred miscellaneous assets toMessrs. Richardson and Clark, the Company’s 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 andconsent solicitation for the Company’s Old Notes.  Holders of approximately $106.3 million, orapproximately 92%, of aggregate principal amount of the Company’s outstandingOld Notes tendered their Old Notes.  TheCompany, 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 nottendered (approximately $8.7 million) was issued on June 30, 2004 andthese Old Notes were redeemed on July 20, 2004.

 

•                  The Company issued $125.0 million of 9-7/8% SeniorSubordinated Notes due 2012 (the “New Notes”). The proceeds of the New Notes,together with the equity contributions from MDP and certain members ofmanagement (as described below) and borrowings under the Company’s new seniorcredit facility, were used to finance the Acquisition and to repay outstandingindebtedness.

 

•                  The Company’s President and Chief Executive Officer,Norbert E. Woodhams, and its Senior Vice President of Sales, Marketing and NewProduct Development, Robert C. Naylor, signed employment agreements committingthem to continue working for the Company after the Acquisition. The stated termof employment for each executive is one year, but each agreement will renewautomatically and continuously year-to-year unless terminated.

 

•                  The management investors, the Company’s Presidentand Chief Executive Officer, Norbert E. Woodhams, and its Senior Vice Presidentof Sales, Marketing and New Product Development, Robert C. Naylor, investedapproximately $4.9 million in a deferred compensation plan.  This deferred compensation plan is fundedthrough a rabbi trust that owns preferred stock of Holding with an aggregateliquidation value of approximately $4.9 million.

 

•                  In addition to the base purchase price, the stockpurchase agreement entitled the selling shareholders to earn-out cash payments,which included an additional aggregate amount of $13.0 million in the eventthat, at the end of any fiscal quarter during the fiscal year ended March 5,2005, the Company achieved 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 ispayable as of March 5, 2005, as this EBITDA target was not met.

 

F-8

----

 

The followingtable presents unaudited pro forma information for predecessor fiscal 2004, and for predecessor fiscal 2005 and successor fiscal2005 combined, as if the Acquisition had occurred on March 2, 2003 and March 7,2004, as applicable.

 
| ** **        | ** ** | **Predecessor  Fiscal  2004** | ** **  | **Predecessor and  Successor  Fiscal 2005  Combined** | ** ** |
|-------------------|------------|-------------------------------|-------------|-------------------------------------------------------|------------|
| ** **        | ** ** | **Actual**                    | ** **  | **Pro Forma**                                         | ** ** | **Actual** | ** ** | **Pro Forma** | ** ** |
| Revenues          |       | $                             | 358,549,316 |                                                  | $          | 358,445,189 |   | $ | 410,415,786 |   | $ | 410,407,182 |   |
| Net income (loss) |       | $                             | 1,433,795   |                                                  | $          | (3,668,629 | ) | $ | (8,593,422 | ) | $ | (11,800,203 | ) |
|                   |            |                               |             |                                                       |            |  |  |  |  |  |  |  |  |  |

 

Theseunaudited pro forma results, based on assumptions deemed appropriate by theCompany’s management, have been prepared for informational purposes only andare not necessarily indicative of the amounts that would have resulted if theCompany had been acquired by MDP on March 2, 2003 or March 7, 2004, asapplicable. Purchase related adjustments to the results of operations includethe effects on depreciation and amortization, interest expense, cost of goodssold and income taxes.

 

Included inthese pro forma results are certain predecessor feesthat the Company does not expect to incur in the future.  These include professional fees, primarilyrelated to the restructuring of the Fourth Supplemental Indenture on March 8,2004 and the Management Buy Out on July 26, 2002.  For predecessor fiscal 2004, these feesamounted to $2,392,660.  For predecessorfiscal 2005 and successor fiscal 2005 combined, these fees amounted to$2,591,989.

 

Otherpredecessor expenses included in these pro forma results that are no longerexpected to be incurred include outside Board of Director fees, communityrelations and donations to our former shareholder’s alma mater.  For predecessor fiscal 2004 and forpredecessor fiscal 2005 and successor fiscal 2005 combined, these fees amountedto $1,004,818 and $710,673, respectively.

 

Also includedin the pro forma results for predecessor fiscal 2005 and successor fiscal 2005combined are certain Acquisition expenses related to the sale of the Company toMDP.  These transaction expenses includeprofessional fees of $956,000 for predecessor fiscal 2005 and successor fiscal2005 combined.  Other predecessor fiscal2005 and successor fiscal 2005 combined transaction expenses relating to theprevious shareholders’ adviser amounted to $780,952.  A termination payoff of the endorsementbetween the Company and Crawford Race Cars, LLC also resulted in expense inpredecessor fiscal 2005 and successor fiscal 2005 combined amounting to$318,000 that is not expected to be incurred in the future.

 

The unauditedpro forma condensed consolidated financial statements reflect the Acquisitionof the Company in accordance with Financial Accounting Standard No. 141 (“FAS141”) —Business Combinations and Financial Accounting Standard No. 142 (“FAS142”) —Goodwill and Other Intangible Assets.

 

The Acquisition was recorded under thepurchase method of accounting. The purchase price has been allocated to assetsacquired and liabilities assumed based on the estimated fair market value atthe date of Acquisition. The allocation of the purchase price is as follows:

 
| Current  assets                     |   | $            | 75,727,665  |   |
|-------------------------------------|--------|--------------|-------------|--------|
| Plant,  property and equipment      |   | 57,857,942   |        |
| Non-current  assets                 |   | 4,283,121    |        |
| Goodwill                            |   | 186,535,050  |        |
| Other  intangibles                  |   | 175,900,000  |        |
| Debt and  other liabilities assumed |   | (239,899,080 | )           |
|                                |   |         |        |
| Net assets  acquired                |   | $            | 260,404,698 |   |

 

The Company has obtained outsideappraisals of acquired assets and liabilities in successor fiscal 2005.Deferred tax liabilities have been finalized based on the final allocation ofthe purchase price and the determination of the tax basis of the assets andliabilities acquired.

 

**2.****                                      SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

*Principlesof Consolidation.*  The accompanying consolidated financial statementsinclude Pierre Foods, Inc. and subsidiaries, as well as the accounts of thespecial purpose leasing entity (see Note 16). All intercompany transactions have been eliminated.

 

*FiscalYear.* The Company operates on a 52-week or53-week fiscal year ending on the first Saturday in March or if the lastday of February is a Saturday, the last day of February.  Each quarter of the fiscal year contains13 weeks except for the infrequent fiscal years with 53 weeks.  The results for predecessor fiscal 2005 andsuccessor fiscal 2005 combined contain 52 weeks.  The results for predecessor fiscal 2004contain 53 weeks.  The results forpredecessor fiscal 2003 contain 52 weeks.

 

*Cash andcash equivalents.*  The Company considers all highly liquidinvestments purchased with an original maturity of three months or less to becash equivalents.

 

*Inventories.*  Inventories are stated at the lower of cost(first-in, first-out) or market.

 

*Property,Plant and Equipment.** *Property, plant and equipment arestated at cost or fair value at date of acquisition.  Expenditures for maintenance and repairswhich do not significantly extend the useful lives of assets are charged tooperations whereas additions and betterments, including interest costs incurredduring construction, which was not material for any year presented, arecapitalized.

 

Depreciation of property, plant and equipmentis provided over the estimated useful lives of the respective assets on thestraight-line basis.  Leaseholdimprovements are depreciated over the shorter of their estimated useful livesor the terms of the respective leases. Property under capital leases is amortized in accordance with theCompany’s normal depreciation policy.  Depreciation expense, along with amortization ofintangible assets, is recorded as a separate line item in the consolidatedstatements of operations.  Cost of goodssold and selling, general and administrative expenses exclude depreciationexpense.

 

F-9

----

 

The Company evaluates thecarrying values of long-lived assets for impairment by assessing recoverabilitybased on forecasted operating cash flows on an undiscounted basis in accordancewith SFAS 144, “Accounting for Impairment or Disposal of Long-Lived Assets,”and determined no impairment existed at March 5, 2005, March 6, 2004or March 1, 2003.

 

*Goodwill and Other IntangibleAssets*.  ****In June 2001, theFinancial Accounting Standards Board (“FASB”) issued SFAS 142, “Goodwill andOther Intangible Assets,” which was effective for the fiscal year beginning March 3,2002. ****Asprescribed under SFAS 142, the Company tested goodwill for impairment duringfiscal 2003 using a two-step process. The first step of the goodwill impairment test is used to identifypotential impairment by comparing the fair value of the entity with its netasset value (or carrying amount), including goodwill.  If the fair value of the entity exceeds itsnet asset value, goodwill of the entity is considered not impaired and thesecond step of the goodwill impairment test is not needed.  If the net asset value of the entity exceedsthe fair market value, the second step of the goodwill impairment test isperformed to measure the amount of impairment loss, if any.  The second step of the goodwill impairmenttest compares the implied fair value of the entity’s goodwill with the carryingamount of that goodwill.  If the carryingamount of the entity’s goodwill exceeds the implied fair value of thatgoodwill, an impairment loss is recognized in an amount equal to that excess.  Subsequent to recognizing an impairment loss,the adjusted carrying amount of the intangible asset shall be its newaccounting basis.  Reversal of apreviously recognized impairment loss is prohibited.

 

During fiscal 2003, upon adoption of SFAS 142, theCompany utilized a valuation technique based on market values ofpublicly-traded equity, as adjusted, plus publicly-owned subordinated notes,which were determined in conjunction with the management buyout in fiscal 2003.  The Company’s analysis showed that thecarrying value of the goodwill exceeded its fair value, requiring the Companyto determine the implied fair value of its goodwill.  Upon completion of that analysis, managementdetermined that the entire net carrying value of its goodwill was impaired.  The carrying amount, $29.0 million, net ofthe related effect on income taxes, $10.4 million, was written-off by theCompany and reported as the Cumulative Effect of an Accounting Change, net ofincome taxes in the statement of operations.

 

In conjunction with the Acquisition, theCompany engaged an independent party to perform valuations for financialreporting purposes of the Company’s goodwill and other intangibles. Assetsidentified through this valuation process included goodwill, formulas, customerrelationships, licensing agreements and certain trade names and trademarks.

 

The Company tests recorded goodwill and intangibleswith indefinite lives for impairment at least annually. All other intangibleassets with finite lives are amortized over their estimated economic orestimated useful lives. In addition, all other intangible assets are reviewedfor impairment in accordance with SFAS 144. Based on the Company’s review and the review performed by third parties,no impairment existed at March 5, 2005or March 6, 2004.

 

The Company’s amortizable intangible assetsare amortized using accelerated amortization methods that match the expectedbenefit derived from the assets. The accelerated amortization methods allocateamortization expense in proportion to each year’s expected revenues tothe total expected revenues over the estimated useful lives of the assets.

 

*Deferred Loan Origination Fees.** *Deferredloan origination fees associated with the Company’s revolving credit facilityand long-term debt are amortized based on the term of the respectiveagreements.  This amortization expense isincluded in interest expense.  Alsoincluded in interest expense, as a result of the Acquisition, is the write-offof deferred loan origination fees associated with the old debt structure.

 

*RevenueRecognition.** *Revenue from sales of processed food products is recorded at the timetitle transfers.  Standard shipping termsare FOB destination, therefore title passes at thetime the product is delivered to the customer. Revenue is recognized as the net amount to be received after deductionsfor estimated discounts, product returns and other allowances.  These estimates are based on historicaltrends and expected future payments (see also “Promotions” below).

 

*Promotions*.  Promotional expenses associatedwith rebates, marketing promotions and special pricing arrangements arerecorded as a reduction of revenues or selling expense at the time the sale isrecorded.  Certain of these expenses areestimated based on historical trends, expected future payments to be made underthese programs and expected future customer deductions to be taken under theseprograms.  The Company believes theestimates recorded in the financial statements are reasonable estimates of theCompany’s obligations under the programs.

 

F-10

----

 

*Concentration of Credit Risk and Significant Customers*.  Financial instruments that potentiallysubject the Company to concentrations of credit risk consist primarily of tradereceivables. The Company performs periodic credit evaluations of its customers’financial condition and generally does not require collateral. The Companyencounters a certain amount of credit risk as a result of a concentration ofreceivables among a few significant customers. Sales to the Company’s largestcustomer were approximately 25%, 24% and 11% of revenues for predecessor fiscal2005 and successor fiscal 2005 combined, predecessorfiscal 2004 and predecessor fiscal 2003, respectively.  Accounts receivable at March 5, 2005 andMarch 6, 2004 included receivables from the Company’s largest customertotaling $3.7 million and $2.8 million, respectively.

 

*Stock-Based Compensation*.  On June 30, 2004, Holding adopted astock option plan, pursuant to which the Board of Directors of Holding maygrant options to purchase an aggregate of 163,778 shares of common stock ofHolding.  Such options may be granted todirectors, employees and consultants of Holding and its subsidiaries, includingthe Company.  At March 5, 2005,options to purchase a total of 127,397 shares of common stock of Holding hadbeen issued to members of management of the Company (the “Options”) and 36,381were reserved for future issuance.  Alloutstanding Options were granted at $10 per share and expire ten years from thedate of grant.  A portion of eachoutstanding Option vests daily on a pro-rata basis over a five-year period fromthe date of grant and the remaining portion of each outstanding Option vestsseven years from the date of grant, subject to accelerated vesting based on theachievement of certain performance measures.

 

The Company treats the Options as stock-based employee compensation foremployees of the Company.  As permittedunder accounting principles generally accepted in the United States of America(“GAAP”), the Company accounts for the Options under the recognition andmeasurement principles of Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees” (“APB 25”), and related Interpretations usingthe intrinsic value method.  Accordingly,no compensation expense has been recognized for the Options in its consolidatedstatements of operations.  Hadcompensation expense for the Options been determined in accordance with theminimum value approach as defined by Statement of Financial AccountingStandards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS123”), the Company’s net income (loss) and earnings (loss) per share would havebeen the following (in thousands, except per share data):

 
| ** **                                             | ** ** | **Successor Fiscal 2005** | ** ** |
|--------------------------------------------------------|------------|---------------------------|------------|
|                                                   |       |                      |       |
| Net loss as  reported                                  |       | $                         | (4,329,387 | ) |
|                                                   |       |                      |       |
| Minimum  value of stock-based compensation, net of tax |       | (27,099                   | )          |
|                                                   |       |                      |       |
| Net loss pro  forma                                    |       | $                         | (4,356,486 | ) |
|                                                   |       |                      |       |
| Basic and  diluted loss per share, as reported         |       | $                         | (43.29     | ) |
|                                                   |       |                      |       |
| Basic and  diluted loss per share, pro forma           |       | $                         | (43.56     | ) |

 

The Company engaged an independent thirdparty to perform a valuation analysis of the Options.  The estimated total stock-based employeecompensation expense was determined using the Black-Scholes-Merton optionpricing model with the following weighted average assumptions:

 
| Dividend  yield                                              |   | —    |   |
|--------------------------------------------------------------|--------|-----------|--------|
| Term to  expiration                                          |   | 10 years  |   |
| Expected  life                                               |   | 6.3 years |   |
| Expected  volatility                                         |   | —    |   |
| Risk free  interest rate                                     |   | 3.93      | %      |
| Weighted  average minimum value per share of options granted |   | $         | 2.24   |   |
|                                                              |        |           |        |  |

 

F-11

----

 

In December of 2004, the FASB issuedStatement of Financial Accounting Standards No. 123 (Revision 2004), “Share-BasedPayment” (“SFAS 123R”) which is effective for the first annual reporting periodbeginning after December 15, 2005 for non-public companies (as defined inSFAS 123R). The new statement requires compensation expense associated withshare-based payments to employees to be recognized in the financial statementsbased on their fair values**. **Upon the adoption of SFAS 123R,the Company will be required to apply the provisions of the statementprospectively for any newly issued, modified or settled award after the date ofinitial adoption.  As the Companycurrently uses the intrinsic value method to value the Options, the fair valueassigned to any newly issued, modified or settled awards after the adoption ofSFAS 123R is expected to be significantly greater due to the differences invaluation methods.

 

*AdvertisingCosts.* The Company expenses advertising costs as incurred.  Advertising expense for predecessor fiscal2005 and successor fiscal 2005 combined, predecessor fiscal 2004 andpredecessor fiscal 2003 was $272,945, $558,689 and $652,927, respectively.

 

*Researchand Development.** *The Company expenses research and development costs as incurred.  Research and development expense forpredecessor fiscal 2005 and successor fiscal 2005 combined, predecessor fiscal2004 and predecessor fiscal 2003 was $1,650,000, $1,286,000 and$1,030,000, respectively.

 

*Distribution Expense.*  The Company expenses distribution costs asincurred.  These costs includewarehousing, fulfillment and freight costs, and are included in selling,general and administrative expense. Distribution expense included in operations for predecessor fiscal 2005and successor fiscal 2005 combined, predecessor fiscal 2004 and predecessorfiscal 2003 was $22,372,599, $31,126,379 and $21,544,140, respectively (seeNote 16).

 

*IncomeTaxes.** *Income taxes are provided fortemporary differences between the tax and financial accounting bases of assetsand liabilities using the asset and liability method.  The tax effects of such differences arereflected in the balance sheet at the enacted tax rate applicable to the yearswhen such differences are scheduled to reverse. The effect on deferred taxes of a change in tax rates is recognized inthe period that includes the enactment date.

 

*Use of Estimates.** *The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Significant accountingestimates include sales discounts and promotional allowances, inventory reserves,insurance reserves, and useful lives assigned to intangible assets.  Actual results could differ from thoseestimates.

 

*Going Concern Assumption.** *Significantassumptions underlie the belief that the Company anticipates that its fiscal2006 cash requirements for working capital and debt service will be met througha combination of funds provided by operations and borrowings under its new $40million revolving credit facility, including, among other things, that therewill be no material adverse developments in the business, liquidity or significantcapital requirements of the Company.

 

*New Accounting Pronouncements*.  In December of2003, the FASB issued FIN 46R, “Consolidation of Variable Interest Entities” (“FIN46R”), which replaces the same titled FIN 46 that was issued in January 2003.FIN 46R addresses how to identify variable interest entities and the criteriathat requires a company to consolidate such entities in its financialstatements. FIN 46R is effective for the first reporting period that ends afterMarch 15, 2004. This statement did not have an impact on the Company’sfinancial statements.

 

In November 2004, the Financial AccountingStandards Board (the “FASB”) issued SFAS No. 151, “Inventory Costs—anamendment of ARB No. 43, Chapter 4” (“SFAS No. 151”). SFASNo. 151 amends ARB 43, Chapter 4, to clarify thatabnormal amounts of idle facility expense, freight, handling costs andwasted materials (spoilage) should be recognized as current-period charges. Inaddition, SFAS No. 151 requires that allocation of fixed productionoverheads to the costs of conversion be based on the normal capacity of theproduction facilities. We will adopt the provisions of SFAS No. 151,effective March 5, 2006 for our fiscal 2007 consolidated financialstatements. Management currently believes that adoption of the provisions ofSFAS No. 151 will not have a material impact on our consolidated financialstatements.

 

F-12

----

 

**3.****                                     ****ACCOUNTS AND NOTESRECEIVABLE**

 

Accountsand notes receivable consist of the following:

 
| ** **                                                                                                                                  | ** ** | **March 5,** | ** ** | **March 6,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                                                                                                                  | ** ** | **2005**          | ** ** | **2004**          | ** ** |
| Accounts  receivable:                                                                                                                       |       |              |       |              |       |
| Trade  accounts receivable (less allowance for doubtful receivables of $279,763 and  $353,543 at March 5, 2005 and March 6, 2004) |       | $                 | 28,176,404 |              | $          | 24,300,201 |   |
| Other  receivables                                                                                                                          |       | 1,370,936         |       | 1,341,407         |       |
| Total  accounts receivable                                                                                                                  |       | $                 | 29,547,340 |              | $          | 25,641,608 |   |
|                                                                                                                                        |       |              |       |              |       |
| Related  party note receivable (includes accrued interest) (Note 16):                                                                       |       | $                 | —     |              | $          | 993,247 |   |
|                                                                                                                                        |       |              |       |              |       |
| Total  noncurrent note receivable                                                                                                           |       | $                 | —     |              | $          | 993,247 |   |

 

See Note 16 regarding a $5,000,000 note receivable from a previousshareholder presented as a reduction of shareholders’ equity at March 6,2004.

 

The following is a summary of activity in the allowance for doubtfulreceivables for successor fiscal 2005, predecessor fiscal 2005, predecessorfiscal 2004 and predecessor fiscal 2003.

 
| ** **               | ** ** | ** **    | ** ** | **Additions**  | ** ** | **Deduction** | ** ** | ** **  | ** ** |
|--------------------------|------------|---------------|------------|----------------|------------|---------------|------------|-------------|------------|
| ** **               | ** ** | **Balance**   | ** ** | **Charged to** | ** ** | **Amounts**   | ** ** | **Balance** | ** ** |
| ** **               | ** ** | **Beginning** | ** ** | **Costs and**  | ** ** | **Charged**   | ** ** | **End of**  | ** ** |
| ** **               | ** ** | **of Period** | ** ** | **Expenses**   | ** ** | **Off-Net**   | ** ** | **Period**  | ** ** |
|                     |       |          |       |           |       |          |       |        |       |
| Successor  fiscal 2005   |       | $             | 0          |           | 306,247    |          | 26,484     |        | $          | 279,763 |   |
|                     |       |          |       |           |       |          |       |        |       |
| Predecessor  fiscal 2005 |       | $             | 353,543    |           | 15,630     |          | 86,228     |        | $          | 282,945 |   |
|                     |       |          |       |           |       |          |       |        |       |
| Predecessor  fiscal 2004 |       | $             | 309,741    |           | 507,077    |          | 463,275    |        | $          | 353,543 |   |
|                     |       |          |       |           |       |          |       |        |       |
| Predecessor  fiscal 2003 |       | $             | 219,118    |           | 108,646    |          | 18,023     |        | $          | 309,741 |   |

 

**4.****                                     ****INVENTORIES**

 

Asummary of inventories, by major classification, follows:

 
| ** **              | ** ** | **March 5,** | ** ** | **March 6,** | ** ** |
|-------------------------|------------|-------------------|------------|-------------------|------------|
| ** **              | ** ** | **2005**          | ** ** | **2004**          | ** ** |
|                    |       |              |       |              |       |
| Manufacturing  supplies |       | $                 | 1,684,290  |              | $          | 1,572,212 |   |
| Raw  materials          |       | 6,530,663         |       | 5,427,936         |       |
| Work in process         |       | 6,883             |       | 1,157             |       |
| Finished  goods         |       | 37,226,388        |       | 31,972,713        |       |
| Total                   |       | $                 | 45,448,224 |              | $          | 38,974,018 |   |

 

F-13

----

 

**5.****                                     ****PROPERTY, PLANT ANDEQUIPMENT**

 

The major components of property, plant and equipment are as follows:

 
| ** **                                      | ** ** | **Estimated**   | ** ** | **March 5,** | ** ** | **March 6,** | ** ** |
|-------------------------------------------------|------------|-----------------|------------|-------------------|------------|-------------------|------------|
| ** **                                      | ** ** | **Useful Life** | ** ** | **2005**          | ** ** | **2004**          | ** ** |
|                                            |       |            |       |              |       |              |       |
| Land                                            |       |            |       | $                 | 1,620,000  |              | $          | 1,270,025 |   |
| Land  improvements                              |       | 10-20 years     |       | 37,840            |       | 585,729           |       |
| Buildings                                       |       | 20-40 years     |       | 15,243,465        |       | 26,492,579        |       |
| Leasehold  improvements                         |       | 5-20 years      |       | —            |       | 1,145,737         |       |
| Machinery  and equipment                        |       | 5-20 years      |       | 38,730,648        |       | 45,793,907        |       |
| Machinery  and equipment under capital leases   |       | 5-15 years      |       | 1,278,141         |       | 325,871           |       |
| Furniture  and fixtures                         |       | 5-15 years      |       | 2,598,745         |       | 5,798,747         |       |
| Furniture  and fixtures under capital leases    |       | 5-15 years      |       | 291,557           |       | 58,102            |       |
| Aircraft  (Note 16)                             |       | 16 years        |       | —            |       | 6,200,000         |       |
| Automotive  equipment                           |       | 2-5 years       |       | 171,567           |       | 644,926           |       |
| Construction  in progress                       |       |            |       | 1,804,459         |       | 338,357           |       |
| Total                                           |       |            |       | 61,776,422        |       | 88,653,980        |       |
| Less accumulated  depreciation and amortization |       |            |       | 5,491,940         |       | 27,958,525        |       |
| Property,  plant and equipment, net             |       |            |       | $                 | 56,284,482 |              | $          | 60,695,455 |   |

 

F-14

----

 

**6.****                                      GOODWILLAND OTHER INTANGIBLE ASSETS**

 

The gross carrying value of goodwill and thegross carrying value and accumulated amortization of other intangible assetsare as follows:

 
| ** **                                | ** ** | **As of March 5,  2005** | ** **  |
|-------------------------------------------|------------|-------------------------------|-------------|
| ** **                                | ** ** | ** **                    | ** **  | **Gross** | ** ** | **Expense  and** | ** ** | **Net** | ** ** |
| ** **                                | ** ** | **Useful**                    | ** **  | **Carrying** | ** ** | **Accumulated** | ** ** | **Carrying** | ** ** |
| ** **                                | ** ** | **Life**                      | ** **  | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
| ** **                                | ** ** | ** **                    | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Amortizable intangible assets:**        |       |                          |        |   |   |   |   |   |   |
| Formulas                                  |       | 15 years                      |        | $ | 95,000,000 |   | $ | 10,380,233 |   | $ | 84,619,767 |   |
| Tradename  and trademarks                 |       | 12-20 years                   |        | 20,100,000 |   | 1,409,337 |   | 18,690,663 |   |
| Customer  relationships                   |       | 12 years                      |        | 28,500,000 |   | 4,851,794 |   | 23,648,206 |   |
| Licensing  agreements                     |       | 10 years                      |        | 12,100,000 |   | 1,035,564 |   | 11,064,436 |   |
|                                      |       |                          |        |   |   |   |   |   |   |
| **Total amortizable intangible assets**   |       |                          |        | $ | 155,700,000 |   | $ | 17,676,928 |   | $ | 138,023,072 |   |
| ** **                                | ** ** | ** **                    | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **As of March 5,  2005** | ** **  | **As of March 6,  2004** | ** ** |
| ** **                                | ** ** | **Gross**                     | ** **  | ** ** | ** ** | **Gross** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **Carrying**                  | ** **  | **Accumulated** | ** ** | **Carrying** | ** ** | **Accumulated** | ** ** |
| ** **                                | ** ** | **Amount**                    | ** **  | **Amortization** | ** ** | **Amount** | ** ** | **Amortization** | ** ** |
|                                      |       |                          |        |   |   |   |   |   |   |
| **Unamortizable  intangible assets:**     |       |                          |        |   |   |   |   |   |   |
| Tradename                                 |       | $                             | 20,200,000  |   | $ | — |   | $ | 38,808,636 |   | $ | — |   |
| Goodwill                                  |       | 186,535,050                   |        | — |   | — |   | — |   |
|                                      |       |                          |        |   |   |   |   |   |   |
| **Total unamortizable intangible assets** |       | $                             | 206,735,050 |   | $ | — |   | $ | 38,808,636 |   | $ | — |   |

 

The future amortization of other intangibleassets (dollars in thousands) for the next five fiscal years is estimated to beas follows:

 
| ** **                | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                      |       |     |       |     |       |     |       |     |       |     |       |
| Formulas                  |       | $        | 14,300     |     | $          | 12,671   |       | $        | 11,165     |     | $          | 9,761 |   | $ | 8,468 |   |
| Tradename  and trademarks |       | 2,024    |       | 1,919    |       | 1,821    |       | 1,732    |       | 1,646    |       |
| Customer  relationships   |       | 5,376    |       | 4,011    |       | 3,358    |       | 2,874    |       | 2,391    |       |
| Licensing  agreements     |       | 1,678    |       | 1,569    |       | 1,495    |       | 1,426    |       | 1,361    |       |
|                           |            |          |            |          |            |          |            |          |            |          |            |  |  |  |  |  |

 

F-15

----

 

**7.             FINANCINGARRANGEMENTS**

 

Long-term debtis comprised of the following:

 
| ** **                                                                                                                                      | ** ** | **March 5, 2005** | ** **  | **March 6, 2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|------------------------|------------|
|                                                                                                                                            |       |                   |        |                   |       |
| 12.25%  Senior Notes, interest payable on June 1 and December 1 of each  year, maturing on June 1, 2006, (“Old Notes”) |       | $                      | —      |                   | $          | 115,000,000 |   |
| 9.875%  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                                                                             |       | 136,500,000            |        | —                 |       |
| New  revolving line of credit, maximum borrowings of $40 million with floating  interest rates maturing 2009                                    |       | 790,000                |        | —                 |       |
| Former  revolving line of credit, maximum borrowings of $40 million with floating  interest rates maturing 2007                                 |       | —                 |        | 13,279,985             |       |
| 5.25% Term  loan subline-equipment                                                                                                              |       | —                 |        | 4,583,339              |       |
| 5.25% Term  loan subline-real estate                                                                                                            |       | —                 |        | 4,708,331              |       |
| Aircraft  note payable-variable interest rate                                                                                                   |       | —                 |        | 5,606,685              |       |
| 6% Note  payable maturing 2008                                                                                                                  |       | —                 |        | 270,983                |       |
| 0.0% to  11.5% capitalized lease obligations maturing through 2010(Note 9)                                                                      |       | 1,290,371              |        | 244,713                |       |
| Total  long-term debt                                                                                                                           |       | 263,580,371            |        | 143,694,036            |       |
| Less current  installments                                                                                                                      |       | 421,713                |        | 1,628,276              |       |
|                                                                                                                                            |       |                   |        |                   |       |
| Long-term  debt, less current installments                                                                                                      |       | $                      | 263,158,658 |                   | $          | 142,065,760 |   |

 

On March 8, 2004, following a consentsolicitation in which consents of holders of $112.4 million in aggregateprincipal amount of the Company’s Old Notes, representing 97.74% of theoutstanding Old Notes, consented to a Fourth Supplemental Indenture between theCompany and U.S. Bank National Association, as trustee (the “Trustee”), theCompany entered into the Fourth Supplemental Indenture with the Trustee.  Concurrently with the execution of the FourthSupplemental Indenture the Company took title to an aircraft transferred from arelated party subject to $5.6 million of existing purchase money debt;cancelled the $1.0 million related party note receivable from itsprincipal shareholders; cancelled the balances owed by the Company to certainrelated parties, as follows: $0.5 million owed to Columbia Hill Aviation;$3.5 million owed to PF Purchasing and $0.5 million owed to PFDistribution; and assumed the operating leases of PF Distribution in connectionwith the Fourth Supplemental Indenture. Minimum lease payments on the former PFDistribution operating leases were scheduled to be $3.0 million duringfiscal 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 PFMI the sole shareholder of theCompany, in connection with the execution of the Fourth Supplemental Indentureand cancelled the $1.0 million related party note receivable against thedebt assumed from PFMI.

 

On June 30, 2004, the shareholders ofPFMI closed the sale of their shares of stock of PFMI to Holding See Note 1, “Basisof Presentation and Acquisition,” to the Consolidated FinancialStatements.  Effective June 30,2004, the Company terminated its three-year variable-rate $40 millionrevolving credit facility.  Existing debtissuance costs related to the Company’s former $40 million facility in theamount of $0.5 million and a prepayment penalty paid to the former lenderin the amount of $0.4 million were charged to interest expense.  Also effective June 30, 2004, theCompany obtained a $190 million credit facility from a new lender whichincludes a six-year variable-rate $150 million term loan, a five-yearvariable rate $40 million revolving credit facility and a $10 millionletter of credit subfacility.  Fundsavailable under this new facility are available for working capitalrequirements, permitted investments and general corporate purposes.  Borrowings under the new facility bearinterest at floating rates based upon the interest rate option selected fromtime to time by the Company and are secured by a first-priority securityinterest in substantially all of the Company’s assets.  The interest rate for borrowings under

 

F-16

----

 

the new revolvingcredit facility and the new term loan at March 5, 2005 was 7.5% (primeplus 1.75%).  Repayment of borrowingsunder the term loan was initially $375,000 per quarter, which began on September 4,2004, with a balloon payment of $141.4 million due on June 5,2010.  In addition to the scheduledquarterly payment, prepayments on the term loan totaling $12.4 million weremade during successor fiscal 2005.  Theseprepayments have satisfied the scheduled quarterly payment requirements,therefore, the remaining outstanding balance of $136.5 million as of March 5,2005 is due on June 5, 2010.  Thematurity date of the $40 million revolving credit facility is June 30,2009.  In addition, the Company isrequired to satisfy certain financial covenants regarding cash flow and capitalexpenditures.

 

Also in conjunction with the Acquisition, theCompany issued $125.0 million of 97/8% SeniorSubordinated Notes due 2012 (the “New Notes”). The proceeds of the New Notes,together with the equity contributions from MDP and certain members ofmanagement and borrowings under our new senior credit facility, were used tofinance the Acquisition of the Company and to repay outstanding indebtedness,including paying off debt of PFMI assumed by the Company under the FourthSupplemental Indenture (except capital leases), paying for the Old Notestendered in connection with the tender offer described in Note 1, “Basis ofPresentation and Acquisition” and redeeming the Old Notes not tendered.  As of March 5, 2005, the Company hadborrowing availability of approximately $34.7 million under its revolvingcredit facility.

 
| **Long-Term Debt Maturities,  Including Capital Leases (Note 9)** | ** ** |
|-------------------------------------------------------------------|------------|
| **2006**                                                          | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| $                                                                 | 421,713    |   | $ | 229,171 |   | $ | 190,293 |   | $ | 167,576 |   | $ | 965,452 |   | $ | 261,606,166 |   | $ | 263,580,371 |   |
|                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

On March 8, 2004, the Company took titleto an aircraft that was transferred from a special purpose entity owned by itsformer shareholders, subject to an existing seven year variable purchase ratenote payable, due in monthly installments with a balloon payment due in December 2008(See Note 16).   Subsequently, as aresult of the Acquisition, the aircraft was distributed to a formershareholder.

 
| ** **                                                       | ** ** | **March 6, 2004** | ** ** |
|------------------------------------------------------------------|------------|------------------------|------------|
|                                                             |       |                   |       |
| Obligation  of special purpose entity                            |       | $                      | 5,606,686  |   |
| Less current  installments                                       |       | 313,344                |       |
| Obligation  of special purpose entity, less current installments |       | $                      | 5,293,342  |   |

 

F-17

----

 

**8.****                                     ****INCOME TAXES**

 

Theincome tax provision (benefit) is summarized as follows:

 
| ** **                 | ** ** | **Successor**          | ** ** | ** ** | **Predecessor**        | ** ** |
|----------------------------|------------|------------------------|------------|------------|------------------------|------------|
| ** **                 | ** ** | **Fiscal 2005**        | ** ** | ** ** | **Fiscal 2005**        | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                 | ** ** | **For the Period**     | ** ** | ** ** | **For the Period**     | ** ** | **Fiscal 2004** | ** ** | **Fiscal 2003** | ** ** |
| ** **                 | ** ** | **July 1, 2004**  | ** ** | ** ** | **March 7, 2004** | ** ** | **For the Year** | ** ** | **For the Year** | ** ** |
| ** **                 | ** ** | **Through**            | ** ** | ** ** | **Through**            | ** ** | **Ended** | ** ** | **Ended** | ** ** |
| ** **                 | ** ** | **March 5, 2005** | ** ** | ** ** | **June 30,2004**  | ** ** | **March 6, 2004** | ** ** | **March 1, 2003** | ** ** |
|                       |       |                   |       |       |                   |       |   |   |   |   |
| Current:                   |       |                   |       |       |                   |       |   |   |   |   |
| Federal                    |       | $                      | (968,107   | )          |                   | $          | — |   | $ | — |   | $ | (232,761 | ) |
| State                      |       | 800                    |       |       | —                 |       | 7,100 |   | 69,048 |   |
| Total  current             |       | (967,307               | )          |       | —                 |       | 7,100 |   | (163,713 | ) |
|                       |       |                   |       |       |                   |       |   |   |   |   |
| Deferred:                  |       |                   |       |       |                   |       |   |   |   |   |
| Federal                    |       | (508,731               | )          |       | (1,946,381             | )          | 1,077,657 |   | 1,161,298 |   |
| State                      |       | 878,814                |       |       | (133,957               | )          | 218,590 |   | 124,893 |   |
| Total  deferred            |       | 370,083                |       |       | (2,080,338             | )          | 1,296,247 |   | 1,286,191 |   |
| Total  provision (benefit) |       | $                      | (597,224   | )          |                   | $          | (2,080,338 | ) | $ | 1,303,347 |   | $ | 1,122,478 |   |

 

Actualincome tax provision (benefit) are different fromamounts computed by applying a statutory federal income tax rate to income orloss.  The computed amount is reconciledto total income tax provision (benefit).

 
| ** **                                                  | ** ** | **Successor**          | ** ** | ** **        | **Predecessor**        | ** ** |
|-------------------------------------------------------------|------------|------------------------|------------|-------------------|------------------------|------------|
| ** **                                                  | ** ** | **Fiscal 2005**        | ** ** | ** **        | **Fiscal 2005**        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                  | ** ** | **For the Period**     | ** ** | ** **        | **For the Period**     | ** ** | **Fiscal 2004** | ** ** | **Fiscal 2003** | ** ** |
| ** **                                                  | ** ** | **July 1, 2004**  | ** ** | ** **        | **March 7, 2004** | ** ** | **For the Year** | ** ** | **For the Year** | ** ** |
| ** **                                                  | ** ** | **Through**            | ** ** | ** **        | **Through**            | ** ** | **Ended** | ** ** | **Ended** | ** ** |
| ** **                                                  | ** ** | **March 5, 2005** | ** ** | ** **        | **June 30, 2004** | ** ** | **March 6, 2004** | ** ** | **March 1, 2003** | ** ** |
| ** **                                                  | ** ** | ** **             | ** ** | **Percent of**    | ** **             | ** ** | ** ** | ** ** | **Percent of** | ** ** | ** ** | ** ** | **Percent of** | ** ** | ** ** | ** ** | **Percent of** | ** ** |
| ** **                                                  | ** ** | **Amount**             | ** ** | **Pretax Income** | ** **             | ** ** | **Amount** | ** ** | **Pretax Income** | ** ** | **Amount** | ** ** | **Pretax Income** | ** ** | **Amount** | ** ** | **Pretax Income** | ** ** |
|                                                        |       |                   |       |              |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Computed provision at statutory rate                        |       | $                      | (1,724,314 | )                 | 35.0                   | %          |   | $ | (2,157,087 | ) | 34.0 | % | $ | 930,628 |   | 34.0 | % | $ | 986,156 |   | 34.0 | % |
| Tax effect resulting from:                                  |       |                   |       |              |                   |       |   |   |   |   |   |   |   |   |   |   |   |   |
| State and local income taxes, net of federal tax  provision |       | (195,884               | )          | 4.0               |                   |       | 119,372 |   | (1.9 | ) | 214,720 |   | 7.8 |   | 128,001 |   | 4.4 |   |
| Change in estimated effective tax rate                      |       | 1,121,312              |       | (22.8             | )                      |       | — |   |   |   | — |   |   |   | — |   |   |   |
| General business credit expired                             |       | 76,143                 |       | (1.6              | )                      |       | — |   |   |   | — |   |   |   | — |   |   |   |
| Compensation limitation                                     |       | —                 |       |              |                   |       | — |   |   |   | — |   |   |   | 18,360 |   | 0.6 |   |
| Income of Columbia Hill Aviation                            |       | —                 |       |              |                   |       | — |   |   |   | (260,504 | ) | (9.5 | ) | (403,663 | ) | (13.9 | ) |
| Meals and entertainment                                     |       | —                 |       |              |                   |       | — |   |   |   | 359,165 |   | 13.1 |   | 386,830 |   | 13.3 |   |
| Other permanent differences                                 |       | 125,519                |       | (2.5              | )                      |       | (42,623 | ) | 0.7 |   | 59,338 |   | 2.2 |   | 6,794 |   | 0.3 |   |
| Income tax provision                                        |       | $                      | (597,224   | )                 | 12.1                   | %          |   | $ | (2,080,338 | ) | 32.8 | % | $ | 1,303,347 |   | 47.6 | % | $ | 1,122,478 |   | 38.7 | % |

 

F-18

----

 

Theapproximate tax effect of each type of temporary difference and carryforwardthat gave rise to the Company’s deferred income tax assets and liabilities forfiscal 2005 and fiscal 2004 is as follows:

 
| ** **                                   | ** ** | **March 5, 2005** | ** ** | **March 6, 2004** | ** ** |
|----------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                   | ** ** | **Assets**             | ** ** | **Liabilities**        | ** ** | **Total** | ** ** | **Assets** | ** ** | **Liabilities** | ** ** | **Total** | ** ** |
|                                         |       |                   |       |                   |       |   |   |   |   |   |   |   |   |
| Current:                                     |       |                   |       |                   |       |   |   |   |   |   |   |   |   |
| Allowance  for doubtful receivables          |       | $                      | 627,069    |                   | $          | — |   | $ | 627,069 |   | $ | 641,274 |   | $ | — |   | $ | 641,274 |   |
| Inventory                                    |       | 1,136,188              |       | —                 |       | 1,136,188 |   | 1,033,554 |   | — |   | 1,033,554 |   |
| Accrued  bonus                               |       | 1,962,476              |       | —                 |       | 1,962,476 |   |   |   |   |   |   |   |
| Accrued  promotional expense                 |       | 1,391,447              |       | —                 |       | 1,391,447 |   | 1,213,601 |   | — |   | 1,213,601 |   |
| Accrued  vacation pay                        |       | 559,158                |       | —                 |       | 559,158 |   | 479,528 |   | — |   | 479,528 |   |
| Reserve for  returns                         |       | 44,626                 |       | —                 |       | 44,626 |   | 70,155 |   | — |   | 70,155 |   |
| Reserves -  other                            |       | 3,817                  |       | —                 |       | 3,817 |   | 3,634 |   | — |   | 3,634 |   |
| Prepaid  expenses                            |       | —                 |       | (332,785               | )          | (332,785 | ) | — |   | (254,633 | ) | (254,633 | ) |
| Accrued  worker’s compensation          |       | 332,932                |       | —                 |       | 332,932 |   | 218,037 |   | — |   | 218,037 |   |
| Consulting  Agreements                       |       | —                 |       | —                 |       | — |   | 116,362 |   | — |   | 116,362 |   |
| Other                                        |       | 39,305                 |       | —                 |       | 39,305 |   | 48,254 |   | — |   | 48,254 |   |
| Total  current                               |       | 6,097,018              |       | (332,785               | )          | 5,764,233 |   | 3,824,399 |   | (254,633 | ) | 3,569,766 |   |
|                                         |       |                   |       |                   |       |   |   |   |   |   |   |   |   |
| Noncurrent:                                  |       |                   |       |                   |       |   |   |   |   |   |   |   |   |
| Property,  plant and equipment               |       | —                 |       | (8,901,386             | )          | (8,901,386 | ) | — |   | (6,948,257 | ) | (6,948,257 | ) |
| Amortization  of intangibles                 |       | —                 |       | (50,989,159            | )          | (50,989,159 | ) | 3,368,976 |   | — |   | 3,368,976 |   |
| Non-qualified  deferred compensation plan    |       | 124,860                |       | —                 |       | 124,860 |   | — |   | — |   | — |   |
| General  business credit carryforward        |       | 1,010,883              |       | —                 |       | 1,010,883 |   | 1,070,799 |   | — |   | 1,070,799 |   |
| Alternative  minimum tax credit carryforward |       | 656,298                |       | —                 |       | 656,298 |   | 206,421 |   | — |   | 206,421 |   |
| Federal loss  carryforward                   |       | 4,409,688              |       | —                 |       | 4,409,688 |   | 1,807,420 |   | — |   | 1,807,420 |   |
| State loss  carryforward                     |       | 415,557                |       | —                 |       | 415,557 |   | 181,922 |   | — |   | 181,922 |   |
| Ohio  investment tax credit                  |       | 881,197                |       | —                 |       | 881,197 |   |   |   |   |   |   |   |
| Charitable  contribution carryforward        |       | —                 |       | —                 |       | — |   | 177,155 |   | — |   | 177,155 |   |
| Valuation  allowance                         |       | (537,472               | )          |                   |       | (537,472 | ) |   |   |   |   |   |   |
| Other                                        |       | —                 |       | —                 |       | — |   | 617,779 |   | — |   | 617,779 |   |
| Total  noncurrent                            |       | 6,961,011              |       | (59,890,545            | )          | (52,929,534 | ) | 7,430,472 |   | (6,948,257 | ) | 482,215 |   |
| Total  current and noncurrent                |       | $                      | 13,058,029 |                   | $          | (60,223,330 | ) | $ | (47,165,301 | ) | $ | 11,254,871 |   | $ | (7,202,890 | ) | $ | 4,051,981 |   |

 

For fiscal2004, the Company filed a consolidated federal income tax return with itsparent, PF Management. Under consolidated tax return rules, PF Management wasable to utilize the net operating loss and certain other deductions of theCompany that could not have otherwise been utilized by the Company on aseparate return basis. The tax sharing agreement between PF Management and theCompany did not require PF Management to reimburse the Company for the netoperating loss and other deductions that could not be utilized on a separatereturn basis. Accordingly, the Company recorded a noncash distribution to PFManagement in the amount of $3,578,169 for the utilization of the Company’sdeferred tax assets in PF Management’s consolidated federal income tax returnfor fiscal 2004. For successor fiscal 2005, the Company will file aconsolidated federal income tax return with PF Management and Holding. Due tochanges in the Company’s structure, as a result of the Acquisition, the Companydoes not expect PF Management or Holding to utilize a significant amount of taxattributes generated by the Company for successor fiscal.

 

At March 5,2005, federal and state loss carryovers of approximately $12,599,105 and$13,109,061, respectively, are available to offset future federal and statetaxable income. The carryover periods range from fifteen to twenty years, whichwill result in expirations of varying amounts beginning in fiscal 2015 andcontinuing through fiscal 2025. As a result of the Acquisition, a portion of the federal and state loss carryforwards aresubject to limitations on utilization under Internal Revenue Code Section 382.As such, management has evaluated the Company’s ability to utilize those lossesand has determined that it is more likely than not that all of the losscarryforwards will be utilized.

 

At March 5,2005, the Company also had federal and state tax credit carryforwards of$1,667,182 and $881,197, respectively. The carryover periods range from 7 yearsto indefinite carryover. As a result of the Acquisition, a portion of thefederal and state credit carryforwards is subject to limitations on utilizationunder Internal Revenue Code Sections 382 and 383. As such, management hasevaluated the Company’s ability to utilize those losses and has determined thatit is more likely than not that a portion of the federal credits will not beutilized by the Company. A valuation allowance has been establishedaccordingly.

 

F-19

----

 

**9.****                                     ****LEASED PROPERTIES**

 

TheCompany leases certain machinery and equipment and furniture and fixtures underleases classified as capital leases.  Theleases have original terms ranging from one to eight years.  The assets covered under these leases havecarrying values of $1,452,471 and $310,904 at March 5, 2005 and March 6,2004, respectively.

 

Certainmachinery and equipment and real estate are under operating leases with termsthat are effective for varying periods until 2012.  Certain of these leases have remainingrenewal clauses, exercisable at the option of the lessee.

 

AtMarch 5, 2005, minimum rental payments required under operating andcapital leases are summarized as follows:

 
| ** **                                                                                                      | ** ** | **Minimum Rental Payments** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                      | ** ** | **Operating**               | ** ** | **Capital** | ** ** | ** ** | ** ** |
| **Fiscal Year**                                                                                                 | ** ** | **Leases**                  | ** ** | **Leases** | ** ** | **Total** | ** ** |
| 2006                                                                                                            |       | $                           | 3,454,557  |   | $ | 477,605 |   | $ | 3,932,162 |   |
| 2007                                                                                                            |       | 3,261,145                   |       | 270,999 |   | 3,532,144 |   |
| 2008                                                                                                            |       | 393,502                     |       | 220,670 |   | 614,172 |   |
| 2009                                                                                                            |       | 50,343                      |       | 189,337 |   | 239,680 |   |
| 2010                                                                                                            |       | 19,440                      |       | 189,209 |   | 208,649 |   |
| Later years                                                                                                     |       | 19,440                      |       | 110,372 |   | 129,812 |   |
| Total  minimum lease payments                                                                                   |       | $                           | 7,198,427  |   | 1,458,192 |   | $ | 8,656,619 |   |
| Less amount  representing interest                                                                              |       |                        |       | (167,821 | ) |   |   |
| Present value  of minimum lease payments under capital leases  (See Note 7, “Financing Arrangements”) |       |                        |       | $ | 1,290,371 |   |   |   |

 

Rentalexpense charged to continuing operations is as follows:

 
| ** **  | ** ** | **Successor** | ** ** | **Predecessor** | ** ** |
|-------------|------------|---------------|------------|-----------------|------------|
| ** **  | ** ** | **Fiscal**    | ** ** | **Fiscal**      | ** ** | **Fiscal** | ** ** | **Fiscal** | ** ** |
| ** **  | ** ** | **2005**      | ** ** | **2005**        | ** ** | **2004** | ** ** | **2003** | ** ** |
| Real estate |       | $             | 63,244     |            | $          | 222,055 |   | $ | 525,830 |   | $ | 192,396 |   |
| Equipment   |       | 2,535,838     |       | 1,375,181       |       | 928,190 |   | 981,533 |   |
| Total       |       | $             | 2,599,082  |            | $          | 1,597,236 |   | $ | 1,454,020 |   | $ | 1,173,929 |   |

 

F-20

----

 

**10.****                              ****EMPLOYEE BENEFITS**

 

TheCompany maintains a 401(k) Retirement Plan for its employees, which providesthat the Company will make a matching contribution of up to 50% of an employee’svoluntary contribution, limited to the lesser of 5% ofthat employee’s annual compensation or $13,000 for predecessor fiscal 2005 andsuccessor fiscal 2005 combined.  TheCompany’s contributions were $518,368, $494,203 and $484,639 in predecessorfiscal 2005 and successor fiscal 2005 combined,predecessor fiscal 2004 and predecessor fiscal 2003, respectively.

 

TheCompany provides employee health insurance benefits to employees.  Medical benefits are provided primarilythrough self insurance group medical plans. The Company’s contributions included in operations were $5,134,812,$4,139,845 and $2,833,789, for predecessor fiscal 2005 and successor fiscal2005 combined, predecessor fiscal 2004 and predecessorfiscal 2003, respectively.

 

EffectiveAugust 1, 2000, the Company adopted the Pierre Foods, Inc. CompensationExchange Plan. The Plan is a non-qualified deferred compensation plan in whicheligible participants consist of highly compensated employees and the Company’sformer Board of Directors.  Cashcontributions to the Plan were $43,839 during fiscal 2003.  ** **Effective December 31, 2002,the Company terminated the plan.

 

Inconnection with the Acquisition the management investors invested approximately$4.9 million in a deferred compensation plan. This deferred compensationplan is funded through a rabbi trust that owns preferred stock of Holding withan aggregate liquidation value of approximately $4.9 million.

 

**11.****                              ****STOCK-BASED COMPENSATION**

 

The following table summarizes changes in shares outstanding under thestock option plan of Holding for successor fiscal 2005:

 
| ** **                                        | ** ** | **Shares** | ** ** | **Weighted Average Exercise  Price Per Share** | ** ** |
|---------------------------------------------------|------------|------------|------------|------------------------------------------------|------------|
|                                              |       |       |       |                                           |       |
| Adoption of  Plan on June 30, 2004           |       | —     |       |                                           |       |
| Options  granted                                  |       | 127,397    |       | $                                              | 10.00      |   |
| Balance at March 5,  2005                    |       | 127,397    |       | $                                              | 10.00      |   |
|                                              |       |       |       |                                           |       |
| Shares  available for grant at March 5, 2005 |       | 36,381     |       |                                           |       |
| Shares  exercisable at March 5, 2005              |       | 6,313      |       |                                           |       |

 

F-21

----

 

**12.****                              ****DISCLOSURES ABOUT FAIR VALUES OF FINANCIALINSTRUMENTS**

 

The Company’s nonderivative financialinstruments consist primarily of cash and cash equivalents, trade and notereceivables, trade payables and long-term debt. The estimated fair values of thefinancial instruments have been determined by the Company using availablemarket information and appropriate valuation techniques.  Considerable judgment is required, however,to interpret market data to develop the estimates of fair value.  Accordingly, the estimates presented hereinare not necessarily indicative of the amounts that the Company could realize ina current market exchange.  The use ofdifferent market assumptions and/or estimation methodologies may have amaterial effect on the estimated fair value amounts.

 

At March 5, 2005 excluding long-termdebt, the book values of each of the nonderivative financial instrumentsrecorded in the Company’s balance sheet are considered representative of fairvalue due to variable interest rates, short terms to maturity and/or shortlength of time outstanding.

 

The fairvalue of the Company’s New Notes and Old Notes is estimated based on quotedmarket prices and interest rates currently available for issuance of debt withsimilar terms and maturities.  As of March 5,2005, the fair value of the New Notes was $131,875,000.  As of March 6, 2004, the fair value ofthe Old Notes was $115,000,000.  Thecarrying value of all other long-term debt is considered representative of itsfair value as of March 5, 2005.

 

**13.****                              ****BUSINESS SEGMENT**

 

During predecessor fiscal 2005 and successor fiscal2005 combined, predecessor fiscal 2004 and predecessor fiscal 2003, the Companyoperated solely in the food processing segment. Note that as a result of the Acquisition described above, the resultsfor predecessor fiscal 2005 and successor fiscal 2005 are combined in the tablebelow in order to provide a more meaningful period-to-period comparison. Salesby major product line are as follows:

 
| ** **                     | ** ** | **Net Revenues by Source**  | ** **  |
|--------------------------------|------------|-----------------------------|-------------|
| ** **                     | ** ** | **Predecessor Fiscal 2005** | ** **  | ** ** | ** ** | ** ** | ** ** |
| ** **                     | ** ** | **And**                     | ** **  | ** ** | ** ** | ** ** | ** ** |
| ** **                     | ** ** | **Successor Fiscal 2005**   | ** **  | **Predecessor** | ** ** | **Predecessor** | ** ** |
| ** **                     | ** ** | **Combined**                | ** **  | **Fiscal 2004** | ** ** | **Fiscal 2003** | ** ** |
| ** **                     | ** ** | **(in millions)**           | ** **  | **(in millions)** | ** ** | **(in millions)** | ** ** |
| Food Processing                | ** ** | ** **                  | ** **  | ** ** | ** ** | ** ** | ** ** |
| Fully-Cooked  Protein Products |       | $                           | 255,278,619 |   | $ | 214,738,933 |   | $ | 149,302,819 |   |
| Microwaveable Sandwiches       |       | 147,339,267                 |        | 136,423,374 |   | 119,087,550 |   |
| Bakery and  Other Products     |       | 7,797,900                   |        | 7,387,009 |   | 7,948,454 |   |
| Total Food  Processing         |       | $                           | 410,415,786 |   | $ | 358,549,316 |   | $ | 276,338,823 |   |

 

Significantly all revenues and long-lived assets arederived from and reside in the United States.

 

**14.****                              ****COMMITMENTS AND CONTINGENCIES**

 

The Company provided a letter of credit in theamount of $4.5 million, $3.5 million and $1.5 million in predecessor fiscal2005 and successor fiscal 2005 combined, predecessor fiscal 2004 andpredecessor fiscal 2003, respectively, to its insurance carrier for theunderwriting of certain performance bonds. This letter of credit expires in fiscal 2006.  The Company also provides secured letters ofcredit to its insurance carriers for outstanding and potential worker’scompensation and general liability claims. Letters of credit for these claims totaled $110,000 in predecessor fiscal2005 and successor fiscal 2005 combined and $75,000 in both predecessor fiscal2004 and predecessor fiscal 2003.  Inaddition, the Company provides secured letters of credit to a limited number ofsuppliers.  The Company had no letters ofcredit for suppliers in predecessor fiscal 2005 and successor fiscal 2005combined.  Letters of credit forsuppliers totaled $250,000 in both predecessor fiscal 2004 and predecessorfiscal 2003.

 

The Company is involved in various legalproceedings.  Management believes, basedon the advice of legal counsel, that the outcome of such proceedings will nothave a materially adverse effect on the Company’s financial position or futureresults of operations and cash flows.

 

F-22

----

 

Thefollowing tables summarize our contractual obligations and commitments as of March 5,2005.

 
| ** **                                 | ** ** | **Commitments by Fiscal Year** | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|
| ** **                                 | ** ** | **Total**                      | ** ** | **Less than 1  Year** | ** ** | **1 – 3 Years** | ** ** | **3-5  Years** | ** ** | **More than 5  Years** | ** ** |
|                                       |       |                           |       |   |   |   |   |   |   |   |   |
| Letters of  credit                         |       | $                              | 4,560,000  |   | $ | 4,560,000 |   | $ | — |   | $ | — |   | $ | — |   |
| Purchase  commitments for capital projects |       | 1,612,500                      |       | 1,612,500 |   | — |   | — |   | — |   |
| Purchase commitments for electricity       |       | 2,474,640                      |       | 2,474,640 |   | — |   | — |   | — |   |
| Purchase commitments for raw materials     |       | 1,187,277                      |       | 1,187,277 |   | — |   | — |   | — |   |
| Purchase  commitments for natural gas      |       | 605,473                        |       | 605,473 |   | — |   | — |   | — |   |
| Total                                      |       | $                              | 10,439,890 |   | $ | 10,439,890 |   | $ | — |   | $ | — |   | $ | — |   |

 
| ** **                   | ** ** | **Contractual Obligations by  Fiscal Year** | ** **  |
|------------------------------|------------|---------------------------------------------|-------------|
| ** **                   | ** ** | **Total**                                   | ** **  | **Less than 1  Year** | ** ** | **1 – 3 Years** | ** ** | **3-5  Years** | ** ** | **More than 5  Years** | ** ** |
|                         |       |                                        |        |   |   |   |   |   |   |   |   |
| Long-term  debt              |       | $                                           | 262,290,000 |   | $ | — |   | $ | — |   | $ | 790,000 |   | $ | 261,500,000 |   |
| Capital  lease obligations   |       | 1,290,371                                   |        | 421,713 |   | 419,464 |   | 343,028 |   | 106,166 |   |
| Operating  lease obligations |       | 7,198,427                                   |        | 3,454,557 |   | 3,654,647 |   | 69,783 |   | 19,440 |   |
| Total                        |       | $                                           | 270,778,798 |   | $ | 3,876,270 |   | $ | 4,074,111 |   | $ | 1,202,811 |   | $ | 261,625,606 |   |

 

Inconjunction with the Acquisition, the Company and the selling shareholders****entered into a tax sharing and indemnification agreementwhich contains certain representations and warranties of the sellingshareholders with respect to taxes.  Theagreement provides that any net operating loss carryforward (“NOL”) withrespect to periods before the Acquisition, and attributable to expensesrelating to the sale of the Company, will be for the benefit of the sellingshareholders.  Accordingly, the Companywill pay to the selling shareholders the amount of any tax benefit attributableto such NOL, except that the first $4 million of such tax benefits shall bepaid into an escrow account that will secure the selling shareholdersindemnification obligations under the tax sharing agreement.  The Company has recorded a net long-termliability to the former shareholders totaling $10,190,051 for the estimatedobligations under the tax sharing agreement. This amount is excluded from the table above due to the uncertainty ofwhen such utilization of the NOL will occur.

 

F-23

----

 

**15.****                              ****SUPPLEMENTAL CASH FLOW INFORMATION—Cash Paidand Non-Cash Transactions**

 

Cashpaid for interest, income taxes refunded and non-cash transactions consistingof notes issued for assets acquired, capital lease additions and certain taxbenefits utilized by the Parent account for as a distribution to the Parent areas follows:

 
| ** **                                                       | ** ** | **Successor**   | ** **  | ** ** | **Predecessor** | ** ** |
|------------------------------------------------------------------|------------|-----------------|-------------|------------|-----------------|------------|
| ** **                                                       | ** ** | **Fiscal 2005** | ** **  | ** ** | **Fiscal 2005** | ** ** | **Fiscal 2004** | ** ** | **Fiscal 2003** | ** ** |
|                                                             |       |            |        |       |            |       |   |   |   |   |
| Cash paid  during the period for:                                |       |            |        |       |            |       |   |   |   |   |
| Interest                                                         |       | $               | 13,440,430  |       |            | $          | 7,915,332 |   | $ | 14,857,594 |   | $ | 13,515,920 |   |
| Income taxes paid (refunds  received)                            |       | $               | 1,939,806   |       |            | $          | — |   | $ | (197,977 | ) | $ | (68,506 | ) |
|                                                             |       |            |        |       |            |       |   |   |   |   |
| Non-cash transactions                                            |       |            |        |       |            |       |   |   |   |   |
| Restructuring transactions                                       |       |            |        |       |            |       |   |   |   |   |
| Assumption of PF  Management debt                                |       | $               | —      |       |            | $          | 14,274,050 |   | $ | — |   | $ | — |   |
| Assumption of deferred tax  liability for aircraft               |       | $               | —      |       |            | $          | 1,576,000 |   | $ | — |   | $ | — |   |
| 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 |       | $               | 4,883,415   |       |            | $          | — |   | $ | — |   | $ | — |   |
| Cancellation of receivable  from previous Shareholder            |       | $               | 5,000,000   |       |            | $          | — |   | $ | — |   | $ | — |   |
| Distribution of plant,  property and equipment                   |       | $               | 8,476,080   |       |            | $          | — |   | $ | — |   | $ | — |   |
| Distribution of other  current assets                            |       | $               | 9,255       |       |            | $          | — |   | $ | — |   | $ | — |   |
| Equity from parent                                               |       | $               | 250,087,097 |       |            | $          | — |   | $ | — |   | $ | — |   |
| Tax sharing liability to  previous shareholders                  |       | $               | 10,317,601  |       |            | $          | — |   | $ | — |   | $ | — |   |
| Valuation of goodwill and  other intangibles                     |       | $               | 323,626,414 |       |            | $          | — |   | $ | — |   | $ | — |   |
| Deferred tax liability                                           |       | $               | 54,464,900  |       |            | $          | — |   | $ | — |   | $ | — |   |
| Adjustment of inventory to  fair value                           |       | $               | 2,020,948   |       |            | $          | — |   | $ | — |   | $ | — |   |
| Adjustment of plant,  property and equipment to fair value       |       | $               | 4,438,984   |       |            | $          | — |   | $ | — |   | $ | — |   |
|                                                             |       |            |        |       |            |       |   |   |   |   |
| Other transactions                                               |       |            |        |       |            |       |   |   |   |   |
| Distribution to parent—tax  benefit                         |       | $               | —      |       |            | $          | — |   | $ | 3,578,167 |   | $ | — |   |
| Capital lease additions                                          |       | $               | 247,536     |       |            | $          | 1,013,300 |   | $ | 273,208 |   | $ | 73,475 |   |
| Note issued for assets  acquired                                 |       | $               | —      |       |            | $          | — |   | $ | — |   | $ | 270,983 |   |

 

F-24

----

 

**16.****                              ****TRANSACTIONS WITH RELATED PARTIES**

 

**Successor Pierre**

 

In conjunctionwith or subsequent to the Acquisition, the following relationships and relatedtransactions existed:

 

**•**                  Inconjunction with the Acquisition, John Grigg, one of the Company’s formerdirectors, was paid a fee at the closing, pursuant to his letter agreement withthe Company dated as of January 29, 2004, for professional servicesperformed on behalf of the Company and PFMI. The fee was approximately $780,952 and was paid from the proceeds to theselling shareholders.

 

**•**                  MadisonDearborn Partners IV, L.P. received a fee of $5.0 million at the closing of theAcquisition, plus out-of-pocket expenses incurred in connection with theAcquisition.  MDP may be paid additionalfees from time to time in the future for providing management, consulting oradvisory services and will be reimbursed for all future expenses incurred inconnection with its investment in Holding.

 

**•**                  In connection with the Acquisition,Mr. Woodhams and Mr. Naylor, investedapproximately $4.9 million in a deferred compensation plan.  This deferred compensation plan is fundedthrough a rabbi trust that owns preferred stock of Holding with an aggregateliquidation value of approximately $5.2 million as of March 5, 2005.

 

**•**                  Inconjunction with the Acquisition, the Company and the selling shareholdersentered into a tax sharing and indemnification agreement which contains certainrepresentations and warranties of the selling shareholders with respect totaxes.  The agreement provides that anynet operating loss carryforward (“NOL”) with respect to periods before theAcquisition, and attributable to expenses relating to the Acquisition, will befor the benefit of the selling shareholders. Accordingly, the Company will pay to the selling shareholders the amountof any tax benefit attributable to such NOL, except that the first $4 millionof such tax benefits shall be paid into an escrow account that will secure theselling shareholders indemnification obligations under the tax sharingagreement.  The Company has recorded anet long-term liability to the former shareholders totaling $10,190,051 as of March 5,2005 for the estimated obligations under the tax sharing agreement.

 

•      Norbert J. Woodhams, one of the Company'sVice Presidents, is the son of Norbert E. Woodhams.  Norbert E. Woodhams is the Company'sPresident, Chief Executive Officer, Director and Chairman of the Board.  In predecessor fiscal 2005 and successorfiscal 2005 combined, Norbert J. Woodhams received a base salary of ninety-twothousand and seven hundred dollars and earned a bonus of forty-seven thousandand eight hundred dollars under the Company's bonus plan.  The base salary and bonus earned by NorbertJ. Woodhams is consistent with the earnings of other Company employees withsimilar responsibilities.

 

**Predecessor Pierre**

 

As described in Note 1 to the Consolidated FinancialStatements, on March 8, 2004 the Company and the Trustee under the Company’sIndenture executed a Fourth Supplemental Indenture and, pursuant to the termsof the Fourth Supplemental Indenture, the Company terminated substantially allof its related party transactions.  Thefollowing related party transactions were specifically permitted under theterms of the Fourth Supplemental Indenture:

 

**•**                  Columbia Hill Land Company, LLC,owned 50% by each of Messrs. Richardson and Clark, leases office space to theCompany in Hickory, North Carolina, pursuant to a ten-year lease that commencedin September 1998.  Rents paid underthe lease were approximately $58,000 and $116,000 in predecessor fiscal 2005and predecessor fiscal 2004, respectively.

 

**•**                  On August 13, 2003, the Companyobtained a three year variable rate $40 million revolving credit facility fromFleet Capital Corporation.  Messrs.Richardson and Clark provided guarantees of value and validity of the collateralsecuring this credit facility; they did not, however, guarantee payment of thefacility, nor did they receive guarantee fees.

 

•      The Company had mutual leasing agreementswith certain related individuals and with certain companies in which theprevious shareholders had substantial ownership interests.  Total payments under such leasing agreementswere approximately $260,000 in predecessor fiscal 2004 and $176,000 inpredecessor fiscal 2003.

 

F-25

----

 

**•**                  On March 8, 2004 the Companytook title to an aircraft that was transferred from Columbia Hill Aviation, LLC(“CHA”), owned 100% by PFMI, subject to existing purchase money debt.  The aircraft was originally leased by theCompany from CHA beginning in the fourth quarter of predecessor fiscal 2002.  Effective March 1, 2002, the originallease was cancelled and replaced with a non-exclusive lease agreement.  Pursuant to this new lease, the Company wasobligated to make 16 quarterly lease payments of $471,500 each for the right touse the aircraft for up to 115 flight hours per quarter, based onavailability.  Under this leaseagreement, CHA was responsible for all expenses incurred in the operation ofthe use of the aircraft, except that the Company provided its own flightcrew.  During predecessor fiscal 2004 andpredecessor fiscal 2003, the Company paid CHA approximately $2.6 million and$3.2 million, respectively, in lease payments. CHA was not a subsidiary of the Company; however, the Company consideredCHA a non-independent special purpose leasing entity.  Accordingly, CHA’s financial condition,results of operations and cash flows have been included in the Company’sConsolidated Financial Statements included herein.  Under the terms of the operating lease withCHA, and the financing agreements between CHA and its creditor, the Company didnot maintain the legal rights of ownership to the aircraft, nor did CHA’screditor maintain any legal recourse to the Company.  Subsequently, as a result of the Acquisition,the aircraft was distributed to a former shareholder.

 

Any related party transactions described below thatwere in effect at March 6, 2004 were subsequently terminated as of March 8,2004 pursuant to the terms of the Fourth Supplemental Indenture.  As a result of the termination of theserelated party transactions, subsequent to March 8, 2004, the Companyperforms the purchasing and distribution services internally.  Other related party services are outsourcedas necessary at comparable cost.

 

**•**                  Columbia Hill Management, Inc. (“ColumbiaHill”), owned 50% by each of Messrs. Richardson andClark, provided accounting, tax and administrative services to Pierre, as wellas professional services for the management of special projects.  Fees paid for these services wereapproximately $203,000 in predecessor fiscal 2004 and $650,000 in predecessorfiscal 2003.

 

**•**                  During predecessor fiscal 2004, PFMIowed the Company as much as $993,247 pursuant to a promissory note payable ondemand and bearing interest at the prime rate. Prior to the Acquisition, PFMI was owned in part by Messrs. Richardsonand Clark, who have unconditionally guaranteed repayment of the note.  As of March 8, 2004, this note wasforgiven in connection with the Fourth Supplemental Indenture.

 

**•**                  Effective February 21, 2003, Messrs. Richardsonand Clark sold their net assets in Compass Outfitters, LLC, acompany that provided team-building opportunities for customers and employeesof the Company, to the Company for a total of $270,983.  In exchange for the net assets, the Companyissued notes in the amount of $135,491 to each of Messrs. Richardson andClark.  The notes were five-year notes,bearing interest at 6% per annum, with interest and principal due atmaturity.  As of March 8, 2004, inconnection with the Fourth Supplemental Indenture, these notes were cancelled.  Fees paid to Compass Outfitters, LLC prior tobeing sold to the Company were $530,000 in predecessor fiscal 2003.

 

**•**                  PF Purchasing, LLC (“PFP”), previously owned 100% byPFMI, served as the exclusive purchasing agent for the Company, pursuant to athree-year agreement that commenced September 3, 2001.  Under the agreement, PFP made an incentivepayment of $100,000 per quarter to the Company in consideration of theopportunity to act as exclusive purchasing agent, and in exchange was entitledto receive all rebates or discounts receivable by Pierre from suppliers andvendors for orders negotiated and placed by PFP.  In predecessor fiscal 2004 and predecessorfiscal 2003, net fees paid to PFP were approximately $2,122,000 and $3,960,000,respectively.

 

**•**                  Effective March 3, 2002, the Company enteredinto a logistics agreement with PF Distribution, LLC (“PFD”), owned 100% byPFMI.  Under the agreement, PFD served asthe exclusive logistics agent for the Company, and provided all warehousing,fulfillment and transportation services to the Company.  The cost of PFD’s services was based on flatrates per pound, which were calculated based on weight and volumecharacteristics of products, inventory pounds maintained and inventory poundsshipped.  Rates were determined based onhistorical costs and industry standards. In predecessor fiscal 2004, distribution expense recorded in selling,general and administrative expense was approximately $31,126,000 of whichapproximately $30,999,000 million had been paid to PFD as of March 6,2004.  In predecessor fiscal 2003,distribution expense recorded in selling, general and administrative expensewas approximately $21,544,000 of which approximately $21,254,000 million hadbeen paid to PFD as of March 1, 2003.

 

F-26

----

 

**•**                  Atlantic Cold Storage of Mocksville, LLC (“ACS”),owned one-third each by Messrs. Richardson and Clark, planned to construct andfinance a public cold storage warehouse which would lease space to the Companyas well as to others.  The proposedagreement with the Company was for 10 years and a minimum of 4,000 palletpositions to be leased as of the first date the facility became operational.  During predecessor fiscal 2001, the Companypaid $250,000 to ACS for specialized construction costs.  As of March 8, 2004, in connection withthe Fourth Supplemental Indenture, these costs were written-off.

 

**•**                  The Company purchases pork products from an entityin which one of the Company’s Principal Shareholders has a substantialownership interest.  During fiscal 2003,the Company purchased pork products totaling $194,170.

 

**•**                  The following transactions were entered into on March 8,2004 as permitted by the Fourth Supplemental Indenture:

 
| Assumption  of PFMI debt                           |   | $          | (14,274,050 | )      |
|----------------------------------------------------|--------|------------|-------------|--------|
| Accrued  liabilities to PFP cancelled              |   | 3,479,007  |        |
| Assumption  of deferred tax liability for aircraft |   | (1,576,000 | )           |
| Note  receivable cancelled                         |   | (993,247   | )           |
| Accrued  liabilities to PFD cancelled              |   | 535,251    |        |
| Cash  received                                     |   | 763,998    |        |
| Other                                              |   | (174,874   | )           |
| Total                                              |   | $          | (12,239,915 | )      |
|                                               |   |       |        |
| Allocated to  the following accounts:              |   |       |        |
| Retained  Earnings                                 |   | $          | 11,900,276  |   |
| Common Stock                                       |   | 339,639    |        |
| Total                                              |   | $          | 12,239,915  |   |

 

The $339,639 charge represents the removal ofmembers’ equity of CHA.

 

All material transactions with affiliates ofthe Company were reviewed by the entire Board of Directors, where they wereapproved by a majority of the independent directors.  The directors obtained and relied uponinvestment banking “fairness” opinions when considering these transactions tothe extent required by the indenture governing the Old Notes.

 

On June 30, 2004, in conjunction withthe Acquisition, all previously existing related party transactions wereterminated as described in Note 1, “Basis of Presentation and Acquisition,” tothe Consolidated Financial Statements.

 

F-27

----

 

**17.****                              ****RESTATED QUARTERLY FINANCIALINFORMATION (UNAUDITED)**

 

The following quarterly financial information for the Company’s fiscalyear 2005 is, by means of this filing, being restated to reflect the followingmistatements previously reported: 1)  the tax basis of assetsassumed in connection with the Restructuring, 2)  the tax basis of assets and liabilitiesfollowing the Acquisition, 3)  the classificationof professional fees incurred in connection with the Acquisition and relateddebt transactions and 4)  the calculationof depreciation expense following the Acquisition.

 

CONSOLIDATED STATEMENT OF OPERATIONS:

 
| ** **                                               | ** ** | **Successor Pierre**                                 | ** ** |
|----------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                               | ** ** | **For the Period**                                   | ** ** | **For the Period** | ** ** | **For the Period** | ** ** |
| ** **                                               | ** ** | **July 1,2004**                                 | ** ** | **September 5,2004** | ** ** | **July 1,2004** | ** ** |
| ** **                                               | ** ** | **Through**                                          | ** ** | **Through** | ** ** | **Through** | ** ** |
| ** **                                               | ** ** | **September 4,2004**                            | ** ** | **December 4,2004** | ** ** | **December 4,2004** | ** ** |
| ** **                                               | ** ** | **Previously**                                       | ** ** | ** ** | ** ** | **Previously** | ** ** | ** ** | ** ** | **Previously** | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | **Reported**                                         | ** ** | **Restated** | ** ** | **Reported** | ** ** | **Restated** | ** ** | **Reported** | ** ** | **Restated** | ** ** |
|                                                     |       | **(Dollars in thousands, except per share amounts)** |       |
|                                                     |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| REVENUES,  NET:                                          |       | $                                                    | 75,439     |   | $ | 75,439 |   | $ | 111,969 |   | $ | 111,969 |   | $ | 187,408 |   | $ | 187,408 |   |
|                                                     |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| COSTS AND  EXPENSES:                                     |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Cost of goods  sold                                      |       | 59,432                                               |       | 59,432 |   | 80,148 |   | 80,148 |   | 139,580 |   | 139,580 |   |
| Selling,  general and administrative expenses            |       | 9,555                                                |       | 9,555 |   | 15,410 |   | 15,410 |   | 24,965 |   | 24,965 |   |
| Depreciation  and amortization                           |       | 5,529                                                |       | 5,974 |   | 8,146 |   | 8,576 |   | 13,675 |   | 14,550 |   |
| Total costs  and expenses                                |       | 74,516                                               |       | 74,961 |   | 103,704 |   | 104,134 |   | 178,220 |   | 179,095 |   |
| OPERATING  INCOME                                        |       | 923                                                  |       | 478 |   | 8,265 |   | 7,835 |   | 9,188 |   | 8,313 |   |
| OTHER INCOME  (EXPENSE):                                 |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| Interest  expense                                        |       | (9,029                                               | )          | (9,029 | ) | (5,203 | ) | (5,247 | ) | (14,232 | ) | (14,276 | ) |
| Other  income, net                                       |       | 0                                                    |       | 0 |   | 12 |   | 12 |   | 12 |   | 12 |   |
| Other  expense, net                                      |       | (9,029                                               | )          | (9,029 | ) | (5,191 | ) | (5,235 | ) | (14,220 | ) | (14,264 | ) |
|                                                     |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| INCOME  (LOSS) BEFORE INCOME TAX (PROVISION) BENEFIT     |       | (8,106                                               | )          | (8,551 | ) | 3,074 |   | 2,600 |   | (5,032 | ) | (5,951 | ) |
| INCOME TAX  (PROVISION) BENEFIT                          |       | 2,658                                                |       | 2,831 |   | (1,008 | ) | (823 | ) | 1,650 |   | 2,008 |   |
| NET INCOME  (LOSS)                                       |       | $                                                    | (5,448     | ) | $ | (5,720 | ) | $ | 2,066 |   | $ | 1,777 |   | $ | (3,382 | ) | $ | (3,943 | ) |
|                                                     |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| NET INCOME  (LOSS) PER COMMON SHARE - BASIC AND DILUTED  |       | $                                                    | (54.48     | ) | $ | (57.20 | ) | $ | 20.66 |   | $ | 17.77 |   | $ | (33.82 | ) | $ | (39.43 | ) |
|                                                     |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |
| WEIGHTED  AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED |       | 100,000                                              |       | 100,000 |   | 100,000 |   | 100,000 |   | 100,000 |   | 100,000 |   |

 

F-28

----

 

CONSOLIDATED BALANCE SHEETS:

 
| ** **                                                                                                               | ** ** | **Predecessor Pierre**     | ** ** | ** **   | **Succesor Pierre**        | ** ** | **Succesor Pierre**       | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|----------------------------|------------|--------------|----------------------------|------------|---------------------------|------------|
| ** **                                                                                                               | ** ** | **June 5, 2004**      | ** ** | ** **   | **September 4, 2004** | ** ** | **December 4, 2004** | ** ** |
| ** **                                                                                                               | ** ** | **Previously**             | ** ** | ** **   | ** **                 | ** ** | **Previously**            | ** ** | ** ** | ** ** | **Previously** | ** ** | ** ** | ** ** |
| ** **                                                                                                               | ** ** | **Reported**               | ** ** | **Restated** | ** **                 | ** ** | **Reported**              | ** ** | **Restated** | ** ** | **Reported** | ** ** | **Restated** | ** ** |
|                                                                                                                     |       | **(Dollars in thousands)** |       |
| **ASSETS**                                                                                                               |       |                       |       |         |                       |       |                      |       |   |   |   |   |   |   |
| CURRENT  ASSETS:                                                                                                         |       |                       |       |         |                       |       |                      |       |   |   |   |   |   |   |
| Cash and  cash equivalents                                                                                               |       | $                          | 115        |         | $                          | 115        |                      |       | $ | — |   | $ | — |   | $ | 2,143 |   | $ | 2,143 |   |
| Certificate  of deposit of special purpose entity                                                                        |       | 1,240                      |       | 1,240        |                       |       | —                    |       | — |   | — |   | — |   |
| Accounts  receivable, net                                                                                                |       | 22,198                     |       | 22,198       |                       |       | 29,702                    |       | 29,702 |   | 29,338 |   | 29,338 |   |
| Inventories                                                                                                              |       | 42,164                     |       | 42,164       |                       |       | 44,314                    |       | 44,314 |   | 42,991 |   | 42,991 |   |
| Refundable  income taxes                                                                                                 |       | 20                         |       | 20           |                       |       | —                    |       | — |   | — |   | — |   |
| Deferred  income taxes                                                                                                   |       | 3,570                      |       | 3,570        |                       |       | 4,581                     |       | 4,581 |   | 4,581 |   | 4,581 |   |
| Prepaid  expenses and other current assets                                                                               |       | 3,091                      |       | 3,091        |                       |       | 4,134                     |       | 4,134 |   | 3,162 |   | 3,162 |   |
| Total  current assets                                                                                                    |       | 72,398                     |       | 72,398       |                       |       | 82,731                    |       | 82,731 |   | 82,215 |   | 82,215 |   |
|                                                                                                                     |       |                       |       |         |                       |       |                      |       |   |   |   |   |   |   |
| PROPERTY,  PLANT AND EQUIPMENT, NET                                                                                      |       | 60,699                     |       | 60,699       |                       |       | 57,337                    |       | 56,892 |   | 57,183 |   | 56,308 |   |
| OTHER  ASSETS:                                                                                                           |       |                       |       |         |                       |       |                      |       |   |   |   |   |   |   |
| Other  intangibles, net                                                                                                  |       | 38,809                     |       | 38,809       |                       |       | 171,346                   |       | 171,346 |   | 164,789 |   | 164,789 |   |
| Goodwill,  net                                                                                                           |       | —                     |       | —       |                       |       | 172,515                   |       | 174,091 |   | 178,335 |   | 186,535 |   |
| Note  receivable-related party                                                                                           |       | —                     |       | —       |                       |       | —                    |       | — |   | — |   | — |   |
| Deferred  income taxes                                                                                                   |       | 482                        |       | —       |                       |       | —                    |       | — |   | — |   | — |   |
| Deferred  loan origination fees, net                                                                                     |       | 4,451                      |       | 4,451        |                       |       | 8,190                     |       | 8,190 |   | 8,583 |   | 9,124 |   |
| Other                                                                                                                    |       | 279                        |       | 279          |                       |       | —                    |       | — |   | — |   | — |   |
| Total other  assets                                                                                                      |       | 44,021                     |       | 43,539       |                       |       | 352,051                   |       | 353,627 |   | 351,707 |   | 360,448 |   |
| Total Assets                                                                                                             |       | $                          | 177,118    |         | $                          | 176,636    |                      |       | $ | 492,119 |   | $ | 493,250 |   | $ | 491,105 |   | $ | 498,971 |   |
|                                                                                                                     |       |                       |       |         |                       |       |                      |       |   |   |   |   |   |   |
| **LIABILITIES  AND SHAREHOLDER’S EQUITY**                                                                           |       |                       |       |         |                       |       |                      |       |   |   |   |   |   |   |
| CURRENT  LIABILITIES:                                                                                                    |       |                       |       |         |                       |       |                      |       |   |   |   |   |   |   |
| Current  installments of long-term debt                                                                                  |       | $                          | 5,145      |         | $                          | 5,145      |                      |       | $ | 1,743 |   | $ | 1,743 |   | $ | 282 |   | $ | 282 |   |
| Trade  accounts payable                                                                                                  |       | 8,126                      |       | 8,126        |                       |       | 9,927                     |       | 9,927 |   | 8,912 |   | 8,912 |   |
| Accrued  payroll and payroll taxes                                                                                       |       | 4,968                      |       | 4,968        |                       |       | 4,813                     |       | 4,813 |   | 5,512 |   | 5,512 |   |
| Accrued  interest                                                                                                        |       | 173                        |       | 173          |                       |       | 2,479                     |       | 2,479 |   | 5,400 |   | 5,400 |   |
| Accrued  promotions                                                                                                      |       | 2,910                      |       | 2,910        |                       |       | 3,853                     |       | 3,853 |   | 3,113 |   | 3,113 |   |
| Income taxes  payable                                                                                                    |       | —                     |       | —       |                       |       | —                    |       | — |   | — |   | — |   |
| Accrued  taxes (other than income and payroll)                                                                           |       | 1,177                      |       | 1,177        |                       |       | 1,315                     |       | 1,315 |   | 1,031 |   | 1,031 |   |
| Other  accrued liabilities                                                                                               |       | 722                        |       | 722          |                       |       | 897                       |       | 897 |   | 1,258 |   | 1,258 |   |
| Total  current liabilities                                                                                               |       | 23,221                     |       | 23,221       |                       |       | 25,027                    |       | 25,027 |   | 25,508 |   | 25,508 |   |
|                                                                                                                     |       |                       |       |         |                       |       |                      |       |   |   |   |   |   |   |
| LONG-TERM  DEBT, less current installments                                                                               |       | 157,828                    |       | 157,828      |                       |       | 276,555                   |       | 276,555 |   | 267,471 |   | 267,471 |   |
| DEFERRED  INCOME TAXES                                                                                                   |       | —                     |       | 1,094        |                       |       | 40,006                    |       | 41,409 |   | 40,962 |   | 49,389 |   |
| OTHER  LONG-TERM LIABILITIES                                                                                             |       | 233                        |       | 233          |                       |       | 10,402                    |       | 10,402 |   | 10,523 |   | 10,523 |   |
| COMMITMENTS  AND CONTINGENCIES                                                                                           |       | —                     |       | —       |                       |       | —                    |       | — |   | — |   | — |   |
| SHAREHOLDER’S  EQUITY:                                                                                              |       |                       |       |         |                       |       |                      |       |   |   |   |   |   |   |
| Common stock  - Class A, 100,000 shares authorized, issued and outstanding at March 5,  2005 and March 6, 2004 |       | 29,099                     |       | 29,099       |                       |       | 145,577                   |       | 145,577 |   | 150,023 |   | 150,023 |   |
| Additional  paid in capital                                                                                              |       | —                     |       | —       |                       |       | —                    |       | — |   | — |   | — |   |
| Retained  earnings (accumulated deficit)                                                                                 |       | (28,263                    | )          | (29,839      | )                          |       | (5,448                    | )          | (5,720 | ) | (3,382 | ) | (3,943 | ) |
| Note  receivable-related party                                                                                           |       | (5,000                     | )          | (5,000       | )                          |       | —                    |       | — |   | — |   | — |   |
| Total  shareholder’s equity                                                                                         |       | (4,164                     | )          | (5,740       | )                          |       | 140,129                   |       | 139,857 |   | 146,641 |   | 146,080 |   |
| Total  Liabilities and Shareholder’s Equity                                                                         |       | $                          | 177,118    |         | $                          | 176,636    |                      |       | $ | 492,119 |   | $ | 493,250 |   | $ | 491,105 |   | $ | 498,971 |   |

 

F-29

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SELECTED QUARTERLY FINANCIALDATA (UNAUDITED)

 
| ** **                                             | ** ** | **Predecessor**                                       | ** ** | ** **             | **Successor** | ** ** |
|--------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------|---------------|------------|
| ** **                                             | ** ** | ** **                                            | ** ** | **For the Period**     | ** **    | ** ** | **For the Period** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | **Quarter**                                           | ** ** | **June 6, 2004**  | ** **    | ** ** | **July 1, 2004** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
| ** **                                             | ** ** | **Ended**                                             | ** ** | **Through**            | ** **    | ** ** | **Through** | ** ** | **Ended** | ** ** | **Ended** | ** ** |
| ** **                                             | ** ** | **June 5, 2004**                                 | ** ** | **June 30, 2004** | ** **    | ** ** | **September 4, 2004** | ** ** | **December 4, 2004** | ** ** | **March 5, 2005** | ** ** |
| ** **                                             | ** ** | **(Dollars in thousands, except  per share amounts)** | ** ** |
|                                                   |       |                                                  |       |                   |          |       |   |   |   |   |   |   |   |   |   |   |   |
| Operating  revenues, net                               |       | $                                                     | 92,013     |                   | $             | 23,536     |   |   | $ | 75,439 |   | $ | 111,969 |   | $ | 107,459 |   |
| Gross profit                                           |       | $                                                     | 24,968     |                   | $             | 3,556      |   |   | $ | 16,007 |   | $ | 31,821 |   | $ | 29,716 |   |
| Net income  (loss)                                     |       | $                                                     | (121       | )                      | $             | (4,143     | ) |   | $ | (5,720 | )* | $ | 1,777 | * | $ | (386 | ) |
| Net ncome/(loss)  per common share - basic and diluted |       | $                                                     | (1.21      | )                      | $             | (41.43     | ) |   | $ | (57.20 | )* | $ | 17.77 | * | $ | (3.86 | ) |

 
| ** **                                             | ** ** | **Predecessor**    | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|
| ** **                                             | ** ** | **Quarters Ended** | ** ** |
| ** **                                             | ** ** | **5/31/2003**      | ** ** | **8/30/2003** | ** ** | **11/29/2003** | ** ** | **3/6/2004** | ** ** |
|                                                   |       |               |       |   |   |   |   |   |   |
| Operating  revenues, net                               |       | $                  | 81,480     |   | $ | 81,248 |   | $ | 93,825 |   | $ | 101,996 |   |
| Gross profit                                           |       | $                  | 25,260     |   | $ | 23,039 |   | $ | 27,323 |   | $ | 28,693 |   |
| Net income  (loss)                                     |       | $                  | 376        |   | $ | (1,934 | ) | $ | 1,768 |   | $ | 1,223 |   |
| Net ncome  (loss) per common share - basic and diluted |       | $                  | 3.76       |   | $ | (19.34 | ) | $ | 17.68 |   | $ | 12.24 |   |

 

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*As restated; see Note 17.

 

F-30

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REPORTOF MANAGEMENT

 

The management of Pierre Foods, Inc. isresponsible for the preparation and integrity of the consolidated financialstatements of the Company.  The financialstatements and notes have been prepared by the Company in accordance withaccounting principles generally accepted in the United States of America and,in the judgment of management, present fairly and consistently the Company’sfinancial position and results of operations and cash flows.  The financial information contained elsewherein this annual report is consistent with that in the financial statements.  The financial statements and other financialinformation in this annual report include amounts that are based on management’sbest estimates and judgments.

 

The Company maintains a system of internalaccounting controls to provide reasonable assurance that assets are safeguardedand that transactions are executed in accordance with management’sauthorization and recorded properly to permit the preparation of financialstatements in accordance with generally accepted accounting principles.

 

The Company’s financial statements have beenaudited by Deloitte & Touche LLP. Management has made available to them all of the Company’s financialrecords and related data, and believes that all representations made toDeloitte & Touche LLP during this audit were valid and appropriate.

 

 
| /S/ NORBERT E. WOODHAMS               |                    | /S/ JOSEPH W. MEYERS |   |
|---------------------------------------|-------------------------|----------------------|--------|
| Norbert E. Woodhams                   | Joseph W. Meyers        |
| President and Chief Executive Officer | Vice President, Finance |

 

F-31

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