##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-K

ANNUAL REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the Fiscal Year Ended March 1,
2003

Commission File Number0-7277


PIERRE FOODS, INC.

(Exact name of registrant as specified in its charter)


|                                                                             |  |                                               
|---------------------------------------------------------------------------- |  | ----------------------------------------------
|North Carolina(State or other jurisdiction of
incorporation or organization) |  | 56-0945643(I.R.S. Employer Identification No.)

9990 Princeton Road, Cincinnati, Ohio 45246
Telephone: (513) 874-8741
(Address of principal executive offices)

Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:

None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulations S-K is not contained herein and will not be contained, to
the best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x

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

The aggregate market value of the voting and non-voting common equity held
by non-affiliates as of the last business day of the registrants most recently
completed second quarter (August 31, 2002) was $0.00.

The number of shares of Pierre Foods, Inc. Common Stock outstanding as of
May 20, 2003 was 100,000. The aggregate market value of Pierre Foods, Inc.
Common Stock held by non-affiliates of Pierre Foods, Inc. as of May 20, 2003
was $0.00.





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TABLE OF CONTENTS

|            |  |                                                                                                |  |                   |                                                                   |  |    |    | 
|----------- |  | ---------------------------------------------------------------------------------------------- |  | ----------------- | ----------------------------------------------------------------- |  | -- | -- | 
|Item Number |  |                                                                                                |  |                   | Page                                                             
|            |  |                                                                                                |  |                   |                                                                  
|            |  |                                                                                                |  | PART I            |                                                                   |  |    |   
|Item  1.    |  | Description of Business                                                                        |  |                   | 1                                                                 | 
|            |  |                                                                                                |  |                   | General Development of Business                                   |  |    | 1  | 
|            |  |                                                                                                |  |                   | Narrative Description of Business                                 |  |    | 1  | 
|Item  2.    |  | Properties                                                                                     |  |                   | 3                                                                 | 
|Item  3.    |  | Legal Proceedings                                                                              |  |                   | 4                                                                 | 
|Item  4.    |  | Submission of Matters to a Vote of Security Holders                                            |  |                   | 4                                                                 | 
|            |  |                                                                                                |  | PART II           |                                                                   |  |    |   
|Item  5.    |  | Market for the Registrants Common Stock and Related Stockholder Matters                       |  |                   | 5                                                                 | 
|Item  6.    |  | Selected Financial Data                                                                        |  |                   | 6                                                                 | 
|Item  7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  |                   | 7                                                                 | 
|            |  |                                                                                                |  |                   | Results of Operations                                             |  |    | 7  | 
|            |  |                                                                                                |  |                   | Critical Accounting Policies and
Estimates                        |  |    | 9  | 
|            |  |                                                                                                |  |                   | Liquidity and Capital Resources                                   |  |    | 10 | 
|            |  |                                                                                                |  |                   | Commercial Commitments, Contingencies and Contractual
Obligations |  |    | 15 | 
|            |  |                                                                                                |  |                   | Inflation                                                         |  |    | 16 | 
|Item  7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                     |  |                   | 17                                                                | 
|Item  8.    |  | Financial Statements and Supplementary Data                                                    |  |                   | 19                                                                | 
|Item  9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |  |                   | 19                                                                | 
|Item 9A.    |  | Controls and Procedures                                                                        |  |                   | 19                                                                | 
|            |  |                                                                                                |  | PART III          |                                                                   |  |    |   
|Item  10.   |  | Directors and Executive Officers of the Registrant                                             |  |                   | 20                                                                | 
|Item  11.   |  | Executive Compensation                                                                         |  |                   | 21                                                                | 
|Item  12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters |  |                   | 24                                                                | 
|Item  13.   |  | Certain Relationships and Related Transactions                                                 |  |                   | 24                                                                | 
|Item  14.   |  | Principal Accountant Fees and Services                                                         |  |                   | 27                                                                | 
|            |  |                                                                                                |  | PART IV           |                                                                   |  |    |   
|Item 16.    |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                               |  |                   | 28                                                                | 
|            |  |                                                                                                |  | OTHER INFORMATION |                                                                   |  |    |   
|            |  |                                                                                                |  | Signatures        |                                                                   |  | 29 |   
|            |  |                                                                                                |  | Index to Exhibits |                                                                   |  | 30 |   

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PART I

Item 1.Description of Business

General Development of Business

Pierre Foods, Inc. (the Company or Pierre Foods) is a producer and
marketer of fully-cooked branded and private label protein and bakery products
and microwaveable sandwiches for the foodservice market. The Companys
predecessor was founded as a North Carolina corporation in 1966 to own and
operate restaurants. The Companys food processing business was originally
developed to support its restaurants, but grew independently to become its
principal business. In recognition of this fact, 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 of substantially all of the business in
Cincinnati, Ohio, and a portion of the business in Caryville, Tennessee
(collectively, Pierre Cincinnati), conducted by the Pierre Foods Division of
Hudson Foods, Inc. (Hudson), a subsidiary of Tyson Foods, Inc. (Tyson).
Pierre Cincinnati was a value-added food processor selling principally to the
foodservice and packaged 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s food
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. The Company now operates solely in the food processing business, its
sole segment. In December 1999, the Company implemented another tax-exempt
reorganization of its corporate structure to further streamline its operations
into one subsidiary. In July 2000, the Company, then known as Fresh Foods,
Inc., changed its name to Pierre Foods, Inc.

In this document, unless the context otherwise requires, the term
Company refers to Pierre Foods, Inc. and its current and former subsidiaries.
The Companys fiscal year ended March 3, 2001 is referred to as fiscal 2001,
its fiscal year ended March 2, 2002 is referred to as fiscal 2002, and its
fiscal year ended March 1, 2003 is referred to as fiscal 2003.

Narrative Description of the Business

The Company produces a wide variety of fully-cooked beef, chicken and pork
products, hand-held convenience sandwiches and value-added bakery products. The
Companys current product line consists of over 1,000 stock keeping units
(SKUs). At its Cincinnati facility, the Company produces specialty beef,
chicken and pork products that are typically custom-developed to meet specific
customer requirements. The Company also offers proprietary product
development, special ingredients and recipes as well as custom packaging and
marketing programs to its customers. The Companys bakery and sandwich
assembly plant is located at the Companys Claremont, North Carolina facility.
The Companys primary markets and distribution channels include national
restaurant chains, primary and secondary schools, vending, convenience stores,
warehouse clubs and other niche foodservice and packaged foods markets.

The following table sets forth the Companys net revenue and percent of revenue
contributed during the past three fiscal years by its various product channels
and classes:



|                      |                               |   |                    |       |   |  |              |      |               |   |              |       |   |  |               |      |  |   |       |       |  |  |       |      | 
|--------------------- | ----------------------------- | - | ------------------ | ----- | - |  | ------------ | ---- | ------------- | - | ------------ | ----- | - |  | ------------- | ---- |  | - | ----- | ----- |  |  | ----- | ---- | 
|                      |                               |   | Revenues by
Source
|                      |                               |   | Fiscal 2003        |       |   |  |              |      | Fiscal 2002   |   |              |       |   |  | Fiscal 2001   |      |  |   |      
|                      |                               |   |                    |       |   |  |              |      |               |   |              |       |   |  |               |      |  |   |      
|                      |                               |   | Net Revenues       |       | % |  | Net Revenues |      | %             |   | Net Revenues |       | %
|                      |                               |   |                    |       |   |  |              |      |               |   |              |       |  
|                      |                               |   | (in millions)      |       |   |  |              |      | (in millions) |   |              |       |   |  | (in millions) |      |  |   |      
|Food Processing:      |                               |   |                    |       |   |  |              |      |               |   |              |       |   |  |               |      |  |   |       |       |  |  |       |     
|                      | Fully-Cooked Protein Products |   | $                  | 149.3 |   |  |              | 54.0 |               |   | $            | 139.7 |   |  |               | 57.4 |  |   | $     | 111.2 |  |  |       | 54.6 | 
|                      | Microwaveable Sandwiches      |   |                    | 119.1 |   |  |              | 43.1 |               |   |              | 95.8  |   |  |               | 39.4 |  |   |       | 85.2  |  |  |       | 41.9 | 
|                      | Bakery and Other Products     |   |                    | 7.9   |   |  |              | 2.9  |               |   |              | 7.8   |   |  |               | 3.2  |  |   |       | 7.1   |  |  |       | 3.5  | 
|                      |                               |   |                    |       |   |  |              |      |               |   |              |       |   |  |               |      |  |   |       |       |  |  |       |     
|Total Food Processing |                               | $ | 276.3              |       |   |  | 100.0        |      |               | $ | 243.3        |       |   |  | 100.0         |      |  | $ | 203.5 |       |  |  | 100.0 |     
|                      |                               |   |                    |       |   |  |              |      |               |   |              |       |   |  |               |      |  |   |       |       |  |  |       |     

1



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Sales and Marketing

The Companys team of sales and marketing professionals has significant
experience in the Companys markets for fully-cooked protein and bakery
products and microwaveable sandwiches. The sales, marketing and new product
development functions are organized predominantly by distribution channel. In
addition to its direct sales force, the Company utilizes a nationwide network
of over 80 independent food brokers, all of whom are compensated primarily by
payment of sales commissions.

The Companys marketing strategy includes distributor and consumer
promotions, trade promotions, advertising and participation in trade shows and
exhibitions. The Company participates in numerous conferences and is a member
of 18 national industry organizations. Company representatives serve on the
boards of a number of industry organizations, including the American Meat
Institute, the American School Food Service Association (Executive Board), the
American Commodity Distribution Association, the National Food Service
Management Institute Governing Board, the American Dietetic Association, the
School Nutrition Dietary Practice Group and the National Association of
Convenience Stores.

Raw Materials

The primary materials used in the food processing operations include
boneless chicken, beef and pork trim, flour, yeast, seasonings, breading, soy
proteins, and packaging supplies. Meat proteins are generally purchased under
seven day payment terms. Historically, raw material costs have remained stable
and any price increases have generally been passed on to the customer. The
Company does not hedge in the futures markets.

The Company purchases all of its raw materials from outside sources. The
Company does not depend on a single source for any significant item except for,
as requested by a customer, the utilization of a single source raw material
supplier for production specific to that customer. The single source supplier
allows for consistent supply and competitive pricing for the Company.
Furthermore, the Company believes that its sources of supply for raw materials
are adequate for its present needs and does not anticipate any difficulty in
acquiring such materials in the future.

Trademarks and Licensing

The Company markets food products under a variety of brand names,
including Pierre and DesignTM, Pierre Pizza
ParlorTM, Pierre Main Street
DinerTM, Pierre SelectTM, Fast Bites®, Fast Choice®, Rib-B-Q®, Hot n Ready®,
Big AZ®, Chop House®, Deli Breaks and Mom n Pops® brand. The Company
regards its trademarks and service marks as having significant value in
marketing its food products. Pursuant to licenses acquired, the Company began
producing and marketing microwaveable Checkers, Krystal, Rallys, Tony Romas
and Nathans Famous sandwiches through its existing distribution channels. The
term of each such license is subject to renewal and satisfaction of sales
volume requirements. The Company has national distribution rights for Rallys,
Krystal and Checkers for vending, as well as distribution rights for Tony
Romas and Nathans Famous products.

Seasonality

Except for sales to school districts, which represent approximately 21% of
total sales and which decline significantly during summer and early January,
there is no seasonal variation in the Companys sales.

Competition

The food production business is highly competitive and is often affected
by changes in tastes and eating habits of the public, economic conditions
affecting spending habits and other demographic factors. In sales of meat
products, the Company faces strong price competition from a variety of large
meat processing concerns, including Tyson, ConAgra, Zartic, Inc. and Advance
Food Company, and from smaller local and regional operations. In sales of
biscuit and yeast roll products, the Company competes with a number of large
bakeries in various parts of the country. The sandwich industry is extremely
fragmented, with few large direct competitors but low barriers to entry and
indirect competition in the form of numerous other products. The Companys
competitors in the sandwich industry include Market Fare Foods, Bridgford Foods
Corp., Jimmy Dean Foods and E.A. Sween.

2



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Research and Development

The Company employs seven food technologists in the product and process
development department. Ongoing food production research and development
activities include development of new products, improvement of existing
products and refinement of food production processes. These activities resulted
in the launch of approximately 143 new SKUs in fiscal 2003. Over 27% of fiscal
2003 food processing sales were related to products developed in the last two
years, based on the Companys definition of a new product. In fiscal 2003,
2002 and 2001, the Company spent approximately $649,000, $373,000 and $465,000,
respectively, on product development programs.

Government Regulation

The food production industry is subject to extensive federal, state and
local government regulation. The Companys food processing facilities and food
products are subject to frequent inspection by the United States Department of
Agriculture (USDA), Food and Drug Administration (FDA) and other government
authorities. In July 1996, the USDA issued strict new policies against
contamination by food-borne pathogens and established the Hazard Analysis and
Critical Control Points (HACCP) system. The Company is in compliance with all
FDA or USDA regulations, including HACCP standards.

The Companys operations are governed by laws and regulations relating to
workplace safety and worker health that, among other things, establish noise
standards and regulate the use of hazardous chemicals in the workplace. The
Company also is subject to numerous federal, state and local environmental
laws. Under applicable environmental laws, the Company may be responsible for
remediation of environmental conditions and may be subject to associated
liabilities relating to its facilities and the land on which its facilities are
or had been situated, regardless of whether the Company leases or owns the
facilities or land in question and regardless of whether such environmental
conditions were created by the Company or by a prior owner or tenant. The
Company does not believe that compliance with environmental laws will have a
substantial material effect upon the capital expenditures, earnings or
competitive position of the Company and its subsidiaries.

The Companys operations are subject to licensing and regulation by a
number of state and local governmental authorities, which include health,
safety, sanitation, building and fire agencies. Operating costs are affected by
increases in costs of providing health care benefits, the minimum hourly wage,
unemployment tax rates, sales taxes and other similar matters over which the
Company may have no control. The Company is subject to laws governing
relationships with employees, including minimum wage requirements, overtime,
working conditions and citizenship requirements.

Employees

As of March 1, 2003, the Company employed approximately 1,600 persons.
The Company has experienced no work stoppage attributed to labor disputes and
considers its employee relations to be good.

Item 2.Properties

Principal Offices.The Companys main office is located in the facility
it owns in Cincinnati, Ohio. The Company also leases 6,000 square feet of
executive office space in Hickory, North Carolina from an affiliated party for
$116,000 per year at terms no less favorable than those which could be obtained
from an unaffiliated third party.

Food Processing Plants.The Company produces its fully-cooked meat
products, packaged sandwiches and specialty bread products at facilities it
owns in Cincinnati, Ohio and Claremont, North Carolina. The Cincinnati facility
occupies buildings totaling approximately 225,000 square feet, following a
25,000 square foot building expansion during fiscal 2003. The Claremont
facility occupies buildings totaling approximately 150,000 square feet. The
Company also owns and uses a 23,000 square foot building in Claremont, North
Carolina for additional office space.

The Company believes that its facilities are generally in good condition
and that they are suitable for their current uses. The Company nevertheless
engages periodically in construction and other capital improvement projects as
the Company believes is necessary to expand and improve the efficiency of its
facilities.

3



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Item 3.Legal Proceedings

Pierre Foods and its subsidiaries are parties in various lawsuits arising
in the ordinary course of business. In the opinion of management, any ultimate
liability with respect to these matters will not have a material adverse effect
on the Companys financial condition, results of operations or cash flows.

Item 4.Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 2003.

4



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PART II

Item 5.Market for the Registrants Common Stock and Related Stockholder Matters

On July 26, 2002, PF Management, Inc. closed its management buyout of the
Company. This going-private transaction resulted in the Company becoming a
wholly-owned subsidiary of PF Management; accordingly, there is no public
trading market for the Companys common stock. The Company had 5,781,480
shares of common stock issued and outstanding and 2,500,000 shares of preferred
stock authorized, none of which were outstanding, immediately before the
closing. After the closing, the Company amended and restated its Articles of
Incorporation to authorize the issuance of up to 100,000 shares of Class A
common stock as the only authorized class of capital stock of the Company. All
100,000 shares of authorized common stock have been issued to PF Management.
All per share amounts and outstanding shares have been retroactively restated
in the accompanying Consolidated Financial Statements and Notes to Consolidated
Financial Statements for all periods presented to reflect the transaction. See
Item 12, Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.

The Company did not declare a cash dividend during fiscal 2003 or fiscal
2002. The Companys debt instruments restrict its ability to pay dividends.
See Managements Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity and Capital Resources and the Companys consolidated
financial statements and supplementary data. Regardless of the scope of such
restrictions, the Companys policy is to reinvest any earnings rather than pay
dividends.

5



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Item 6.Selected Financial Data

The following selected historical financial information has been derived
from audited consolidated financial statements of the Company. Such financial
information should be read in conjunction with the consolidated financial
statements of the Company, the notes thereto and the other financial
information contained elsewhere herein. See Managements Discussion and
Analysis of Financial Condition and Results of Operations and the Companys
consolidated financial statements and supplementary data.

|                                                 |                                                                 |  |                                               |         |          |  |          |         |          |  |          |         |   |  |   |         |   |  |   |         |  
|------------------------------------------------ | --------------------------------------------------------------- |  | --------------------------------------------- | ------- | -------- |  | -------- | ------- | -------- |  | -------- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                 |                                                                 |  | Fiscal Years Ended                           
|                                                 |                                                                 |  |                                              
|                                                 |                                                                 |  | March 1,                                      |         | March 2, |  | March 3, |         | March 4, |  | March 6,
|                                                 |                                                                 |  | 2003                                          |         | 2002     |  | 2001     |         | 2000     |  | 1999    
|                                                 |                                                                 |  |                                               |         |          |  |          |         |          |  |         
|                                                 |                                                                 |  | (dollars in thousands, except per share data)
|STATEMENT OF OPERATIONS DATA:                    |                                                                 |  |                                               |         |          |  |          |         |          |  |          |         |   |  |   |         |   |  |   |        
|                                                 | Revenues, net                                                   |  | $                                             | 276,339 |          |  | $        | 243,278 |          |  | $        | 203,475 |   |  | $ | 179,415 |   |  | $ | 150,455 |  
|                                                 | Cost of goods sold                                              |  |                                               | 184,092 |          |  |          | 160,781 |          |  |          | 133,385 |   |  |   | 115,968 |   |  |   | 101,356 |  
|                                                 | Selling, general and administrative                             |  |                                               | 71,352  |          |  |          | 62,399  |          |  |          | 55,752  |   |  |   | 59,193  |   |  |   | 33,673  |  
|                                                 | Loss on sale of Mom n Pops Country
Ham, LLC                  |  |                                               |        |          |  |          |        |          |  |          |        |   |  |   | 2,857   |   |  |   |        |  
|                                                 | Net (gain) loss on disposition of property, plant
and equipment |  |                                               | 89      |          |  |          | 84      |          |  |          | 27      |   |  |   | (22     | ) |  |   | 1,004   |  
|                                                 | Depreciation and amortization                                   |  |                                               | 4,125   |          |  |          | 6,438   |          |  |          | 6,238   |   |  |   | 5,662   |   |  |   | 4,902   |  
|                                                 |                                                                 |  |                                               |         |          |  |          |         |          |  |          |         |   |  |   |         |   |  |   |         |  
|                                                 | Operating income (loss)                                         |  |                                               | 16,681  |          |  |          | 13,576  |          |  |          | 8,073   |   |  |   | (4,243  | ) |  |   | 9,520   |  
|                                                 | Interest expense                                                |  |                                               | 14,228  |          |  |          | 13,206  |          |  |          | 13,334  |   |  |   | 14,986  |   |  |   | 12,332  |  
|                                                 | Other income, net                                               |  |                                               | 447     |          |  |          | 364     |          |  |          | 281     |   |  |   | 169     |   |  |   | 409     |  
|                                                 | Income tax benefit (provision)                                  |  |                                               | (1,122  | )        |  |          | (733    | )        |  |          | 767     |   |  |   | 4,825   |   |  |   | 613     |  
|                                                 |                                                                 |  |                                               |         |          |  |          |         |          |  |          |         |   |  |   |         |   |  |   |         |  
|                                                 | Income (loss) from continuing operations                        |  |                                               | 1,778   |          |  |          | 1       |          |  |          | (4,213  | ) |  |   | (14,235 | ) |  |   | (1,790  | )
|                                                 | Income from discontinued operations (2)                         |  |                                               |        |          |  |          |        |          |  |          |        |   |  |   | 2,828   |   |  |   | 4,285   |  
|                                                 | Gain on disposal of discontinued operations (2)                 |  |                                               |        |          |  |          |        |          |  |          |        |   |  |   | 6,802   |   |  |   |        |  
|                                                 | Extraordinary item (1)                                          |  |                                               |        |          |  |          |        |          |  |          | (455    | ) |  |   | (52     | ) |  |   | (64     | )
|                                                 | Cumulative effect of accounting change (3)                      |  |                                               | (18,605 | )        |  |          |        |          |  |          |        |   |  |   |        |   |  |   |        |  
|                                                 |                                                                 |  |                                               |         |          |  |          |         |          |  |          |         |   |  |   |         |   |  |   |         |  
|                                                 | Net income (loss)                                               |  | $                                             | (16,827 | )        |  | $        | 1       |          |  | $        | (4,668  | ) |  | $ | (4,657  | ) |  | $ | 2,431   |  
|                                                 |                                                                 |  |                                               |         |          |  |          |         |          |  |          |         |   |  |   |         |   |  |   |         |  
|NET INCOME (LOSS) PER SHARE  BASIC AND DILUTED: |                                                                 |  |                                               |         |          |  |          |         |          |  |          |         |   |  |   |         |   |  |   |        
|                                                 | Income (loss) from continuing operations                        |  | $                                             | 17.78   |          |  | $        | 0.01    |          |  | $        | (42.13  | ) |  | $ | (142.35 | ) |  | $ | (17.90  | )
|                                                 | Income from discontinued operations                             |  |                                               |        |          |  |          |        |          |  |          |        |   |  |   | 28.28   |   |  |   | 42.85   |  
|                                                 | Gain on disposal of discontinued operations                     |  |                                               |        |          |  |          |        |          |  |          |        |   |  |   | 68.02   |   |  |   |        |  
|                                                 | Extraordinary item                                              |  |                                               |        |          |  |          |        |          |  |          | (4.55   | ) |  |   | (0.52   | ) |  |   | (0.64   | )
|                                                 | Cumulative effect of accounting change                          |  |                                               | (186.05 | )        |  |          |        |          |  |          |        |   |  |   |        |   |  |   |        |  
|                                                 |                                                                 |  |                                               |         |          |  |          |         |          |  |          |         |   |  |   |         |   |  |   |         |  
|                                                 | Net income (loss)                                               |  | $                                             | (168.27 | )        |  | $        | 0.01    |          |  | $        | (46.68  | ) |  | $ | (46.57  | ) |  | $ | 24.31   |  
|                                                 |                                                                 |  |                                               |         |          |  |          |         |          |  |          |         |   |  |   |         |   |  |   |         |  
|OTHER DATA:                                      |                                                                 |  |                                               |         |          |  |          |         |          |  |          |         |   |  |   |         |   |  |   |        
|                                                 | Capital expenditures                                            |  | $                                             | 16,216  |          |  | $        | 5,994   |          |  | $        | 2,764   |   |  | $ | 5,488   |   |  | $ | 15,479  |  
|BALANCE SHEET DATA:                              |                                                                 |  |                                               |         |          |  |          |         |          |  |          |         |   |  |   |         |   |  |   |        
|                                                 | Working capital                                                 |  | $                                             | 40,716  |          |  | $        | 37,061  |          |  | $        | 35,890  |   |  | $ | 36,403  |   |  | $ | 27,126  |  
|                                                 | Total assets                                                    |  |                                               | 168,781 |          |  |          | 169,821 |          |  |          | 160,308 |   |  |   | 164,727 |   |  |   | 216,989 |  
|                                                 | Total debt                                                      |  |                                               | 136,348 |          |  |          | 121,231 |          |  |          | 115,165 |   |  |   | 115,479 |   |  |   | 146,940 |  
|                                                 | Shareholders equity                                            |  |                                               | 8,998   |          |  |          | 27,207  |          |  |          | 26,867  |   |  |   | 31,533  |   |  |   | 41,152  |  



| | (1) |  | Reflects an extraordinary loss from early extinguishment of debt in
the amount of $455 in fiscal 2001, $52 in fiscal 2000 and $64 in fiscal
1999.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

6



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##### 





| | (2) |  | Reflects income from discontinued operations in the amount of $2,828
and $4,285 in fiscal 2000 and fiscal 1999, respectively. In addition,
reflects gain from disposal of discontinued operations of $6,802 in
fiscal 2000. See Note 1  Basis of Presentation, Acquisition and
Discontinued Operations to the consolidated financial statements.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (3) |  | Reflects a loss due to a cumulative effect of accounting change in
the amount of $18,605 in fiscal 2003. See Note 2 Summary of
Significant Accounting Policies to the consolidated financial
statements.                                                                                                                                       

Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations

Certain statements made in this document are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve risks and uncertainties that may cause
actual results to differ materially from expected results. These risks and
uncertainties include those items discussed in Exhibit 99.1 hereto. The risks
discussed in Exhibit 99.1 may not be exhaustive, and new risk factors emerge
over time. Readers should not place undue reliance on the predictive value of
forward-looking statements.

Results of Operations

Each quarter of the fiscal year contains 13 weeks except for the
infrequent fiscal years with 53 weeks. The results for fiscal 2003, 2002 and
2001 contain 52 weeks.

Results for fiscal 2003, 2002 and 2001 are shown below:

|                                                                                               |  |                    |       |          |  |          |       |   |  |   |       |  
|---------------------------------------------------------------------------------------------- |  | ------------------ | ----- | -------- |  | -------- | ----- | - |  | - | ----- | -
|                                                                                               |  | Fiscal Years Ended
|                                                                                               |  |                   
|                                                                                               |  | March 1,           |       | March 2, |  | March 3,
|                                                                                               |  | 2003               |       | 2002     |  | 2001    
|                                                                                               |  |                    |       |          |  |         
|                                                                                               |  | (in millions)     
|Revenues, net                                                                                  |  | $                  | 276.3 |          |  | $        | 243.3 |   |  | $ | 203.5 |  
|Cost of goods sold                                                                             |  |                    | 184.1 |          |  |          | 160.8 |   |  |   | 133.4 |  
|Selling, general and administrative                                                            |  |                    | 71.3  |          |  |          | 62.4  |   |  |   | 55.8  |  
|Net loss on disposition of property, plant and equipment                                       |  |                    | 0.1   |          |  |          | 0.1   |   |  |   |      |  
|Depreciation and amortization                                                                  |  |                    | 4.1   |          |  |          | 6.4   |   |  |   | 6.2   |  
|                                                                                               |  |                    |       |          |  |          |       |   |  |   |       |  
|Operating income                                                                               |  |                    | 16.7  |          |  |          | 13.6  |   |  |   | 8.1   |  
|Interest and other expense, net                                                                |  |                    | (13.8 | )        |  |          | (12.9 | ) |  |   | (13.1 | )
|                                                                                               |  |                    |       |          |  |          |       |   |  |   |       |  
|Income (loss) before income tax, extraordinary item and
cumulative effect of accounting change |  |                    | 2.9   |          |  |          | 0.7   |   |  |   | (5.0  | )
|Income tax (provision) benefit                                                                 |  |                    | (1.1  | )        |  |          | (0.7  | ) |  |   | 0.8   |  
|                                                                                               |  |                    |       |          |  |          |       |   |  |   |       |  
|Income (loss) before extraordinary item and cumulative effect
of accounting change             |  |                    | 1.8   |          |  |          |      |   |  |   | (4.2  | )
|Extraordinary item                                                                             |  |                    |      |          |  |          |      |   |  |   | (0.5  | )
|Cumulative effect of accounting change                                                         |  |                    | (18.6 | )        |  |          |      |   |  |   |      |  
|                                                                                               |  |                    |       |          |  |          |       |   |  |   |       |  
|Net income (loss)                                                                              |  | $                  | (16.8 | )        |  | $        |      |   |  | $ | (4.7  | )
|                                                                                               |  |                    |       |          |  |          |       |   |  |   |       |  

7



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Fiscal 2003 Compared to Fiscal 2002

Revenues, net.Net revenues increased by $33.1 million, or 13.6%. The
increase in net revenues was primarily due to the substantial development of
new customers, to the introduction of a new sandwich line within the
foodservice distribution channel and to increased revenues in existing product
lines. Of all core customer channels, which include restaurants, schools,
vending and convenience stores, the restaurant channel had the greatest
increase in demand.

Cost of goods sold.Cost of goods sold increased by $23.3 million, or
14.5%. As a percentage of revenues, cost of goods sold increased from 66.3% to
66.8%. This increase primarily was due to a change in product mix to lower
margin products and unfavorable insurance and utilities expense, offset by a
decrease in the prices of beef, pork and chicken, the Companys primary raw
materials. In fiscal 2003, beef, pork and chicken prices decreased
approximately 9%, 34% and 6%, respectively, compared to fiscal 2002. The cost
of labor for fiscal 2003 was consistent with fiscal 2002.

Selling, general and administrative. Selling, general and administrative
expenses increased by $9.0 million, or 14.3%, primarily due to an increase in
overhead costs to support the increased sales volume. As a percentage of
revenues, selling, general and administrative expenses increased from 25.4% to
25.6%.

Depreciation and amortization.Depreciation and amortization decreased by
$2.3 million, or 35.9%, primarily due to the adoption of Statement of Financial
Accounting Standards (SFAS) No. 142 (SFAS 142) in fiscal 2003, which
discontinued amortization of goodwill and intangibles with indefinite lives,
offset by depreciation related to an increase in capital expenditures due to a
significant plant expansion. As a percentage of net operating revenues,
depreciation and amortization decreased from 2.7% to 1.5%.

Interest expense and other income.The primary component of interest
expense and other income, net for fiscal 2003 and fiscal 2002 was interest
expense, which consists primarily of interest on fixed rate long-term debt.
Net other expense increased by $0.9 million, or 7.3%. This increase primarily
was due to a change in the credit facility and increased borrowings under that
facility (see  Liquidity and Capital Resources below).

Income tax benefit. The effective tax rate for fiscal 2003 was 38.7%
compared to 99.9% for fiscal 2002. The decrease in the effective tax rate is
primarily due to the limitation on the deductibility of executive compensation
in fiscal 2002, combined with the effects of permanent differences in fiscal
2002.

Fiscal 2002 Compared to Fiscal 2001

Revenues, net. Net revenues increased by $39.8 million, or 19.6%. The
increase in net revenues was due to the introduction of new products and to an
increase in demand in all core customer channels. The significant new product
line introduced was the Chop House® burger line, marketed primarily to
restaurants. This new line added significant volume to the lower margin
customer channel. Of all core customer channels, which include restaurants,
schools, vending and convenience stores, the restaurant channel had the
greatest increase in demand.

Cost of goods sold.Cost of goods sold increased by $27.4 million, or
20.5%. As a percentage of revenues, cost of goods sold increased from 65.6% to
66.3%. This increase primarily was due to an increase in raw material prices
and a change in product mix to lower margin product, offset by improved
production efficiencies. Our primary raw materials are beef, pork and chicken.
In fiscal 2002, beef prices increased approximately 14% over fiscal 2001
prices, compared to pork and chicken price increases of 11% and 4%,
respectively, in fiscal 2002 compared to fiscal 2001. These increases in raw
material prices are generally passed on to the customer through adjustments to
product pricing with no significant impact to product demand. Production
efficiencies were realized through process improvements, including equipment
modifications and labor reduction, combined with an increase in production
volume spread over a stable fixed overhead base.

Selling, general and administrative. Selling, general and administrative
expenses increased by $6.6 million, or 11.9%, primarily due to an increase in
overhead costs to support the increase in sales volume. As a percentage of
revenues, selling, general and administrative expenses decreased from 27.4% to
25.7%, primarily due to cost reduction initiatives in distribution, including
freight and storage consolidation programs implemented in fiscal 2002.

8



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Depreciation and amortization.Depreciation and amortization increased by
$0.2 million, or 3.2%, due to the increase in capital expenditures. As a
percentage of net revenues, depreciation and amortization decreased from 3.1%
to 2.7%.

Interest expense and other income, net.The primary component of interest
expense and other income, net for fiscal 2002 and fiscal 2001 was interest
expense. Interest expense consists primarily of interest on fixed rate
long-term debt, and decreased from $13.3 million to $13.2 million.

Income tax (provision)/benefit. The effective tax rate for fiscal 2002
was 99.9% compared to 15.4% for fiscal 2001. The increase in the effective tax
rate is due primarily to the limitation on the deductibility of executive
compensation, combined with the effects of permanent differences.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
appropriate application of certain accounting policies, many of which require
the Company to make estimates and assumptions about future events and their
impact on amounts reported in the financial statements and related notes.
Since future events and the impact of those events cannot be determined with
certainty, the actual results will inevitably differ from the Companys
estimates. Such differences could be material to the financial statements.

The Company believes its application of accounting policies, and the
estimates inherently required therein, are reasonable. These accounting
policies and estimates are constantly reevaluated, and adjustments are made
when facts and circumstances dictate a change. Historically, the Companys
application of accounting policies has been appropriate, and actual results
have not differed materially from those determined using necessary estimates.

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

Revenue Recognition.Revenue from sales of food processing products is
recorded at the time title transfers. Standard shipping terms are FOB
destination, therefore title passes at the time the product is delivered to the
customer. Revenue is recognized as the net amount to be received after
deductions for estimated discounts, product returns and other allowances.
These estimates are based on historical trends and expected future payments
(see also Promotionsbelow).

Goodwill and Other Intangible Assets. During fiscal 2002 and prior years,
Goodwill and other intangible assets were being amortized using the straight
line method over a 30 year period. The carrying value of goodwill and other
intangible assets was evaluated periodically as events and circumstances
indicate a possible inability to recover its carrying amount. Amortization
expense recognized for the fiscal years ended March 2, 2002 and March 3, 2001
was $2,693,499 for each year.

In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS 142, Goodwill and Other Intangible Assets, which was effective for the
fiscal year beginning March 3, 2002. SFAS 142 requires, among other things,
the discontinuance of goodwill amortization. In addition, the standard includes
provisions for the reclassification of certain existing recognized intangibles
as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. Upon the Companys adoption of SFAS
142 on March 3, 2002, the Company ceased amortizing goodwill and
indefinite-lived intangibles. Also effective March 3, 2002, the Company
reclassified assembled workforce to goodwill.

As prescribed under SFAS 142, the Company tested goodwill for impairment
during fiscal 2003 using a two-step process. The first step of the goodwill
impairment test is used to identify potential impairment by comparing the fair
value of the entity with its net asset value (or carrying amount), including
goodwill. If the fair value of the entity exceeds its net asset value,
goodwill of the entity is considered not impaired and the second step of the
goodwill impairment test is not needed. If the net asset value of the entity
exceeds the fair market value, the second step of the goodwill impairment test
is performed to measure the amount of impairment loss, if any. The second step
of the goodwill impairment test compares the implied fair value of the entitys
goodwill with the carrying amount of that goodwill. If the carrying amount of
the entitys

9



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##### 



goodwill exceeds the implied fair value of that goodwill, 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 new accounting basis. Reversal of a previously recognized impairment loss
is prohibited.

During fiscal 2003, upon adoption of SFAS 142, the Company utilized a
valuation technique based on market values of publicly-traded equity, as
adjusted, plus publicly-owned subordinated notes, which were determined in
conjunction with the Management Buyout in fiscal 2003 (See Note 1  Basis of
Presentation, Acquisition and Discontinued Operations for discussion on
Management Buyout). The Companys analysis showed that the carrying value of
the goodwill exceeded its fair value, requiring the Company to determine the
implied fair value of its goodwill. Upon completion of that analysis,
management determined that the entire net carrying value of its goodwill was
impaired. The carrying amount, $29,019,571, net of the related effect on
income taxes, $10,415,037, was written-off by the Company and reported as the
Cumulative Effect of an Accounting Change, net of income taxes in the statement
of operations. See Note 2 Summary of Significant Accounting Policies  for
further discussion.

Promotions. Promotional expenses associated with rebates, marketing
promotions and special pricing arrangements are recorded as a reduction of
revenues or selling expense at the time the sale is recorded. Certain of these
expenses are estimated based on historical trends and expected future payments
to be made under these programs. The Company believes the estimates recorded
in the financial statements are reasonable estimates of the Companys liability
under the programs.

Going Concern Assumption.Significant assumptions underlie the belief
that the Company anticipates that its fiscal 2004 cash requirements for working
capital and debt service will be met through a combination of funds provided by
operations and borrowings under its new $40 million credit facility, including,
among other things, that there will be no material adverse developments in the
business, liquidity or significant capital requirements of the Company.

Liquidity and Capital Resources

Net cash provided by operating activities was $0.04 million for fiscal
2003, compared to net cash provided by operating activities of $9.9 million and
$2.1 million for fiscal 2002 and fiscal 2001, respectively. The primary causes
of the decrease in net cash provided by operating activities for fiscal 2003
were: (1) an increase in inventories of $8.7 million; (2) an increase in
accounts receivable of $2.2 million and (3) an increase in refundable income
taxes, prepaid expenses and other assets of $1.7 million; offset by (4) an
increase in trade accounts payable and other accrued liabilities of $4.9
million. The increase in net cash provided by operating activities from fiscal
2001 to fiscal 2002 was primarily due to the increase in operating income of
$5.5 million. The primary components of net cash provided by operating
activities for fiscal 2002 were: (1) a decrease in inventories of $3.0 million
and (2) an increase in trade accounts payable and other accrued liabilities of
$2.4 million; offset by (3) an increase in accounts receivable of $3.3 million.
The Company had positive working capital at March 1, 2003 and March 2, 2002 of
$40.7 million and $37.1 million, respectively.

Net cash used in investing activities was $16.1 million for fiscal 2003.
The primary components were routine capital expenditures and a significant
plant expansion totaling $16.2 million. Net cash used in investing activities
was $7.3 million for fiscal 2002. The primary component was routine capital
expenditures totaling $6.0 million. Net cash used in investing activities was
$2.5 million for fiscal 2001. The primary components were for routine capital
expenditures totaling $2.5 million, offset by the collection of a related party
note receivable of $0.2 million.

Net cash provided by financing activities was $11.8 million for fiscal
2003, due to (1) increased borrowing under the revolving credit facility of
$15.1 million; offset by (2) loan origination fees of $1.6 million incurred in
fiscal 2003 that did not occur in fiscal 2002; (3) special purpose entity
distributions of $1.4 incurred in fiscal 2003 that did not occur in fiscal 2002
and (4) principal payments on long-term debt of $0.3 million. Net cash
provided by financing activities was $0.2 million for fiscal 2002, due to the
capital contribution to the special purpose leasing entity (see Aircraft
Operating Lease Agreementbelow), offset by principal payments on the Companys
capital leases and principal payments related to the obligation of the special
purpose leasing entity. Net cash used in financing activities was $0.5 million
for fiscal 2001. The major components were principal payments on the Companys
capital leases of $0.3 million and fees of $0.2 million associated with the
Companys $25 million revolving credit facility secured May 24, 2000.

10



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Effective May 29, 2002, the Company terminated its $25 million credit
facility. Also, effective May 29, 2002, the Company obtained a five-year
variable-rate $50 million revolving credit facility from a new lender, which
included a $16 million term loan subline, a $10 million capital expenditures
subline and a $7 million letter of credit subfacility. At March 1, 2003, the Company had $0.3 million in cash and cash
equivalents on hand, had outstanding borrowings under the revolving credit
facility of $15.1 million, and had approximately $4.6 million of additional
borrowing availability. Funds available under the Companys credit facility
were available for working capital requirements, permitted investments and
general corporate purposes. Borrowings under the facility carried interest at
floating rates based upon the interest rate option selected from time to time
by the Company and were secured by a first-priority security interest in
substantially all of the Companys assets. In addition, the Company was
required to satisfy certain financial covenants regarding cash flow and capital
expenditures. At March 1, 2003, the Company was in compliance with the
financial covenants under the facility, but continued compliance will depend
upon future cash flows and net income, which are not assured. In November
2002, the Company received a notice alleging that the Company was in violation
of certain non-financial covenants within the Indenture governing its Senior
Notes. The Company disagrees that it has violated any Indenture covenants.
Following the allegation of default, the lender under the credit facility
limited the Companys ability to borrow under the credit facility. However,
the lender continued to provide funds to the Company under the credit facility
on a limited basis. See Restructuring of Senior Notes below for further
discussion.

Subsequent to fiscal 2003 year end, effective August 13, 2003, the Company
terminated its five-year variable-rate $50 million revolving credit facility.
Also effective August 13, 2003, the Company obtained a three year variable rate
$40 million revolving credit facility from a new lender, which includes a $5
million real estate term loan subline, a $5 million equipment term loan subline
and a $7.5 million letter of credit subfacility. Funds available under this
new facility are available for working capital requirements, permitted
investments and general corporate purposes. Borrowings under the new facility
bear interest at floating rates based upon the interest rate option selected
from time to time by the Company and are secured by a first-priority security
interest in substantially all of the Companys assets. The interest rate for
borrowings under the new facility at August 13, 2003 was 5% (prime plus 1%).
Borrowings under the new facility are due the earlier of ninety days prior to
the redemption of the Senior Notes or August 13, 2006. Repayment is also
required in the amount of the proceeds from the sale of any collateral. In
addition, the Company is required to satisfy certain financial covenants
regarding cash flow and capital expenditures.

Fiscal 2003 net cash provided by operating activities was sufficient to
provide necessary working capital and to service existing debt. These cash
requirements were satisfied through a combination of funds provided by cash on
hand at the end of fiscal 2002, net cash provided by operating activities
during fiscal 2003, and borrowings under the former $50 million revolving
credit facility. The Company anticipates that its fiscal 2004 cash
requirements for working capital and debt service will be met through a
combination of funds provided by operations and borrowings under the new $40
million revolving credit facility.

The Company has budgeted approximately $15.9 million for capital
expenditures in fiscal 2004. These expenditures are primarily devoted to a
plant expansion in order to maintain the current revenue growth trend.
Additional expenditures are designated for routine food processing capital
improvement projects and other miscellaneous expenditures. The Company
believes that funds from operations and funds from the new $40 million
revolving credit facility, as well as the Companys ability to enter into
capital or operating leases, will be adequate to finance these capital
expenditures.

If the Company continues its historical revenue growth trend as expected,
then the Company will be required to raise and invest additional capital for
additional plant expansion projects to provide operating capacity to satisfy
increased demand. The Company believes that future cash requirements for these
plant expansion projects would need to be met through other long-term financing
sources, such as an increase in borrowing availability under the new $40
million credit facility, the issuance of industrial revenue bonds or equity
investment. The incurrence of additional long-term debt is governed and
restricted by the Companys existing debt instruments. Furthermore, there can
be no assurance that additional long-term financing will be available on
advantageous terms (or any terms) when needed by the Company.

The Company anticipates continued sales growth in key market areas. As noted
above, however, this growth will require future capital expansion projects to
increase existing plant capacity in order to satisfy increased demand. Sales
growth, improved operating performance and expanded plant capacity - none of
which is assured - will be necessary for the Company to continue to service
existing debt.

11



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Special Purpose Entity.The Company leases an aircraft from Columbia Hill
Aviation, LLC (Columbia Hill Aviation), owned 100% by PF Management.
Columbia Hill Aviation is not a subsidiary of the Company; however, the Company
considers Columbia Hill Aviation a non-independent special purpose entity.
Accordingly, Columbia Hill Aviations financial condition, results of
operations and cash flows have been included in the Companys consolidated
financial statements. Under the terms of the operating lease with Columbia
Hill Aviation, and the financing agreements between Columbia Hill Aviation and
its creditor, the Company does not maintain the legal rights of ownership to
the aircraft, nor does Columbia Hill Aviations creditor maintain any legal
recourse to the Company. See also Restructuring of Senior Notes below
concerning the Companys assumption, subsequent to March 1, 2003, of the
airplane lease currently held by Columbia Hill Aviation.

Logistics Agreement.Effective March 3, 2002, the Company entered into a
one-year logistics agreement with PF Distribution, LLC (PF Distribution),
owned 50% each by the Companys Chairman and Vice Chairman. The agreement was
amended on March 2, 2003 to provide for a continuous term. Under the
agreement, PF Distribution serves as the exclusive logistics agent for the
Company, and provides all warehousing, fulfillment and transportation services
to the Company. The cost of PF Distributions services is based on flat rates
per pound, which are calculated based on weight and volume characteristics of
products, inventory pounds maintained and inventory pounds shipped. Rates are
determined based on historical costs and industry standards. In fiscal 2003,
distribution expense recorded in selling, general and administrative expense
was approximately $21.7 million, of which approximately $21.3 million had been
paid to PF Distribution as of March 1, 2003. See also Restructuring of Senior
Notes below concerning the termination, subsequent to March 1, 2003, of the
logistics agreement with PF Distribution.

Restructuring of Senior Notes.On November 6, 2002, the Company received a notice of default from Cede &
Co., a nominee for the Depository Trust Company (DTC), as the recordholder
for the beneficial owners of approximately $50.5 million in principal amount of
the Companys 10-3/4% Senior Notes due 2006 (the Notes). This notice alleged
that the Company was in non-financial default of the Indenture governing the
Notes. On November 21, 2002, the Company received a letter from Foothill
Capital Corporation (Foothill), its lender at that time, stating that the
Company was in technical default of its Loan and Security Agreement with
Foothill due to the alleged default under the Indenture. However, Foothill
continued to provide funds to the Company under the loan agreement, including
providing the Company with the funds necessary to make the interest payment due
to the Noteholders under the Indenture.

On or about December 27, 2002, the Company received an acceleration notice
given by DTC on behalf of the beneficial owners of approximately $45.0 million
in principal amount of the Notes. This notice said that the due date of the
Notes was being accelerated based on the Companys failure to cure the alleged
defaults described in the November 6 letter. On December 31, 2002, the Company
sent a letter to all Noteholders, in care of U.S. Bank, National Association,
the Indenture trustee (the Trustee), reiterating its position that the
Company had violated no Indenture covenants and that there was therefore no
basis for accelerating the Notes.

On January 6, 2003, the Company received a letter from counsel to the
Trustee requesting instructions from the Company with respect to action the
Trustee should take in light of the alleged default under the Indenture, and
asked the Company to provide information in response to the alleged default.
The Company provided information in response to the alleged defaults. The
Trustee subsequently requested additional information and the Company complied
with that request. In reliance on two officers certificates from the Company,
which the Trustee is entitled to rely on under the terms of the Indenture, that
explained why the alleged covenant violations did not constitute an event of
default, the Trustee took the position in February 2003 that no event of
default had occurred under the Indenture.

While the Company did not believe that it had violated the Indenture and
therefore there was no basis for accelerating the Notes, in order to settle the
dispute with certain noteholders, on August 1, 2003, the Company agreed in
principle with a committee (the Ad Hoc Committee) representing holders of
$53.2 million in principal amount of the Companys Notes (approximately 46% of
the outstanding Notes) to a restructuring of the Notes (the Restructuring).
The Company and the Ad Hoc Committee subsequently engaged in negotiations
regarding the terms of a Fourth Supplemental Indenture and other documents to
effectuate the Restructuring. On January 30, 2004, the Company and the Ad Hoc
Committee completed these negotiations and distributed consent solicitation
materials to all noteholders of record on January 30, 2004.

12



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The Fourth Supplemental Indenture agreed upon by the Company and the Ad
Hoc Committee and sent with the consent solicitation materials to the
noteholders contained the following terms:



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| |  an increase in the annual interest rate on the Notes to 12.25%
through March 31, 2005, and 13.25% thereafter;



| |                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  a grant to the noteholders of liens on the assets of the Company
and its subsidiaries, such liens being junior to the senior liens securing
the Companys current credit facility with Fleet Capital Corporation
(Fleet);



| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  a repurchase right allowing all of the noteholders to require the
Company to repurchase their Notes at par plus accrued interest on March
31, 2005;



| |                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  the payment of a portion of certain cash flow of the Company
(referred to as excess cash) to reduce the principal amount of Notes
outstanding at the end of the Companys fiscal years;



| |                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  the addition of restrictive covenants limiting the compensation
payable to certain senior executives of the Company and limiting future
related party transactions;



| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| |  the termination of all related party transactions, except for
certain specifically-permitted transactions;



| |                                                                                                      
| | -----------------------------------------------------------------------------------------------------
| |  the assumption by the Company of approximately $15.4 million of
subordinated debt of PF Management;



| |                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  a requirement that the Company comply with certain corporate
governance standards, appoint an independent director acceptable to the
Company and the noteholders to its board and hire an independent auditor
to monitor the Companys compliance with the Indenture; and



| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  the payment of a cash consent fee payment (the Consent Payment)
equal to 3% of the principal amount of Notes held by each noteholder that
consented to the Restructuring.

In consideration for the Restructuring, the Fourth Supplemental Indenture
also provided that any and all existing defaults under the Indenture would be
waived if holders of a majority in aggregate principal amount of the Notes
approved the Restructuring. In addition, the consenting noteholders would
waive any other claims they may have against the Company and its affiliates.

The consent solicitation terminated at 5:00 P.M. Eastern time, on Monday,
March 1, 2004. Consents of holders of $112.4 million in aggregate principal
amount of the outstanding Notes, representing 97.74% of the outstanding Notes,
consented to the Fourth Supplemental Indenture. In addition, the Company
satisfied the other conditions to the closing of the Restructuring, as follows:



| |                                                                                 
| | --------------------------------------------------------------------------------
| |  paying the fees of the Ad Hoc Committees legal counsel and financial advisor;
|
| |  paying the fees of the Trustee and its legal counsel;                         



| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  obtaining executed Consents to Assignment and Assumption and
Subordination from each creditor of PF Management whose debt was assumed
by the Company;



| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  paying the Consent Payment to the Trustee (which payment will be
disbursed by the Trustee to the noteholders who consented to the
Restructuring); and

13



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##### 





| |                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  delivering to the Trustee an officers certificate and an opinion
of counsel concluding that all conditions precedent to the closing of the
Restructuring and all covenants required under the Indenture had been
satisfied.

Accordingly, because consents of holders of a majority in aggregate
principal amount of the Notes were received by the Company and the other
conditions precedent to the closing of the Restructuring were satisfied, the
Trustee and the Company executed the Fourth Supplemental Indenture on March 8,
2004 (the Closing Date). Concurrently with the execution of the Fourth
Supplemental Indenture, the Company terminated all of its contracts with
related parties, except the following related party relationships that are
specifically permitted under the terms of the Fourth Supplemental Indenture:



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  the Company will continue to compensate its directors and officers,
subject to approval of such compensation by the Companys board, including
the independent director;



| |                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  the Companys $5 million loan to Mr. James Richardson will remain
outstanding until a Change of Control event (as defined in the Indenture)
has occurred. Subject to the lien of Fleet, the note underlying this loan
will be pledged to the Trustee as collateral for the Notes;



| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  the Company will continue to lease its Hickory, North Carolina
office from a related party for aggregate annual rent payments of not more
than $116,000; and



| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  the guarantees of value and validity of the collateral securing the
Companys credit facility with Fleet given by Messrs. James Richardson and
David Clark will remain outstanding.

As a result of the termination of all other related party transactions,
subsequent to March 8, 2004, the Company will perform the purchasing and
distribution services internally. Other related party services will be
outsourced as necessary at comparable cost. In addition, certain executive
compensation is limited, with provisions for bonuses based on EBITDA and cash
payments made on the Senior Notes which could significantly increase the
limitation.

Also concurrently with the execution of the Fourth Supplemental Indenture,
the Company assumed approximately $15.4 million of debt of PF Management and
took title to an aircraft transferred from a related party subject to existing
purchase money debt. Principal payments of the former PF Management debt will
be $4.8 million during fiscal year 2005, $3.6 million during fiscal year 2006
and $7.0 million during fiscal year 2007.

As noted above, the Fourth Supplemental Indenture contains a waiver of all
defaults of the Indenture through the Closing Date (the Default Waivers). In
accordance with the terms of the Indenture, the Default Waivers bind all
holders of Notes regardless of whether a particular holder consented to the
Fourth Supplemental Indenture. The waiver of all other claims the consenting
noteholders have against the Company and its affiliates, however, does not bind
the noteholders that did not consent to the Fourth Supplemental Indenture.

14



---



##### 



Commercial Commitments, Contingencies and Contractual Obligations

The Company provided a secured letter of credit in the amount of
$3,500,000 in fiscal 2003 and $1,500,000 in both fiscal 2002 and fiscal 2001 to
its insurance carrier for the underwriting of certain performance bonds, which
expires in fiscal 2004. The Company also provides secured letters of credit to
its insurance carriers for outstanding and potential workers compensation and
general liability claims. Letters of credit for these claims totaled $125,000,
$225,000 and $360,000 in fiscal 2003, fiscal 2002 and fiscal 2001,
respectively. In addition, the Company provides secured letters of credit to a
limited number of suppliers. Letters of credit for suppliers totaled $250,000
and $500,000 in fiscal 2003 and fiscal 2002, respectively.

The Company is involved in various legal proceedings. Management
believes, based on the advice of legal counsel, that the outcome of such
proceedings will not have a materially adverse effect on the Companys
financial position or future results of operations and cash flows.

|                                          |       |   |                            |           |      |   |      |   |      |   |            |   |       |   |   |   |  |   |          |   |  |   |           |           | 
|----------------------------------------- | ----- | - | -------------------------- | --------- | ---- | - | ---- | - | ---- | - | ---------- | - | ----- | - | - | - |  | - | -------- | - |  | - | --------- | --------- | 
|                                          |       |   | Commitments by Fiscal Year
|                                          |       |   |                           
|                                          |       |   |                            |           |      |   |      |   |      |   |            |   |       |   |   |   |  |   | 2008 and |   |  |   |          
|                                          |       |   | 2004                       |           | 2005 |   | 2006 |   | 2007 |   | Thereafter |   | Total
|                                          |       |   |                            |           |      |   |      |   |      |   |            |   |      
|Letters of Credit                         |       | $ | 3,875,000                  |           |      | $ |     |   |      | $ |           |   |       | $ |  |   |  | $ |         |   |  | $ | 3,875,000 |          
|Purchase Commitments for Capital
Projects |       |   | 3,729,986                  |           |      |   |     |   |      |   |           |   |       |   |  |   |  |   |         |   |  |   | 3,729,986 |          
|                                          | Total |   | $                          | 7,604,986 |      |   | $    |  |      |   | $          |  |       |   | $ |  |  |   | $        |  |  |   | $         | 7,604,986 | 
|                                          |       |   |                            |           |      |   |      |   |      |   |            |   |       |   |   |   |  |   |          |   |  |   |           |          

|                                     |       |   |                                        |           |      |   |            |            |      |   |             |             |       |   |         |         |  |   |           |           |  |   |             |             | 
|------------------------------------ | ----- | - | -------------------------------------- | --------- | ---- | - | ---------- | ---------- | ---- | - | ----------- | ----------- | ----- | - | ------- | ------- |  | - | --------- | --------- |  | - | ----------- | ----------- | 
|                                     |       |   | Contractual Obligations by Fiscal Year
|                                     |       |   |                                       
|                                     |       |   |                                        |           |      |   |            |            |      |   |             |             |       |   |         |         |  |   | 2008 and  |           |  |   |            
|                                     |       |   | 2004                                   |           | 2005 |   | 2006       |            | 2007 |   | Thereafter  |             | Total
|                                     |       |   |                                        |           |      |   |            |            |      |   |             |             |      
|Long-Term Debt                       |       | $ |                                       |           |      | $ | 15,356,129 |            |      | $ | 115,000,000 |             |       | $ |        |         |  | $ |          |           |  | $ | 130,356,129 |            
|Capital Lease Obligations            |       |   | 79,611                                 |           |      |   | 21,875     |            |      |   | 9,170       |             |       |   |        |         |  |   |          |           |  |   | 110,656     |            
|Operating Lease Obligations          |       |   | 788,266                                |           |      |   | 554,377    |            |      |   | 316,384     |             |       |   | 256,071 |         |  |   | 77,769    |           |  |   | 1,992,867   |            
|Consulting and Noncompete Agreements |       |   | 334,901                                |           |      |   | 358,504    |            |      |   |            |             |       |   |        |         |  |   |          |           |  |   | 693,405     |            
|Obligation of Special Purpose Entity |       |   | 289,856                                |           |      |   | 306,511    |            |      |   | 324,123     |             |       |   | 342,747 |         |  |   | 4,618,432 |           |  |   | 5,881,669   |            
|                                     |       |   |                                        |           |      |   |            |            |      |   |             |             |       |   |         |         |  |   |           |           |  |   |             |            
|                                     | Total |   | $                                      | 1,492,634 |      |   | $          | 16,597,396 |      |   | $           | 115,649,677 |       |   | $       | 598,818 |  |   | $         | 4,696,201 |  |   | $           | 139,034,726 | 
|                                     |       |   |                                        |           |      |   |            |            |      |   |             |             |       |   |         |         |  |   |           |           |  |   |             |            

See Notes 14 and 17 to the Consolidated Financial Statements for a further
discussion of commitments, contingencies and contractual obligations.

15



---



##### 



Inflation

The Company believes that inflation has not had a material impact on its
results of operations for fiscal 2003, fiscal 2002 or fiscal 2001. The Company
does not expect inflation to have a material impact on its results of
operations for fiscal 2004.

16



---



##### 



Item 7A.Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk stemming from changes in interest
rates, foreign exchange rates and commodity prices. Changes in these factors
could cause fluctuations in the Companys financial condition, results of
operations and cash flows. The Company owned no derivative financial
instruments or nonderivative financial instruments held for trading purposes at
March 1, 2003, March 2, 2002 or March 3, 2001. Certain of the Companys
outstanding nonderivative financial instruments at March 1, 2003 are subject to
interest rate risk, but not subject to foreign currency or commodity price
risk. There was no significant change in market risk from fiscal 2002 to
fiscal 2003.

Interest Rate Risk

The Company manages potential loss on long-term debt from changing
interest rates by maintaining a combination of fixed and variable rate
financial instruments in amounts and with maturities that management considers
appropriate. The risks associated with long-term debt at March 1, 2003 have
not changed materially since March 2, 2002. Of the long-term debt outstanding
at March 1, 2003, the $115.0 million of Senior Notes accrued interest at a
fixed rate, while the $15.1 million of outstanding borrowings under the
revolving credit facility and the $5.6 million obligation of Columbia Hill
Aviation accrued interest at variable rates. A rise in prevailing interest
rates could have adverse effects on the Companys financial condition and
results of operations. A 25 basis point increase in the reference rates for
the Companys average variable rate debt outstanding during fiscal 2003 would
have decreased the Companys income before the cumulative effect of an
accounting change for that period by approximately $33,000.

The following table summarizes the Companys market risks associated with
long-term debt outstanding at March 1, 2003. The table presents principal cash
outflows and related interest rates by maturity date.

|           |  |                                     |            |            |  |               |             |  |  |                  |       |  
|---------- |  | ----------------------------------- | ---------- | ---------- |  | ------------- | ----------- |  |  | ---------------- | ----- | -
|           |  | March 1, 2003                      
|           |  | Expected Maturities in Fiscal Years
|           |  | Long-Term Debt                     
|           |  |                                    
|           |  |                                     |            |            |  |               |             |  |  | Weighted Average
|           |  | Variable Rate                       |            | Fixed Rate |  | Interest Rate
|           |  |                                     |            |            |  |              
|2004       |  | $                                   | 79,611     |            |  | $             |            |  |  |                  | 10.13 | %
|2005       |  |                                     | 15,378,004 |            |  |               |            |  |  |                  | 11.36 | %
|2006       |  |                                     | 9,170      |            |  |               | 115,000,000 |  |  |                  | 11.36 | %
|2007       |  |                                     |           |            |  |               |            |  |  |                  | 10.75 | %
|Thereafter |  |                                     |           |            |  |               |            |  |  |                  | 8.23  | %
|           |  |                                     |            |            |  |               |             |  |  |                  |       |  
|Total      |  | $                                   | 15,466,785 |            |  | $             | 115,000,000 |  |  |                  | 10.75 | %
|           |  |                                     |            |            |  |               |             |  |  |                  |       |  
|Fair Value |  | $                                   | 15,466,785 |            |  | $             | 85,100,000  |  |  |                  | 10.75 | %

Foreign Exchange Rate Risk

The Company bills customers in foreign countries in US dollars, with the
exception of sales to Canada. The Company does not believe the foreign
exchange rate risk on Canadian sales is material. However, a significant
decline in the value of currencies used in certain regions of the world as
compared to the US dollar could adversely affect product sales in those regions
because the Companys products may be more expensive for those customers to pay
for in their local currency. At March 1, 2003 and March 2, 2002, all trade
receivables were denominated in US dollars.

Commodity Price Risk

Certain raw materials used in food processing products are exposed to
commodity price changes. Increases in the prices of certain commodity products
could result in higher overall production costs. The Company manages this risk
through purchase orders, non-cancelable contracts and by passing on such cost
increases to customers. The Companys primary commodity price exposures relate
to beef, pork, poultry, soy and packaging materials used in food processing

17



---



##### 



products. Subsequent to fiscal 2003 year end, the Company experienced a
significant increase in the price of beef. The Company is managing the
increase in beef prices by passing on cost increases to customers and by
improving the formulation of beef products. At March 1, 2003, the Company
evaluated commodity pricing risks and determined it was not currently
beneficial to use derivative financial instruments to hedge the Companys
current positions with respect to such pricing exposures.

Fair Value of Financial Instruments

The Companys nonderivative financial instruments consist primarily of
cash and cash equivalents, trade and note receivables, trade payables and
long-term debt. The estimated fair values of the financial instruments have
been determined by the Company using available market 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 are not necessarily indicative of the amounts that the
Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts. See further discussion at Note 12 to the
Consolidated Financial Statements.

18



---



##### 



Item 8.Financial Statements and Supplementary Data

The information required by this Item is set forth on pages F-1 through
F-34.

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

None.

Item 9A.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Companys President and Chief Executive Officer and Chief Financial
Officer have evaluated the effectiveness of Companys disclosure controls and
procedures (as such term is defined in Exchange Act Rules 13a-14(c) and
15d-14(c)) as of the end of the period covered by this report. Based upon that
evaluation, the Companys President and Chief Executive Officer and Chief
Financial Officer have concluded that, as of the end of the period covered by
this report, the Companys disclosure controls and procedures are effective in
alerting them on a timely basis to material information relating to the Company
(including its consolidated subsidiaries) required to be included in the
Companys reports filed or submitted under the Exchange Act. There have been
no significant changes in the Companys internal controls or in other factors
that could significantly affect internal controls subsequent to the date the
Company carried out its evaluation.

19



---



##### 



PART III

Item 10.Directors and Executive Officers of the Registrant

DIRECTORS AND EXECUTIVE OFFICERS

JAMES C. RICHARDSON, JR., CHAIRMAN, age 54, has been a director since
1987, and became Chairman of the Board of Directors on December 16, 1999. From
1993 until then he had served as Chief Executive Officer of the Company. From
1996 until becoming Chairman, he had served as Vice Chairman. Mr. Richardson
has served the Company as an executive officer since 1987, including Executive
Vice President from 1989 to 1993 and President from 1993 to 1996.

DAVID R. CLARK, VICE CHAIRMAN, age 47, has been a director since 1996 and
Vice Chairman since 1999. He joined the Company as its President and Chief
Operating Officer in 1996 and held those positions until he became Vice
Chairman. From 1994 to 1996, he served as Executive Vice President and Chief
Operating Officer of Bank of Granite, located in Granite Falls, North Carolina.

BOBBY G. HOLMAN, DIRECTOR, age 68, has been a director since 1994. He
served as the Companys Chief Financial Officer and Treasurer from 1994 until
his retirement in 1997. During fiscal 2003, Mr. Holman was a member of the
Audit and Special Committees of the Board of Directors, until those committees
were disbanded in September 2002.

WILLIAM R. McDONALD III, DIRECTOR, age 69, has been a director since 1991.
From 1989 until his retirement in 1999, he was Branch Manager of American
Pharmaceutical Services, a subsidiary of Mariner Post-Acute Network, or its
predecessors. American Pharmaceutical Services provides pharmaceutical needs
and prescription services to nursing homes. Mr. McDonald served as Mayor of
the City of Hickory, North Carolina, an elective office he held from 1981 to
December 2001. During fiscal 2003, he served on the Audit and Sensitive
Transactions Committees of the Companys Board of Directors, until those
committees were disbanded in September 2002.

BRUCE E. MEISNER, DIRECTOR, age 54, was elected to the Board of Directors
by the Board itself on February 3, 2000 to fill the unexpired term of L. Dent
Miller, who had resigned from the Board concurrent with his retirement from the
Company. Mr. Meisner is the proprietor of Bruce E. Meisner Appraisal Company
in Hickory, North Carolina, a company providing real estate appraisal services.
During fiscal 2003, Mr. Meisner served on the Audit, Executive Compensation
and Special Committees, until those committees were disbanded in September
2002.

JOHN H. GRIGG, DIRECTOR, age 42, was elected to the Board of Directors on
December 11, 2003 to fill the position of a new director following the
expansion of the Board of Directors to six members. Mr. Grigg is the founder
and President of LTA, LLC, a publishing and event business since 2001. From
1989 to 2000, he served as Partner and Managing Director of Bowles Hollowell
Conner & Co. and First Union Capital Markets, investment banking firms.

NORBERT E. WOODHAMS, PRESIDENT AND CHIEF EXECUTIVE OFFICER, age 58, became
the Companys President and Chief Executive Officer on December 16, 1999.
Immediately prior to his election to those offices, Mr. Woodhams was President
of Pierre Foods, LLC, the Companys operating subsidiary, having served in that
position since the Companys acquisition of Pierre Cincinnati in June 1998.
From 1994 to 1998, he served as President of Hudson Specialty Foods, a food
processing division of Hudson. Upon the acquisition of Hudson by Tyson in
January 1998, Mr. Woodhams became President of Pierre. Mr. Woodhams served as
a director from 1998 to September 2002.

PAMELA M. WITTERS, CHIEF FINANCIAL OFFICER, TREASURER AND SECRETARY, age
47, became the Companys Chief Financial Officer on December 16, 1999, and
Senior Vice President on October 26, 2000. She served the Company as Vice
President of Finance from 1998 to 1999. From 1994 to 1998, she worked with
Deloitte & Touche LLP in Hickory, North Carolina.

ROBERT C. NAYLOR, SENIOR VICE PRESIDENT OF SALES, age 52, became the
Companys Senior Vice President of Sales on December 16, 1999. Immediately
prior, he was Senior Vice President of Sales of Pierre Foods, LLC, the
Companys operating subsidiary, having served in that position since the
Companys acquisition of Pierre Cincinnati in June 1998. From 1978 to 1998, he
served in various sales positions for Pierre Cincinnati, including Vice
President of Sales.

20



---



##### 



SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Until the completion of the management buyout of the Company on July 26,
2002, Section 16(a) of the Securities Exchange Act of 1934 required the
Companys directors and executive officers and persons who owned ten percent or
more of the Companys common stock to file with the SEC initial reports of
ownership and reports of changes in ownership of the Companys common stock.
Such persons were required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they filed. To the Companys knowledge,
based upon review of the copies of such reports furnished to the Company and
written representations that no other reports were required, no persons failed
to make timely filings during the Companys fiscal year ended March 1, 2003.

Item 11.Executive Compensation

SUMMARY COMPENSATION TABLE

The following information relates to compensation paid by the Company to
its Chief Executive Officer and each of the highly compensated Executive
Officers (collectively, the Named Executive Officers).

|                                           |                         |        |      |        |  |       |                     |         |               |            |           |              |     |   |         |         |  |   |              |        |  |   |       |       | 
|------------------------------------------ | ----------------------- | ------ | ---- | ------ |  | ----- | ------------------- | ------- | ------------- | ---------- | --------- | ------------ | --- | - | ------- | ------- |  | - | ------------ | ------ |  | - | ----- | ----- | 
|                                           |                         |        |      |        |  |       |                     |         |               |            |           |              |     |   |         |         |  |   | Long Term    |        |  |   |      
|                                           |                         |        |      |        |  |       |                     |         |               |            |           |              |     |   |         |         |  |   | Compensation |        |  |   |      
|                                           |                         |        |      |        |  |       | Annual Compensation |         | Option Awards |            |           |              |    
|                                           |                         |        |      |        |  |       |                     |         | (# of Shares  |            | All Other
|Name and                                   |                         | Fiscal |      | Salary |  | Bonus |                     | Other   |               | Underlying |           | Compensation
|Principal Position                         |                         | Year   |      | ($)    |  | ($)   |                     | ($) (1) |               | Options)   |           | ($) (2)     
|                                           |                         |        |      |        |  |       |                     |         |               |            |           |             
|James C. Richardson, Jr.                   |                         |        | 2003 |        |  | $     | 1,000,800           |         |               | $          | 1,615,000 |              |     | $ | 276,947 |         |  | $ | 0            |        |  | $ | 0     |      
|                                           | Chairman                |        |      | 2002   |  |       |                     | 481,148 | (3)           |            |           | 750,000      | (4) |   |         | 207,314 |  |   |              | 0      |  |   |       | 0     | 
|                                           |                         |        | 2001 |        |  |       | 0                   | (3)     |               |            | 1,775,000 | (4)          |     |   | 0       |         |  |   | 0            |        |  |   | 0     |      
|David R. Clark                             |                         |        | 2003 |        |  | $     | 1,000,800           |         |               | $          | 1,750,000 |              |     | $ | 0       |         |  | $ | 0            |        |  | $ | 3,200 |      
|                                           | Vice Chairman           |        |      | 2002   |  |       |                     | 665,604 | (5)           |            |           | 1,368,800    |     |   |         | 18,876  |  |   |              | 0      |  |   |       | 3,200 | 
|                                           |                         |        | 2001 |        |  |       | 150,000             | (5)     |               |            | 0         |              |     |   | 0       |         |  |   | 0            |        |  |   | 3,200 |      
|Norbert E. Woodhams
President and          |                         |        | 2003 |        |  | $     | 350,000             |         |               | $          | 678,563   |              |     | $ | 0       |         |  | $ | 0            |        |  | $ | 3,200 |      
|                                           | Chief Executive Officer |        |      | 2002   |  |       |                     | 307,693 |               |            |           | 324,771      |     |   |         | 0       |  |   |              | 0      |  |   |       | 3,200 | 
|                                           |                         |        |      | 2001   |  |       |                     | 300,000 |               |            |           | 0            |     |   |         | 0       |  |   |              | 0      |  |   |       | 3,200 | 
|Pamela M. Witters
Chief Financial
Officer, |                         |        | 2003 |        |  | $     | 210,000             |         |               | $          | 407,137   |              |     | $ | 0       |         |  | $ | 0            | (6)    |  | $ | 3,200 |      
|                                           | Treasurer and Secretary |        |      | 2002   |  |       |                     | 184,669 |               |            |           | 201,426      |     |   |         | 0       |  |   |              | 0      |  |   |       | 3,200 | 
|                                           |                         |        |      | 2001   |  |       |                     | 152,500 |               |            |           | 20,000       |     |   |         | 0       |  |   |              | 25,000 |  |   |       | 3,200 | 
|Robert C. Naylor
Senior Vice               |                         |        | 2003 |        |  | $     | 220,000             |         |               | $          | 427,140   |              |     | $ | 0       |         |  | $ | 0            | (7)    |  | $ | 1,040 |      
|                                           | President of Sales      |        |      | 2002   |  |       |                     | 193,860 |               |            |           | 202,416      |     |   |         | 0       |  |   |              | 0      |  |   |       | 1,040 | 
|                                           |                         |        |      | 2001   |  |       |                     | 183,600 |               |            |           | 0            |     |   |         | 0       |  |   |              | 0      |  |   |       | 1,040 | 



|(1) |  | For fiscal 2003 and fiscal 2002, consists of the value of life insurance
premiums. For all periods shown, company cars and certain other benefits are
excluded, as such items did not exceed 10% of the individuals annual salary
and bonus.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes matching contributions made by the Company to the Companys 401(k)
plan.                                                                                                                                                            

21



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##### 





|(3) |  | For fiscal 2002, includes compensation by HERTH Management Inc. (HERTH)
and subsequently PF Management through September 3, 2001, plus salary
beginning September 3, 2001. For fiscal 2001, no salary was paid to Mr.
Richardson, who was instead compensated solely by HERTH. The Company paid
PF Management $967,500 in fiscal 2002, consisting of $325,000 under the
management services agreement, $350,000 as a cancellation fee, and
$150,000 as bonuses paid to Mr. Richardson. The Company paid HERTH
$2,550,000 in fiscal 2001, consisting of $1,300,000 pursuant to the HERTH
agreement and an additional $1,250,000 in the aggregate as bonuses paid to
Mr. Richardson for his leadership on strategic initiatives. See Certain
Relationships and Related Party Transactions.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(4) |  | For fiscal 2002, includes management performance bonuses of $600,000 paid
directly to HERTH and management performance bonuses of $150,000 paid
directly to PF Management. For fiscal 2001, includes management
performance bonuses of $1,250,000 paid directly to HERTH, plus $525,000
paid directly to Mr. Richardson by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(5) |  | For fiscal 2002, excludes $100,000 and for fiscal 2001, excludes $200,000
paid by the Company and offset from amounts owing to HERTH. See
Employment Contracts and Change in Control Agreements and Certain
Relationships and Related Party Transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(6) |  | Effective July 26, 2002, Ms. Witters received $12,500 in exchange for the
cancellation of all outstanding options to purchase common stock that had
been issued and were outstanding, including options not yet exercisable as
of the date of cancellation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(7) |  | Effective July 26, 2002, Mr. Naylor cancelled all outstanding options to
purchase common stock that had been issued and were outstanding, including
options not yet exercisable as well as options exercisable as of the date
of cancellation. No value was received in connection with the
cancellation of the options due to the excess of the exercise price of
the options over the market value of the common stock.                                                                                                                                                                                                                                                                                                                                                                   

AGGREGATED OPTION EXERCISES IN FISCAL 2003
AND FISCAL YEAR-END OPTION VALUES

No options were exercised during fiscal 2003.

All exercisable and unexercisable options were cancelled effective July
26, 2002, and all of the Companys Employee Stock Option Plans were terminated.
Ms. Witters received $12,500 in exchange for the cancellation of options. No
value was received by any other option holder in connection with the
cancellation of options due to the excess of the exercise price of the options
over the market value of the common stock.

COMPENSATION OF DIRECTORS

During fiscal 2003, from the beginning of the fiscal year through
September 17, 2002, directors were paid $10,000 per Board meeting attended,
$5,000 per Audit, Executive Compensation and Sensitive Transactions Committee
meeting attended, and $2,500 per Special Committee meeting attended, except
that directors who were employees of the Company received no payment for
services as directors. Effective September 18, 2002, all committees were
disbanded and directors were subsequently paid $5,000 per Board meeting
attended.

EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL AGREEMENTS

On September 3, 2001, each of James C. Richardson, Jr., the Companys
Chairman, and David R. Clark, the Companys Vice Chairman, executed an
Employment Agreement with the Company for three years at an annual base salary
of $1,000,800, which may be increased from time to time by the Board of
Directors. The Company can also award bonuses to Mr. Richardson and Mr. Clark
based upon other considerations. See Executive Compensation. Each of these
employment agreements will be automatically extended for additional, successive
one-year terms, unless the Company or the respective employee gives prior
notice of termination. Should Mr. Richardsons or Mr. Clarks employment be
terminated by the Company without cause, or by reason of death or disability,
or should Mr. Richardson or Mr. Clark resign

22



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##### 



from employment for good reason, then the Company would be obligated to make a
severance payment to him equal to the sum of his base salary as would be due in
the aggregate for the remainder of the initial three-year term or the one-year
renewal term then in effect, as the case may be, but which shall not be less
than three months of his base salary then in effect.

In the case of Mr. Clark, the Employment Agreement dated as of September
3, 2001 replaced the Employment Agreement between the Company and Mr. Clark
dated June 30, 1996, as amended February 23, 1998 (the superseded agreement).
As amended, the superseded agreement provided for an annual base salary of
$350,000 and an annual bonus based on the Companys financial performance.
Under the superseded agreement, $200,000 of Mr. Clarks base salary was paid by
HERTH and $150,000 of his base salary was paid by the Company. See Certain
Relationships and Related Party Transactions.

On August 18, 1999, Norbert E. Woodhams, the Companys President, Chief
Executive Officer and Director, and the Company executed an Incentive
Agreement, which provided for an annual salary of $250,000 and a periodic bonus
under the Companys executive bonus plan (the Woodhams Incentive Agreement).
The Company also agreed to pay to Mr. Woodhams a pay to stay bonus in the
amount of $800,000 (inclusive of a tax gross up amount) in the event that the
Company enters into an agreement for the sale of the Companys food processing
operation or if Mr. Woodhams employment is terminated. Mr. Woodhams is also
entitled to receive a transaction success bonus in the amount of $750,000
(inclusive of a tax gross up amount) and a severance payment of $532,099
(inclusive of a tax gross up amount) in the event that such sale is
consummated or Mr. Woodhams employment is terminated. The Woodhams Incentive
Agreement was amended on January 1, 2000 and December 31, 2001 to increase Mr.
Woodhams annual salary to $300,000 and $350,000, respectively. The term of the
Woodhams Incentive Agreement expires on June 8, 2004 and will be automatically
extended from year to year unless the Company notifies Mr. Woodhams that it
does not intend to extend the term.

On December 31, 2001, each of Pamela M. Witters, the Companys Chief
Financial Officer, and Robert C. Naylor, the Companys Senior Vice President of
Sales, executed an Employment Agreement with the Company for three years. Ms.
Witters agreement provides for an annual base salary of $210,000, and Mr.
Naylors agreement provides for an annual base salary of $220,000, each of
which may be increased from time to time by the Board of Directors. The
Company can also award bonuses to Ms. Witters and Mr. Naylor based upon other
considerations. See Executive Compensation. Each of these employment
agreements will be automatically extended for additional successive one-year
terms, unless the Company or the respective employee gives prior notice of
termination. Should Ms. Witters or Mr. Naylors employment be terminated by
the Company without cause, or by reason of death or disability, or should Ms.
Witters or Mr. Naylor resign from employment for good reason, then the Company
would be obligated to make a severance payment to that employee equal to the
sum of his or her base salary as would be due in the aggregate for the
remainder of the initial three-year term or the one-year renewal term then in
effect, as the case may be, but which shall not be less than three months of
his or her base salary then in effect. In the event of a change in control of
the Company, Ms. Witters and Mr. Naylor shall be entitled to receive (a) three
times the amount of base salary paid or payable by the Company to that employee
for services rendered during the most recently completed fiscal year, plus (b)
three times the amount of aggregate cash bonus paid or payable by the Company
to that employee for services rendered during the most recently completed
fiscal year.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

From the beginning of fiscal 2003 until September 2002 when the Executive
Compensation Committee was disbanded, the committee consisted of Messrs.
Howard, Lanier and Meisner, none of whom was an officer or employee of the
Company or any of its subsidiaries during fiscal 2003. Messrs. Lanier and
Meisner have never been officers of the Company or any of its subsidiaries.
Mr. Howard served as Chairman of the Board of Directors from 1993 until Mr.
Richardson became Chairman in 1999. Mr. Howard served as Executive Vice
President of the Company from 1989 to 1993 and as Chief Financial Officer and
Treasurer from 1989 to 1994.

23



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

PRINCIPAL SHAREHOLDERS

The following table shows, as of May 20, 2003, except as otherwise
indicated, the holdings of Pierre Foods common stock by (1) the sole entity or
persons known to us to be the beneficial owner of more than five percent of the
outstanding shares, and (2) by all directors and executive officers as a group.

|                                                                |  |                        |         |              |  |  |     |  
|--------------------------------------------------------------- |  | ---------------------- | ------- | ------------ |  |  | --- | -
|NAME AND                                                        |  | NUMBER OF SHARES       |         | PERCENT OF  
|ADDRESS OF                                                      |  | OF COMMON STOCK        |         | OUTSTANDING 
|BENEFICIAL OWNER                                                |  | BENEFICIALLY OWNED (1) |         | COMMON STOCK
|                                                                |  |                        |         |             
|PF Management, Inc. (2)
361 Second Street, NW
Hickory, NC 28601 |  |                        | 100,000 |              |  |  | 100 | %
|James C. Richardson, Jr. (3)
P.O. Box 3967
Hickory, NC 28603    |  |                        | 100,000 |              |  |  | 100 | %
|David R. Clark (3)
P.O. Box 3967
Hickory, NC 28603              |  |                        | 100,000 |              |  |  | 100 | %
|James M. Templeton (3)
P.O. Box 1295
Claremont, NC 28610        |  |                        | 100,000 |              |  |  | 100 | %
|All directors and executive
officers as a group (8 persons)     |  |                        | 100,000 |              |  |  | 100 | %



|(1) |  | The actual number of shares outstanding at May 20, 2003 was 100,000.                                                                                                 
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | All of the shares owned by PF Management are also deemed to be
beneficially owned by Messrs. Richardson, Clark, and Templeton, who are
shareholders of PF Management.
|   
|(3) |  | Consists of 100,000 shares deemed to be owned beneficially through PF
Management.                                                                                    

Item 13.Certain Relationships and Related Transactions

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

As described in Liquidity and Capital Resources  Restructuring of Senior
Notes above, on March 8, 2004 the Company and the Trustee under the Companys
Indenture executed a Fourth Supplemental Indenture and, pursuant to the terms
of the Fourth Supplemental Indenture, the Company terminated substantially all
of its related party transactions. The following related party transactions
are specifically permitted under the terms of the Fourth Supplemental
Indenture:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  Columbia Hill Land Company, LLC., owned 50% by each of Messrs.
Richardson and Clark, leases office space to the Company in Hickory, North
Carolina, pursuant to a ten-year lease that commenced in September 1998.
Rents paid under the lease were approximately $116,000 in fiscal 2003,
$103,000 in fiscal 2002 and $103,000 in fiscal 2001. In addition,
beginning in fiscal 2003, Columbia Hill Land leased a house to the Company
on a month-to-month basis. Rents paid for the house totaled approximately
$60,000 during fiscal 2003.



| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  Effective August 13, 2003, the Company obtained a three year
variable rate $40 million revolving credit facility from Fleet Capital
Corporation. Messrs. Richardson and Clark have provided guarantees

24



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| |                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | of value and validity of the collateral securing this credit facility;
they did not, however, guarantee payment of the facility, nor are they
receiving guarantee fees (see further discussion in Liquidity and Capital
Resources).



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  On March 8, 2004 the Company took title to an aircraft that was
transferred from Columbia Hill Aviation, LLC (CHA), owned 100% by PF
Management, subject to existing purchase money debt. The aircraft was
originally leased by the Company from CHA during the fourth quarter of
fiscal 2002. Under the terms of the lease, the Company was obligated to
make monthly payments of approximately $58,000 and paid approximately
$170,000 under the lease during fiscal 2002. Under that arrangement, the
Company was to maintain its own flight department and was responsible for
all operating costs of the aircraft. Effective March 1, 2002, the
original lease was cancelled and replaced with a non-exclusive lease
agreement. Pursuant to this new lease, the Company was obligated to make
16 quarterly lease payments of $471,500 each for the right to use the
aircraft for up to 115 flight hours per quarter, based on availability.
Under this lease agreement, CHA was responsible for all expenses incurred
in the operation of the use of the aircraft, except that the Company
provided its own flight crew. On March 1, 2002, the Company paid CHA
$943,000 as a refundable deposit under the lease agreement and $471,500
for the first quarterly lease payment. During fiscal 2003, the Company
paid CHA approximately $3.2 million in lease payments. CHA was not a
subsidiary of the Company; however, the Company considered CHA a
non-independent special purpose leasing entity. Accordingly, CHAs
financial condition, results of operations and cash flows have been
included in the Companys consolidated financial statements included
herein. Under the terms of the operating lease with CHA, and the
financing agreements between CHA and its creditor, the Company did not
maintain the legal rights of ownership to the aircraft, nor did CHAs
creditor maintain any legal recourse to the Company.

Any related party transactions described below that were in effect at
March 1, 2003 were subsequently terminated as of March 8, 2004 pursuant to the
terms of the Fourth Supplemental Indenture. As a result of the termination of
these related party transactions, subsequent to March 8, 2004, the Company will
perform the purchasing and distribution services internally. Other related
party services will be outsourced as necessary at comparable cost. In
addition, certain executive compensation is limited, with provisions for
bonuses based on EBITDA and cash payments made on the Senior Notes which could
significantly increase the limitation.

On April 9, 2002, the board of directors of Pierre Foods approved the
payment of up to $2 million as a bonus to Mr. Richardson and up to $2 million
as a bonus to Mr. Clark. During fiscal 2003, $1,615,000 was paid to Mr.
Richardson and $1,750,000 was paid to Mr. Clark.

Columbia Hill Management, Inc. (Columbia Hill), owned 50% by each of
Messrs. Richardson and Clark, provides accounting, tax and administrative
services to Pierre Foods, as well as professional services for the management
of special projects. During fiscal 2002 and 2001, Columbia Hill Management
also provided consulting services for development of new food service programs,
and consulting services for assessment and development of alternative
warehousing and distribution programs. Fees paid for these services were
approximately $650,000 in fiscal 2003, $1,130,000 in fiscal 2002 and $860,000
in fiscal 2001.

During fiscal 2003, 2002 and 2001, PF Management owed the Company as much
as $993,247 pursuant to a promissory note payable on demand and bearing
interest at the prime rate. PF Management is owned in part by Messrs.
Richardson and Clark, who have unconditionally guaranteed repayment of the
note. In April 2001, the note was assumed by PF Management, from Columbia
Hill, LLC, who was owned in part by Messrs. Richardson and Clark.

In fiscal 2002, the Company began to purchase services from Compass Outfitters,
LLC (Compass), a company owned 45% by each of Messrs. Richardson and Clark
that provides team-building opportunities for customers and employees. Amounts
paid to Compass were approximately $530,000 in fiscal 2003 and $90,000 in
fiscal 2002. During fiscal 2003, Messrs. Richardson and Clark each became 50%
owners of Compass. Effective February 21, 2003, Messrs. Richardson and Clark
sold their net assets in Compass to the Company for a total of $270,983. In
exchange for the net assets, the Company issued notes in the amount of
$135,491.46 to each of Messrs. Richardson and Clark. The notes are five-year
notes, bearing interest at 6% per annum, with interest and principal due at
maturity.

During fiscal 2002, the Company began to purchase pork products from Mom
n Pops, LLC, a company owned 55% by Mr. Richardson. During fiscal 2003 and
fiscal 2002, the Company paid Mom n Pops, LLC approximately $190,000 and
$150,000, respectively, for pork products.

25



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##### 



PF Purchasing, LLC (PFP), owned 50% by each of Messrs. Richardson and
Clark, serves as the exclusive purchasing agent for the Company, pursuant to a
three-year agreement that commenced September 3, 2001. Under the agreement,
PFP makes an incentive payment of $100,000 per quarter to the Company in
consideration of the opportunity to act as exclusive purchasing agent, and in
exchange is entitled to receive all rebates or discounts receivable by Pierre
Foods from suppliers and vendors for orders negotiated and placed by PFP. In
fiscal 2003 and fiscal 2002, net fees paid to PFP were approximately $3,960,000
and $620,000, respectively.

Effective March 3, 2002, the Company entered into a one-year logistics
agreement with PF Distribution, LLC (PF Distribution), owned 50% by each of
Messrs. Richardson and Clark. Under the agreement, PF Distribution will serve
as the exclusive logistics agent for the Company, and will provide all
warehousing, fulfillment and transportation services to the Company. The cost
of PF Distributions services is based on flat rates per pound, which are
calculated based on weight and volume characteristics of products, inventory
pounds maintained and inventory pounds shipped. Rates were determined based on
historical costs and industry standards. In fiscal 2003, distribution expense
recorded in selling, general and administrative expense was approximately $21.7
million, of which approximately $21.3 million had been paid to PF Distribution
as of March 1, 2003.

Effective May 29, 2002, the Company terminated its $25 million credit
facility with Fleet Capital. Also, effective May 29, 2002, the Company
obtained a five-year variable-rate $50 million revolving credit facility from
Foothill Capital Corporation, which included a $16 million term loan subline, a
$10 million capital expenditures subline and a $7 million letter of credit
subfacility. Funds available under this facility were available for working
capital requirements, permitted investments and general corporate purposes.
Borrowings under the facility were bearing interest at floating rates based
upon the interest rate option selected from time to time by the Company and
were secured by a first-priority security interest in substantially all of the
Companys assets. In addition, the Company was required to satisfy certain
financial covenants regarding cash flow and capital expenditures. The
collateral for the facility included substantially all of the Companys assets.
Messrs. Richardson and Clark guaranteed payment of the facility in exchange
for guarantee fees. The Company paid such fees to each of Messrs. Richardson
and Clark, annually in advance, equal to 1.5% of the amount committed for
lending under the facility. In fiscal 2003, the Company paid each of Messrs.
Richardson and Clark $750,000.

Beginning April 25, 2001 and terminating September 3, 2001, PF Management
provided management services to Pierre Foods, including strategic planning and
direction of strategic alternatives, including the identification and pursuit
of mergers, acquisitions, other investment opportunities (both within and
beyond Pierre Foods industry) and divestitures; management of Pierre Foods
relationships with investment bankers, securities broker-dealers, significant
shareholders, note holders, banks, lawyers and accountants; facilitating
meetings of the board of directors; and general oversight of Pierre Foods
performance. PF Management provided the full time services of Messrs.
Richardson and Clark to Pierre Foods. In exchange for these services, PF
Management was entitled to $1,500,000 per year pursuant to a management
services agreement. HERTH Management, Inc. previously provided these services
to Pierre Foods, but assigned the management services agreement to PF
Management as of April 25, 2001. The agreement was subsequently cancelled as
of September 3, 2001. Upon termination of the agreement, Messrs. Richardson
and Clark each entered into employment agreements with Pierre Foods.

As of April 25, 2001, the shareholders of PF Management were Messrs.
Richardson (52.9%), Clark (35.2%) and Templeton (11.9%). As of April 17, 2001,
HERTH was owned only by Mr. Richardson and Gregory A. Edgell, a former
affiliate of Pierre Foods. Prior to April 17, 2001, the shareholders of HERTH
included Messrs. Richardson (22.0%), Templeton (11.0%) and Columbia Hill, LLC
(45.0%), whose equity owners included Messrs. Clark (45.0%) and Richardson
(40.0%).

Pierre Foods paid PF Management $967,500 in fiscal 2002, consisting of
$325,000 under the management services agreement, $350,000 as a cancellation
fee, an additional $150,000 as bonuses paid to Mr. Richardson, and $142,500 as
bonuses paid to Mr. Templeton. Pierre Foods paid HERTH $925,000 in fiscal
2002, consisting of $325,000 under the management services agreement and an
additional $600,000 as bonuses paid to Mr. Richardson. Pierre Foods paid HERTH
and its senior executives $3,075,000 in fiscal 2001, consisting of $1,300,000
under the management services agreement and an additional $1,775,000 as bonuses
paid to Mr. Richardson. The management services agreement provided for
$200,000 of Mr. Clarks annual salary to be paid for by PF Management or HERTH,
as applicable. In fiscal 2002, Pierre Foods paid $100,000 directly to Mr.
Clark and reduced the amounts owed under the management services agreement
accordingly. In

26



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##### 



addition, in fiscal 2002, Pierre Foods paid approximately $425,000 to PF
Management for reimbursement of expenses incurred in connection with the
exchange as required by the amended exchange agreement. In fiscal 2001, the
Company paid $200,000 directly to Mr. Clark and reduced the $1,500,000 owed
under the management services agreement.

Atlantic Cold Storage of Mocksville, LLC (ACS), owned one-third each by
Messrs. Richardson and Clark, plans to construct and finance a public cold
storage warehouse which would lease space to the Company as well as to others.
The proposed agreement with the Company is for 10 years and a minimum of 4,000
pallet positions to be leased as of the first date the facility is operational.
The Company also agreed to pay $250,000 for specialized construction costs.
During fiscal 2001, the Company paid $250,000 to ACS for the specialized
construction costs.

In fiscal 2002, the Company purchased general construction and maintenance
services from Phoenix Building Systems, Inc. (Phoenix), a company owned 43%
by Mr. Richardson, but in which Mr. Richardson has the right to receive 100% of
the profits and losses of Phoenix on a pass-through basis. The amount paid to
Phoenix by the Company during fiscal 2002 was approximately $140,000.

All material transactions with affiliates of the Company were reviewed by
the entire Board of Directors, where they were approved by a majority of the
independent directors. The directors obtained and relied upon investment
banking fairness opinions when considering these transactions to the extent
required by the indenture governing the senior notes.

Item 14.Principal Accountant Fees and Services

The following table presents fees billed for professional audit services
rendered by Deloitte & Touche LLP for the audit of our annual financial
statements for the years ended March 1, 2003, and March 2, 2002, and for other
services rendered by Deloitte & Touche LLP during those periods:

|                   |  |                    |         |          |  |   |         | 
|------------------ |  | ------------------ | ------- | -------- |  | - | ------- | 
|                   |  | Fiscal Years Ended
|                   |  |                   
|                   |  | March 1,           |         | March 2,
|                   |  | 2003               |         | 2002    
|                   |  |                    |         |         
|Audit Fees (1)     |  | $                  | 295,650 |          |  | $ | 232,000 | 
|Tax Fees (2)       |  |                    | 47,829  |          |  |   | 76,959  | 
|All Other Fees (3) |  |                    | 2,520   |          |  |   | 700     | 
|                   |  |                    |         |          |  |   |         | 
|                   |  | $                  | 345,999 |          |  | $ | 309,659 | 
|                   |  |                    |         |          |  |   |         | 



| |  |  | (1) Audit fees consisted of audit work performed in the preparation of
financial statements, as well as work generally only the independent
auditor can reasonably be expected to provide, such as statutory audits.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | (2) Tax fees include all tax services relating to tax compliance, tax
planning and reporting.                                                                                                                       
|
| |  |  | (3) All other fees consisted principally of services provided for
consultation on accounting standards.                                                                                                             

Policy on Board of Directors Pre-Approval of Audit and Permissible Non-audit
Services of Independent Auditors

Consistent with SEC policies regarding auditor independence, the Board of
Directors has responsibility for appointing, setting compensation and
overseeing the work of the independent auditor. In recognition of this
responsibility, the Board of Directors has established a policy to pre-approve
all audit and permissible non-audit services provided by the independent
auditor.

27



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PART IV

Item 16.Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)  1.  Financial Statements

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

2.  Financial Statement Schedules



| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Financial statement schedules have been omitted because they are not
applicable or not required or because
the required information is provided in the consolidated financial
statements or notes thereto.

3.  Exhibits

See Index to Exhibits below.

(b)  Reports On Form 8-K.

None

28



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SIGNATURES

Pursuant to the requirements of Section 13 or 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/ DAVID R. CLARK        
| |  |                    |  |                           
| |  |                    |  | David R. Clark            
| |  |                    |  | Vice Chairman of the Board

Dated: March 9, 2004

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

|                                                       |  |                                                                                                                 |  |              
|------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------- |  | -------------
|Signature                                              |  | Title                                                                                                           |  | Date         
|                                                       |  |                                                                                                                 |  |              
|/s/ JAMES C. RICHARDSON, JR.

James C. Richardson, Jr. |  | Chairman of the Board                                                                                           |  | March 9, 2004
|                                                       |  |                                                                                                                 |  |              
|/s/ DAVID R. Clark

David R. Clark                     |  | Vice Chairman of the Board                                                                                      |  | March 9, 2004
|                                                       |  |                                                                                                                 |  |              
|/s/ NORBERT E. WOODHAMS

Norbert E. Woodhams           |  | Chief Executive Officer and
President (Principal Executive
Officer)                                             |  | March 9, 2004
|                                                       |  |                                                                                                                 |  |              
|/s/ PAMELA M. WITTERS

Pamela M. Witters               |  | Chief Financial Officer, Treasurer
and Secretary (Principal
Financial Officer and Principal
Accounting Officer) |  | March 9, 2004
|                                                       |  |                                                                                                                 |  |              
|/s/ BOBBY G. HOLMAN

Bobby G. Holman                   |  | Director                                                                                                        |  | March 9, 2004
|                                                       |  |                                                                                                                 |  |              
|/s/ BRUCE E. MEISNER

Bruce E. Meisner                 |  | Director                                                                                                        |  | March 9, 2004
|                                                       |  |                                                                                                                 |  |              
|/s/ WILLIAM R. MCDONALD III

William R. McDonald III   |  | Director                                                                                                        |  | March 9, 2004
|                                                       |  |                                                                                                                 |  |              
|John H. Grigg                                          |  | Director                                                                                                        |  | March 9, 2004

29



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INDEX TO EXHIBITS

|            |  |                                                                                                                                                                                                                                                                                                           
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                                           
|3.1         |  | Articles of Restatement of Pierre Foods, Inc., dated July 30, 2002
incorporating Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.3 to the Companys Quarterly Report on Form 10-Q
for its fiscal quarter ended August 31, 2002)                                                
|            |  |                                                                                                                                                                                                                                                                                                           
|3.2         |  | Amended and Restated Bylaws of Pierre Foods, Inc., dated September 18,
2002 (incorporated by reference to Exhibit 10.6 to the Companys Quarterly
Report on Form 10-Q for its fiscal quarter ended August 31, 2002)                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                           
|3.3         |  | Agreement and Restated Agreement and Plan of Share Exchange between
Pierre Foods, Inc. and PF Management, Inc., dated as of December 20, 2001
(incorporated by reference to Appendix A to the Companys Preliminary
Proxy Statement on Schedule 14A file on January 24, 2002)                             
|            |  |                                                                                                                                                                                                                                                                                                           
|3.4         |  | Articles of Restatement of Pierre Foods, Inc., dated July 30, 2002
(incorporated by reference to Exhibit 3.3 to the Companys Quarterly
Report on Form 10-Q for its fiscal quarter ended August 31, 2002)                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                           
|4.1         |  | Note Purchase Agreement, dated June 4, 1998, among the Company, the
Guarantors and the Initial Purchasers (incorporated by reference to
Exhibit 4.1 to the Companys Current Report on Form 8-K filed with the SEC
on June 24, 1998)                                                                      
|            |  |                                                                                                                                                                                                                                                                                                           
|4.2         |  | Indenture, dated as of June 9, 1998, among the Company, certain
Guarantors and State Street Bank and Trust Company, Trustee (incorporated
by reference to Exhibit 4.2 to the Companys Current Report on Form 8-K
filed with the SEC on June 24, 1998)                                                    
|            |  |                                                                                                                                                                                                                                                                                                           
|4.3         |  | Registration Rights Agreement, dated June 9, 1998, among the Company,
certain Guarantors and certain Initial Purchasers (incorporated by
reference to Exhibit 4.3 to the Companys Current Report on Form 8-K filed
with the SEC on June 24, 1998)                                                        
|            |  |                                                                                                                                                                                                                                                                                                           
|4.4         |  | Form of Initial Global Note (included as Exhibit A to Exhibit 4.2 to the
Companys Current Report on Form 8-K filed with the SEC on June 24, 1998
and incorporated herein by reference)                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                                                           
|4.5         |  | Form of Initial Certificated Note (included as Exhibit B to Exhibit 4.2
to the Companys Current Report on Form 8-K filed with the SEC on June 24,
1998 and incorporated herein by reference)                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                           
|4.6         |  | Form of Exchange Global Note (included as Exhibit C to Exhibit 4.2 to the
Companys Current Report on Form 8-K filed with the SEC on June 24, 1998
and incorporated herein by reference)                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                           
|4.7         |  | Form of Exchange Certificated Note (included as Exhibit D to Exhibit 4.2
to the Companys Current Report on Form 8-K filed with the SEC on June 24,
1998 and incorporated herein by reference)                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                           
|4.8         |  | First Supplemental Indenture, dated as of September 5, 1998, among the
Company, State Street Bank and Trust Company, Trustee, and Pierre Leasing,
LLC (incorporated by reference to Exhibit 4.8 to Pre-Effective amendment
No. 1 to the Companys Registration Statement on Form S-4 (No. 333-58711))     
|            |  |                                                                                                                                                                                                                                                                                                           
|4.9         |  | Second Supplemental Indenture dated as of February 26, 1999 among the
Company, State Street Bank and Trust Company, Trustee, and Fresh Foods
Restaurant Group, LLC (incorporated by reference to Exhibit 4.9 to the
Companys Quarterly Report on Form 10-Q for its fiscal quarter ended
December 4, 1999)
|            |  |                                                                                                                                                                                                                                                                                                           
|4.10        |  | Third Supplemental Indenture dated as of October 8, 1999 between the
Company and State Street Bank and Trust Company, Trustee (incorporated by
reference to Exhibit 4.10 to the Companys Quarterly Report on Form 10-Q
for its fiscal quarter ended December 4, 1999)                                    
|            |  |                                                                                                                                                                                                                                                                                                           

30




---



##### 



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|4.11        |  | Fourth Supplemental Indenture dated as of March 8, 2004 between the
Company and U.S. Bank National Association, Trustee                                                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.1        |  | Incentive Agreement dated as of August 18, 1999 among the Company, Pierre
Foods, LLC and Norbert E. Woodhams, together with First Amendment to
Incentive Agreement dated as of January 1, 2000 (incorporated by reference
to Exhibit 10.41 to the Companys Quarterly Report on Form 10-Q for the
fiscal quarter ended December 4, 1999)                                                            
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.2        |  | Assumption and Assignment Agreement dated as of April 17, 2001, between
Columbia Hill, LLC and PF Management, Inc. (incorporated by reference to
Exhibit 10.39 to the Companys Annual Report on Form 10-K for its fiscal
year ended March 3, 2001)                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.3        |  | Cancellation and Assignment Agreement dated as of April 25, 2001, between
David R. Clark, HERTH Management, Inc. and PF Management, Inc.
(incorporated by reference to Exhibit 10.40 to the Companys Annual Report
on Form 10-K for its fiscal year ended March 3, 2001)                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.4        |  | Cancellation and Termination on September 3, 2001, of Amended and
Restated Management Services Agreement dated as of December 17, 1999, by
and between Pierre Foods, Inc. and PF Management, Inc. (the successor by
assignment from HERTH Management, Inc.) (incorporated by reference to
Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for its fiscal
quarter ended December 1, 2001)
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.5        |  | Employment Agreement dated as of September 3, 2001, by and between Pierre
Foods, Inc. and James C. Richardson, Jr. (incorporated by reference to
Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for its fiscal
quarter ended December 1, 2001)                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.6        |  | Employment Agreement dated as of September 3, 2001, by and between Pierre
Foods, Inc. and David R. Clark (incorporated by reference to Exhibit 10.3
to the Companys Quarterly Report on Form 10-Q for its fiscal quarter
ended December 1, 2001)                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.7        |  | Purchasing Agent Agreement dated as of September 3, 2001, by and between
Pierre Foods, Inc. and PF Purchasing, LLC (incorporated by reference to
Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q for its fiscal
quarter ended December 1, 2001)                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.8        |  | Engagement Letter dated December 13, 2001, between PF Management, Inc.
and William E. Simon & Sons, LLC (performance by PF Management, Inc.
guaranteed by Pierre Foods, Inc.) (incorporated by reference to Exhibit
10.5 to the Companys Quarterly Report on Form 10-Q for its fiscal quarter
ended December 1, 2001)                                                                              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.10       |  | Employment Agreement dated as of December 31, 2001, between the Company
and Pamela M. Witters (incorporated by reference to Exhibit 10.42 to the
Companys Annual Report on Form 10-K for its fiscal year ended March 2,
2002)                                                                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.11       |  | Employment Agreement dated as of December 31, 2001, between the Company
and Robert C. Naylor (incorporated by reference to Exhibit 10.43 to the
Companys Annual Report on Form 10-K for its fiscal year ended March 2,
2002)                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.12       |  | Non-Exclusive Aircraft Dry Lease dated as of March 1, 2002, between the
Company and Columbia Hill Aviation, LLC (incorporated by reference to
Exhibit 10.44 to the Companys Annual Report on Form 10-K for its fiscal
year ended March 2, 2002)                                                                                                                                                    
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.13       |  | Logistics Agreement dated as of March 3, 2002, between the Company and
PF Distribution, LLC (incorporated by reference to Exhibit 10.45 to the
Companys Annual Report on Form 10-K for its fiscal year ended March 2,
2002)                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     
|10.14       |  | Guarantee Fee Agreement between the Company and James C. Richardson,
dated as of May 23, 2002 (incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q for its fiscal quarter ended June
1, 2002)                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                     

31




---



##### 



|            |  |                                                                                                                                                                                                                                                                                    
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                    
|10.15       |  | Guarantee Fee Agreement between the Company and David R. Clark, dated as
of May 23, 2002 (incorporated by reference to Exhibit 10.2 to the
Companys Quarterly Report on Form 10-Q for its fiscal quarter ended June
1, 2002)                                                      
|            |  |                                                                                                                                                                                                                                                                                    
|10.16       |  | Loan and Security Agreement by and among the Company and Foothill
Capital Corporation, as Lender, dated as of May 29, 2002 (schedules
omitted) (incorporated by reference to Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q for its fiscal quarter ended June 1, 2002)
|            |  |                                                                                                                                                                                                                                                                                    
|10.17       |  | Waiver and Release of Change in Control Agreement to the Company by
David R. Clark, dated as of October 17, 2002 (incorporated by reference to
Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for its fiscal
quarter ended November 30, 2002)                         
|            |  |                                                                                                                                                                                                                                                                                    
|10.18       |  | Waiver and Release of Change in Control Agreement to the Company by
James C. Richardson, Jr., dated as of October 21, 2002 (incorporated by
reference to Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q
for its fiscal quarter ended November 30, 2002)               
|            |  |                                                                                                                                                                                                                                                                                    
|10.19       |  | Amendment to Logistics Agreement dated as of March 2, 2003 to the
Logistics Agreement dated as of March 3, 2002, between the Company and PF
Distribution, LLC                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                    
|10.20       |  | Assignment and Assumption and Subordination Agreement dated as of March
8, 2004, between Pierre Foods, Inc. and PF Management, Inc.                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                    
|10.21       |  | Termination Agreement dated as of March 8, 2004, between Columbia Hill Aviation, LLC and Pierre Foods, Inc.                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                    
|10.22       |  | Termination Agreement dated as of March 8, 2004, between Pf Purchasing, LLC and Pierre Foods, Inc.                                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                    
|10.23       |  | Termination Agreement dated as of March 8, 2004, between PF Distribution, LLC and Pierre Foods, Inc.                                                                                                                                                                               
|            |  |                                                                                                                                                                                                                                                                                    
|12          |  | Calculation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                    
|21          |  | Subsidiaries of Pierre Foods, Inc.                                                                                                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                    
|31.1        |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Chief Executive Officer                                                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                    
|31.2        |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Chief Financial Officer                                                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                    
|32          |  | Certifications Required Pursuant to 18 U.S.C. 1350 for the Chief
Executive Officer and the Chief Financial Officer                                                                                                                                                                 
|            |  |                                                                                                                                                                                                                                                                                    
|99.1        |  | Risk Factors                                                                                                                                                                                                                                                                       

The Company hereby agrees to provide to the Commission, upon request,
copies of long-term debt instruments omitted from this report pursuant to Item
601(b)(4)(iii)(A) of Regulation S-K under the Securities Act.

32



---



##### 



INDEX TO FINANCIAL STATEMENTS

|                                   |                                                                                                                    |  |      |     | 
|---------------------------------- | ------------------------------------------------------------------------------------------------------------------ |  | ---- | --- | 
|                                   |                                                                                                                    |  | Page
|                                   |                                                                                                                    |  |     
|PIERRE FOODS, INC.                 |                                                                                                                    |  |      |    
|INDEPENDENT AUDITORS REPORT       |                                                                                                                    |  | F-2  |    
|CONSOLIDATED FINANCIAL STATEMENTS: |                                                                                                                    |  |      |    
|                                   | Consolidated Balance Sheets as of March 1, 2003 and March 2, 2002                                                  |  |      | F-3 | 
|                                   | Consolidated Statements of Operations for the Years Ended March 1, 2003,
March 2, 2002 and March 3, 2001           |  |      | F-4 | 
|                                   | Consolidated Statements of Shareholders Equity for the Years Ended March 1,
2003, March 2, 2002 and March 3, 2001 |  |      | F-5 | 
|                                   | Consolidated Statements of Cash Flows for the Years Ended March 1, 2003,
March 2, 2002 and March 3, 2001           |  |      | F-6 | 
|                                   | Notes to Consolidated Financial Statements                                                                         |  |      | F-7 | 

F-1



---



##### 



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Shareholders of
Pierre Foods, Inc.
Cincinnati, Ohio

We have audited the accompanying consolidated balance sheets of Pierre Foods,
Inc. and subsidiaries (the Company) as of March 1, 2003 and March 2, 2002,
and the related consolidated statements of operations, shareholders equity,
and cash flows for each of the three fiscal years in the period ended March 1,
2003. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at March 1, 2003 and
March 2, 2002, and the results of its operations and its cash flows for each of
the three fiscal years in the period ended March 1, 2003 in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the financial statements, effective March 3, 2002 the
Company changed its method of accounting for goodwill.

DELOITTE & TOUCHE LLP
Cincinnati, Ohio
March 9, 2004

F-2



---



##### 



PIERRE FOODS, INC.
CONSOLIDATED BALANCE SHEETS

|                                                       |                                                                                                                     |                                            |             |             |             |          |             |            |             | 
|------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------- | ----------- | ----------- | -------- | ----------- | ---------- | ----------- | 
|                                                       |                                                                                                                     |                                            |             | March 1,    |             | March 2,
|                                                       |                                                                                                                     |                                            |             | 2003        |             | 2002    
|                                                       |                                                                                                                     |                                            |             |             |             |         
|ASSETS                                                 |                                                                                                                     |                                            |             |             |             |          |             |           
|CURRENT ASSETS:                                        |                                                                                                                     |                                            |             |             |             |          |             |           
|                                                       | Cash and cash equivalents                                                                                           |                                            | $           | 274,329     |             |          | $           | 4,577,982  |            
|                                                       | Certificate of deposit of special purpose entity (Note 16)                                                          |                                            |             | 1,240,000   |             |          |             | 1,240,000  |            
|                                                       | Accounts receivable, net (Notes 3 and 7)                                                                            |                                            |             | 23,654,358  |             |          |             | 21,469,035 |            
|                                                       | Inventories (Notes 4 and 7)                                                                                         |                                            |             | 32,584,777  |             |          |             | 23,852,855 |            
|                                                       | Refundable income taxes (Note 8)                                                                                    |                                            |             | 165,829     |             |          |             | 70,622     |            
|                                                       | Deferred income taxes (Note 8)                                                                                      |                                            |             | 2,642,526   |             |          |             | 2,349,617  |            
|                                                       | Prepaid expenses and other current assets (includes related party amounts of
($375,000 in fiscal 2003)              |                                            |             | 3,264,746   |             |          |             | 1,624,161  |            
|                                                       |                                                                                                                     |                                            |             |             |             |          |             |            |            
|                                                       |                                                                                                                     | Total current assets                       |             |             | 63,826,565  |          |             |            | 55,184,272  | 
|PROPERTY, PLANT AND EQUIPMENT, NET (Notes 5, 9 and 16) |                                                                                                                     |                                            | 55,549,083  |             |             |          | 43,281,303  |           
|                                                       |                                                                                                                     |                                            |             |             |             |          |             |            |            
|OTHER ASSETS:                                          |                                                                                                                     |                                            |             |             |             |          |             |           
|                                                       | Tradename, net (Note 6)                                                                                             |                                            |             | 38,808,636  |             |          |             | 38,808,636 |            
|                                                       | Goodwill, net (Note 6)                                                                                              |                                            |             |            |             |          |             | 29,019,571 |            
|                                                       | Note receivable-related party (Notes 3 and 16)                                                                      |                                            |             | 993,247     |             |          |             | 993,247    |            
|                                                       | Deferred income taxes (Note 8)                                                                                      |                                            |             | 6,283,871   |             |          |             |           |            
|                                                       | Deferred loan origination fees, net                                                                                 |                                            |             | 2,950,109   |             |          |             | 2,092,904  |            
|                                                       | Other                                                                                                               |                                            |             | 369,500     |             |          |             | 440,931    |            
|                                                       |                                                                                                                     |                                            |             |             |             |          |             |            |            
|                                                       |                                                                                                                     | Total other assets                         |             |             | 49,405,363  |          |             |            | 71,355,289  | 
|                                                       |                                                                                                                     |                                            |             |             |             |          |             |            |            
|                                                       |                                                                                                                     | Total Assets                               |             | $           | 168,781,011 |          |             | $          | 169,820,864 | 
|                                                       |                                                                                                                     |                                            |             |             |             |          |             |           
|LIABILITIES AND SHAREHOLDERS EQUITY                   |                                                                                                                     |                                            |             |             |             |          |             |           
|CURRENT LIABILITIES:                                   |                                                                                                                     |                                            |             |             |             |          |             |           
|                                                       | Current installments of long-term debt (Note 7)                                                                     |                                            | $           | 369,467     |             |          | $           | 325,071    |            
|                                                       | Trade accounts payable                                                                                              |                                            |             | 9,422,256   |             |          |             | 4,972,870  |            
|                                                       | Accrued payroll and payroll taxes                                                                                   |                                            |             | 5,929,464   |             |          |             | 6,077,062  |            
|                                                       | Accrued interest                                                                                                    |                                            |             | 3,056,662   |             |          |             | 3,090,624  |            
|                                                       | Accrued promotions                                                                                                  |                                            |             | 2,280,788   |             |          |             | 1,943,479  |            
|                                                       | Accrued taxes (other than income and payroll)                                                                       |                                            |             | 561,642     |             |          |             | 566,677    |            
|                                                       | Other accrued liabilities (includes related party amounts of
$425,330 in fiscal 2003)                               |                                            |             | 1,490,086   |             |          |             | 1,147,558  |            
|                                                       |                                                                                                                     |                                            |             |             |             |          |             |            |            
|                                                       |                                                                                                                     | Total current liabilities                  |             |             | 23,110,365  |          |             |            | 18,123,341  | 
|LONG-TERM DEBT, less current installments (Note 7)     |                                                                                                                     |                                            | 130,387,174 |             |             |          | 115,047,605 |           
|OBLIGATION OF SPECIAL PURPOSE ENTITY (Note 16)         |                                                                                                                     |                                            | 5,591,813   |             |             |          | 5,858,139   |           
|OTHER LONG-TERM LIABILITIES (Note 16)                  |                                                                                                                     |                                            | 693,750     |             |             |          | 1,032,696   |           
|DEFERRED INCOME TAXES (Note 8)                         |                                                                                                                     |                                            |            |             |             |          | 2,552,066   |           
|COMMITMENTS AND CONTINGENCIES (Notes 9 and 14)         |                                                                                                                     |                                            |            |             |             |          |            |           
|SHAREHOLDERS EQUITY (Notes 1, 11 and 16):             |                                                                                                                     |                                            |             |             |             |          |             |           
|                                                       | Preferred stock  par value $0.10, authorized 2,500,000
shares, none issued                                         |                                            |             |            |             |          |             |           |            
|                                                       | Common stock  no par value, authorized 100,000,000 shares; issued
and outstanding March 2, 2002 - 5,781,480 shares |                                            |             |            |             |          |             | 5,781,480  |            
|                                                       | Common stock  Class A, 100,000 shares authorized, issued and
outstanding at March 1, 2003                          |                                            |             | 29,438,172  |             |          |             |           |            
|                                                       | Additional paid in capital                                                                                          |                                            |             |            |             |          |             | 23,656,692 |            
|                                                       | Retained earnings (deficit)                                                                                         |                                            |             | (15,440,263 | )           |          |             | 2,768,845  |            
|                                                       | Note receivable-related party                                                                                       |                                            |             | (5,000,000  | )           |          |             | (5,000,000 | )          
|                                                       |                                                                                                                     |                                            |             |             |             |          |             |            |            
|                                                       |                                                                                                                     | Total shareholders equity                 |             |             | 8,997,909   |          |             |            | 27,207,017  | 
|                                                       |                                                                                                                     |                                            |             |             |             |          |             |            |            
|                                                       |                                                                                                                     | Total Liabilities and Shareholders Equity |             | $           | 168,781,011 |          |             | $          | 169,820,864 | 
|                                                       |                                                                                                                     |                                            |             |             |             |          |             |           

See accompanying notes to consolidated financial statements.

F-3



---



##### 



PIERRE FOODS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                               |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |             |             |   |             |             |             |  
|---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------ | ----------- | ------------------ | ----------- | -------- | ----------- | ----------- | ----------- | - | ----------- | ----------- | ----------- | -
|                                                                                               |                                                                                                                                                                                                  |                                                        |             | Fiscal Years Ended
|                                                                                               |                                                                                                                                                                                                  |                                                        |             |                   
|                                                                                               |                                                                                                                                                                                                  |                                                        |             | March 1,           |             | March 2, |             | March 3,   
|                                                                                               |                                                                                                                                                                                                  |                                                        |             | 2003               |             | 2002     |             | 2001       
|                                                                                               |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |            
|REVENUES, NET (Note 13):                                                                       |                                                                                                                                                                                                  | $                                                      | 276,338,823 |                    |             | $        | 243,277,822 |             |             | $ | 203,475,325 |            
|COSTS AND EXPENSES:                                                                            |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |             |             |   |             |            
|                                                                                               | Cost of goods sold (Note 16 - includes net related party transactions
totaling $4,283,025 and $620,191 in fiscal 2003 and 2002, respectively)                                                    |                                                        |             | 184,091,572        |             |          |             | 160,781,388 |             |   |             | 133,384,944 |            
|                                                                                               | Selling, general and administrative expenses (Notes 11 and 16 - includes
related party transactions totaling $23,155,405, $3,943,452 and $4,199,591
in fiscal 2003, 2002 and 2001, respectively) |                                                        |             | 71,351,817         |             |          |             | 62,398,791  |             |   |             | 55,751,791  |            
|                                                                                               | Net loss on disposition of property, plant and equipment                                                                                                                                         |                                                        |             | 88,937             |             |          |             | 83,833      |             |   |             | 27,695      |            
|                                                                                               | Depreciation and amortization                                                                                                                                                                    |                                                        |             | 4,124,641          |             |          |             | 6,437,873   |             |   |             | 6,237,969   |            
|                                                                                               |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |             |             |   |             |            
|                                                                                               |                                                                                                                                                                                                  | Total costs and expenses                               |             |                    | 259,656,967 |          |             |             | 229,701,885 |   |             |             | 195,402,399 |  
|                                                                                               |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |             |             |   |             |            
|OPERATING INCOME                                                                               |                                                                                                                                                                                                  |                                                        | 16,681,856  |                    |             |          | 13,575,937  |             |             |   | 8,072,926   |            
|                                                                                               |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |             |             |   |             |            
|OTHER INCOME (EXPENSE):                                                                        |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |             |             |   |             |            
|                                                                                               | Interest expense (Note 16)                                                                                                                                                                       |                                                        |             | (14,228,220        | )           |          |             | (13,206,634 | )           |   |             | (13,334,022 | )          
|                                                                                               | Other income, net (Note 16 - includes related party income totaling
$371,610, $58,203 and $61,293 in fiscal 2003, 2002 and 2001, respectively)                                                   |                                                        |             | 446,825            |             |          |             | 364,237     |             |   |             | 281,600     |            
|                                                                                               |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |             |             |   |             |            
|                                                                                               |                                                                                                                                                                                                  | Other expense, net                                     |             |                    | (13,781,395 | )        |             |             | (12,842,397 | ) |             |             | (13,052,422 | )
|                                                                                               |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |             |             |   |             |            
|INCOME (LOSS) BEFORE INCOME TAX, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE |                                                                                                                                                                                                  |                                                        | 2,900,461   |                    |             |          | 733,540     |             |             |   | (4,979,496  | )          
|INCOME TAX (PROVISION) BENEFIT (Note 8)                                                        |                                                                                                                                                                                                  |                                                        | (1,122,478  | )                  |             |          | (732,960    | )           |             |   | 766,708     |            
|                                                                                               |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |             |             |   |             |            
|INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE             |                                                                                                                                                                                                  |                                                        | 1,777,983   |                    |             |          | 580         |             |             |   | (4,212,788  | )          
|EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF
DEBT (net of income tax benefit of $258,303)   |                                                                                                                                                                                                  |                                                        |            |                    |             |          |            |             |             |   | (455,238    | )          
|                                                                                               |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |             |             |   |             |            
|INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE                                    |                                                                                                                                                                                                  |                                                        | 1,777,983   |                    |             |          | 580         |             |             |   | (4,668,026  | )          
|CUMULATIVE EFFECT OF ACCOUNTING CHANGE (net of income tax
benefit of $10,415,037)              |                                                                                                                                                                                                  |                                                        | (18,604,534 | )                  |             |          |            |             |             |   |            |            
|                                                                                               |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |             |             |   |             |            
|NET INCOME (LOSS)                                                                              |                                                                                                                                                                                                  | $                                                      | (16,826,551 | )                  |             | $        | 580         |             |             | $ | (4,668,026  | )          
|                                                                                               |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |             |             |   |             |            
|NET INCOME (LOSS) PER COMMON SHARE  BASIC AND DILUTED                                         |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |             |             |   |             |            
|                                                                                               | Income (loss) before extraordinary item and cumulative effect of accounting change                                                                                                               |                                                        | $           | 17.78              |             |          | $           | 0.01        |             |   | $           | (42.13      | )          
|                                                                                               | Extraordinary loss from early extinguishment of debt                                                                                                                                             |                                                        |             |                   |             |          |             |            |             |   |             | (4.55       | )          
|                                                                                               | Cumulative effect of accounting change                                                                                                                                                           |                                                        |             | (186.05            | )           |          |             |             |             |   |             |             |            
|                                                                                               |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |             |             |   |             |            
|                                                                                               |                                                                                                                                                                                                  | Net income (loss) per common share  basic and diluted |             | $                  | (168.27     | )        |             | $           | 0.01        |   |             | $           | (46.68      | )
|                                                                                               |                                                                                                                                                                                                  |                                                        |             |                    |             |          |             |             |             |   |             |            
|WEIGHTED AVERAGE SHARES OUTSTANDING  BASIC AND DILUTED                                        |                                                                                                                                                                                                  |                                                        | 100,000     |                    |             |          | 100,000     |             |             |   | 100,000     |            

See accompanying notes to consolidated financial statements.

F-4



---



##### 



PIERRE FOODS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

|                                                          |  |        |            |         |  |         |            |            |  |             |             |               |  |       |             |   |  |   |            |   |  |   |             |  
|--------------------------------------------------------- |  | ------ | ---------- | ------- |  | ------- | ---------- | ---------- |  | ----------- | ----------- | ------------- |  | ----- | ----------- | - |  | - | ---------- | - |  | - | ----------- | -
|                                                          |  |        |            |         |  | Common  |            | Additional |  | Retained    |             | Receivable    |  | Total
|                                                          |  | Common |            | Stock   |  | Paid in |            | Earnings   |  | From        |             | Shareholders
|                                                          |  | Stock  |            | Class A |  | Capital |            | (Deficit)  |  | Shareholder |             | Equity       
|                                                          |  |        |            |         |  |         |            |            |  |             |             |              
|BALANCE AT MARCH 4, 2000                                  |  | $      | 5,781,000  |         |  |         |           |            |  | $           | 23,315,881  |               |  | $     | 7,436,291   |   |  | $ | (5,000,000 | ) |  | $ | 31,533,172  |  
|Net loss                                                  |  |        |           |         |  |         |           |            |  |             |            |               |  |       | (4,668,026  | ) |  |   |           |   |  |   | (4,668,026  | )
|Issuance of common stock                                  |  |        | 480        |         |  |         |           |            |  |             | 1,172       |               |  |       |            |   |  |   |           |   |  |   | 1,652       |  
|                                                          |  |        |            |         |  |         |            |            |  |             |             |               |  |       |             |   |  |   |            |   |  |   |             |  
|BALANCE AT MARCH 3, 2001                                  |  |        | 5,781,480  |         |  |         |           |            |  |             | 23,317,053  |               |  |       | 2,768,265   |   |  |   | (5,000,000 | ) |  |   | 26,866,798  |  
|Net income                                                |  |        |           |         |  |         |           |            |  |             |            |               |  |       | 580         |   |  |   |           |   |  |   | 580         |  
|Capital Contributions to special purpose entity
(Note 16) |  |        |           |         |  |         |            |            |  |             | 339,639     |               |  |       |            |   |  |   |           |   |  |   | 339,639     |  
|                                                          |  |        |            |         |  |         |            |            |  |             |             |               |  |       |             |   |  |   |            |   |  |   |             |  
|BALANCE AT MARCH 2, 2002                                  |  |        | 5,781,480  |         |  |         |           |            |  |             | 23,656,692  |               |  |       | 2,768,845   |   |  |   | (5,000,000 | ) |  |   | 27,207,017  |  
|Recapitalization                                          |  |        | (5,781,480 | )       |  |         | 29,438,172 |            |  |             | (23,656,692 | )             |  |       |            |   |  |   |           |   |  |   |            |  
|Net loss                                                  |  |        |           |         |  |         |           |            |  |             |            |               |  |       | (16,826,551 | ) |  |   |           |   |  |   | (16,826,551 | )
|Distributions of special purpose entity (Note 16)         |  |        |           |         |  |         |           |            |  |             |            |               |  |       | (1,382,557  | ) |  |   |           |   |  |   | (1,382,557  | )
|                                                          |  |        |            |         |  |         |            |            |  |             |             |               |  |       |             |   |  |   |            |   |  |   |             |  
|BALANCE AT MARCH 1, 2003                                  |  | $      |           |         |  | $       | 29,438,172 |            |  | $           |            |               |  | $     | (15,440,263 | ) |  | $ | (5,000,000 | ) |  | $ | 8,997,909   |  
|                                                          |  |        |            |         |  |         |            |            |  |             |             |               |  |       |             |   |  |   |            |   |  |   |             |  

See accompanying notes to consolidated financial statements.

F-5



---



##### 



PIERRE FOODS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                     |                                                                                          |                                                            |                                                     |             |                    |             |           |            |            |            |           |            |            |            |  
|---------------------------------------------------- | ---------------------------------------------------------------------------------------- | ---------------------------------------------------------- | --------------------------------------------------- | ----------- | ------------------ | ----------- | --------- | ---------- | ---------- | ---------- | --------- | ---------- | ---------- | ---------- | -
|                                                     |                                                                                          |                                                            |                                                     |             | Fiscal Years Ended
|                                                     |                                                                                          |                                                            |                                                     |             |                   
|                                                     |                                                                                          |                                                            |                                                     |             | March 1,           |             | March 2,  |            | March 3,  
|                                                     |                                                                                          |                                                            |                                                     |             | 2003               |             | 2002      |            | 2001      
|                                                     |                                                                                          |                                                            |                                                     |             |                    |             |           |            |           
|CASH FLOWS FROM OPERATING ACTIVITIES                 |                                                                                          |                                                            |                                                     |             |                    |             |           |            |            |            |           |           
|                                                     | Net income (loss)                                                                        |                                                            | $                                                   | (16,826,551 | )                  |             | $         | 580        |            |            | $         | (4,668,026 | )         
|                                                     |                                                                                          |                                                            |                                                     |             |                    |             |           |            |            |            |           |            |           
|                                                     | Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |                                                            |                                                     |             |                    |             |           |            |            |            |           |            |           
|                                                     | Extraordinary loss on extinguishment of debt before
income tax benefit                   |                                                            |                                                     |            |                    |             |           |           |            |            |           | 713,541    |           
|                                                     | Cumulative effect of accounting change                                                   |                                                            |                                                     | 18,604,534  |                    |             |           |           |            |            |           |           |           
|                                                     | Depreciation and amortization                                                            |                                                            |                                                     | 4,124,641   |                    |             |           | 6,437,873  |            |            |           | 6,237,969  |           
|                                                     | Amortization of deferred loan origination fees                                           |                                                            |                                                     | 746,262     |                    |             |           | 528,202    |            |            |           | 570,625    |           
|                                                     | Deferred income taxes                                                                    |                                                            |                                                     | 1,286,191   |                    |             |           | 806,004    |            |            |           | 199,672    |           
|                                                     | Net loss on disposition of assets (net of writedowns)                                    |                                                            |                                                     | 88,937      |                    |             |           | 83,833     |            |            |           | 27,695     |           
|                                                     | (Increase) decrease in other assets                                                      |                                                            |                                                     | 79,831      |                    |             |           | (440,931   | )          |            |           |           |           
|                                                     | Decrease in other long-term liabilities                                                  |                                                            |                                                     | (338,946    | )                  |             |           | (314,535   | )          |            |           | (291,235   | )         
|                                                     | Other noncash adjustments                                                                |                                                            |                                                     |            |                    |             |           |           |            |            |           | 1,653      |           
|                                                     | Changes in operating assets and liabilities providing (using) cash:                      |                                                            |                                                     |             |                    |             |           |            |            |            |           |            |           
|                                                     |                                                                                          | Receivables                                                |                                                     |             | (2,170,878         | )           |           |            | (3,271,133 | )          |           |            | (1,004,642 | )         
|                                                     |                                                                                          | Inventories                                                |                                                     |             | (8,731,922         | )           |           |            | 2,951,208  |            |           |            | (1,778,642 | )         
|                                                     |                                                                                          | Refundable income taxes, prepaid expenses and other assets |                                                     |             | (1,726,478         | )           |           |            | 630,899    |            |           |            | 1,302,056  |           
|                                                     |                                                                                          | Trade accounts payable and other accrued liabilities       |                                                     |             | 4,906,862          |             |           |            | 2,440,434  |            |           |            | 769,300    |           
|                                                     |                                                                                          |                                                            |                                                     |             |                    |             |           |            |            |            |           |            |           
|                                                     |                                                                                          |                                                            | Total adjustments                                   |             |                    | 16,869,034  |           |            |            | 9,851,854  |           |            |            | 6,747,992  |  
|                                                     |                                                                                          |                                                            |                                                     |             |                    |             |           |            |            |            |           |            |           
|                                                     |                                                                                          |                                                            | Net cash provided by operating activities           |             |                    | 42,483      |           |            |            | 9,852,434  |           |            |            | 2,079,966  |  
|                                                     |                                                                                          |                                                            |                                                     |             |                    |             |           |            |            |            |           |            |           
|CASH FLOWS FROM INVESTING ACTIVITIES                 |                                                                                          |                                                            |                                                     |             |                    |             |           |            |            |            |           |           
|                                                     | Proceeds from sales of assets to others                                                  |                                                            |                                                     | 83,000      |                    |             |           | 1,000      |            |            |           | 60,300     |           
|                                                     | (Increase) decrease in related party notes receivables (Note 16)                         |                                                            |                                                     |            |                    |             |           | (58,203    | )          |            |           | 238,513    |           
|                                                     | Capital expenditures to related parties (Note 16)                                        |                                                            |                                                     |            |                    |             |           |           |            |            |           | (250,000   | )         
|                                                     | Capital expenditures  other                                                             |                                                            |                                                     | (16,216,292 | )                  |             |           | (5,994,017 | )          |            |           | (2,514,050 | )         
|                                                     | Certificate of deposit of special purpose entity                                         |                                                            |                                                     |            |                    |             |           | (1,240,000 | )          |            |           |           |           
|                                                     |                                                                                          |                                                            |                                                     |             |                    |             |           |            |            |            |           |            |           
|                                                     |                                                                                          |                                                            | Net cash used in investing activities               |             |                    | (16,133,292 | )         |            |            | (7,291,220 | )         |            |            | (2,465,237 | )
|                                                     |                                                                                          |                                                            |                                                     |             |                    |             |           |            |            |            |           |            |           
|CASH FLOWS FROM FINANCING ACTIVITIES                 |                                                                                          |                                                            |                                                     |             |                    |             |           |            |            |            |           |           
|                                                     | Net borrowings under revolving credit agreement                                          |                                                            |                                                     | 15,085,147  |                    |             |           |           |            |            |           |           |           
|                                                     | Principal payments on long-term debt (Note 16)                                           |                                                            |                                                     | (311,967    | )                  |             |           | (134,107   | )          |            |           | (314,433   | )         
|                                                     | Loan origination fees                                                                    |                                                            |                                                     | (1,603,467  | )                  |             |           | (1,949     | )          |            |           | (188,575   | )         
|                                                     | Capital contributions to (distributions of) special purpose
entity (Note 16)             |                                                            |                                                     | (1,382,557  | )                  |             |           | 339,639    |            |            |           |           |           
|                                                     |                                                                                          |                                                            |                                                     |             |                    |             |           |            |            |            |           |            |           
|                                                     |                                                                                          |                                                            | Net cash provided by (used in) financing activities |             |                    | 11,787,156  |           |            |            | 203,583    |           |            |            | (503,008   | )
|                                                     |                                                                                          |                                                            |                                                     |             |                    |             |           |            |            |            |           |            |           
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                          |                                                            | (4,303,653                                          | )           |                    |             | 2,764,797 |            |            |            | (888,279  | )         
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR         |                                                                                          |                                                            | 4,577,982                                           |             |                    |             | 1,813,185 |            |            |            | 2,701,464 |           
|                                                     |                                                                                          |                                                            |                                                     |             |                    |             |           |            |            |            |           |            |           
|CASH AND CASH EQUIVALENTS, END OF YEAR               |                                                                                          | $                                                          | 274,329                                             |             |                    | $           | 4,577,982 |            |            | $          | 1,813,185 |           
|                                                     |                                                                                          |                                                            |                                                     |             |                    |             |           |            |            |            |           |            |           

See accompanying notes to consolidated financial statements.

F-6



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##### 



PIERRE FOODS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION, ACQUISITION AND DISCONTINUED OPERATIONS

Description of Business.Pierre Foods, Inc. (the Company or Pierre
Foods, formerly known as Fresh Foods, Inc. or Fresh Foods) is a vertically
integrated producer and marketer of fully-cooked branded and private label
protein and bakery products and microwaveable sandwiches for the domestic
foodservice market. The Company sells its products through various
distribution channels under Pierre and DesignTM, Pierre Pizza ParlorTM, Pierre
Main Street DinerTM, Pierre SelectTM, Fast Bites®, Fast Choice®, Rib-B-Q®, Hot
n Ready®, Big AZ®, Chop House®, Deli Breaks and Mom n Pops® brand names.

Acquisition of Pierre Foods Division of Hudson Foods, Inc.On June 9,
1998, the Company purchased certain of the net operating assets of the Pierre
Foods Division (Pierre Cincinnati) of Hudson Foods, Inc. (Hudson), a wholly
owned subsidiary of Tyson Foods. The acquisition was accounted for using the
purchase method of accounting. The purchase price, which totaled $119.3
million including capitalized transaction costs, was allocated to the net
underlying assets based on their respective fair values. Excess purchase price
over fair value of the underlying assets was allocated to goodwill, trade name
and assembled work force and was being amortized on a straight-line basis over
lives ranging from fifteen to thirty years until fiscal 2003, at which time,
the Company adopted Statement of Financial Accounting Standards (SFAS) No.
142 (SFAS 142), which requires, among other things, the discontinuance of
goodwill amortization (Note 2).

The purchase was financed by the issuance of $115 million of 10.75% Senior
Notes due 2006 (the Senior Notes) and an initial borrowing under a five-year,
$75 million, revolving bank credit facility. That $75 million facility was
replaced in fiscal 2000 with a $25 million facility from a new lender. The $25
million facility was replaced in fiscal 2003 with a credit facility in an
aggregate amount up to $50 million (Note 7).

Management Buyout.On April 26, 2001, the Company signed a definitive
exchange agreement documenting a management buyout proposal by PF Management.
In July 2001, the Special Committee of the Board of Directors of the Company
received a competing proposal from William E. Simon & Sons (Simon) and Triton
Partners (Triton) in which Simon and Triton proposed to commence a tender
offer to purchase the Companys common stock for $2.50 per share, subject to
certain conditions. The Special Committee was considering the Simon and Triton
proposal in light of the exchange agreement and other factors when the Company
was contacted in August 2001 by counsel to an Ad Hoc Committee of holders of
the Companys 10.75% Senior Notes due 2006 who stated that the members of the
Ad Hoc Committee, collectively owning at least $90 million in aggregate
principal amount of the Senior Notes, were interested in negotiating with the
Company to restructure the Companys debt and equity capital. The Special
Committee and the Board of Directors decided that the Company should pursue
these negotiations; however, when the Company and the Ad Hoc Committee were
unable to agree on a mutually acceptable proposal, the Company terminated
formal negotiations with the Ad Hoc Committee.

On December 13, 2001, Simon entered into an agreement with PF Management,
guaranteed by the Company, whereby Simon agreed to assist PF Management in
completing the management buyout and possible subsequent restructurings of PF
Management and the Company. Commensurate with the signing of this agreement,
Simon withdrew its offer made in July 2001 with Triton. Following the signing
of this agreement, PF Management and the Company entered into an amendment of
the definitive exchange agreement. The amendment, dated December 20, 2001,
provided for an increase in the exchange price to be paid in the management
buyout from $1.21 to $2.50 per share.

On June 25, 2002, a definitive proxy statement was filed with the
Securities and Exchange Commission in connection with a special meeting of
shareholders, at which the shareholders were asked to approve the Amended and
Restated Agreement and Plan of Share Exchange dated as of December 20, 2001,
and amended as of June 20, 2002.

F-7



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##### 



On July 26, 2002, the Companys shareholders approved the Amended and
Restated Agreement and Plan of Share Exchange dated as of December 20, 2001,
and amended as of June 20, 2002 and the management buyout of the Company was
completed on July 26, 2002. This going-private transaction resulted in the
Company becoming a wholly-owned subsidiary of PF Management; accordingly, there
is no public trading market for the Companys common stock. The Company had
5,781,480 shares issued and outstanding immediately before the closing and
2,500,000 shares of preferred stock authorized, none of which were outstanding.
After the closing, the Company amended and restated its Articles of
Incorporation to authorize the issuance of up to 100,000 shares of Class A
common stock as the only authorized class of capital stock of the Company. All
100,000 shares of authorized common stock have been issued to PF Management.
All per share amounts have been retroactively restated in the accompanying
Consolidated Financial Statements and Notes to Consolidated Financial
Statements for all periods presented to reflect the transaction.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation.The accompanying consolidated financial
statements include Pierre Foods, Inc. and subsidiaries, as well as the accounts
of the special purpose leasing entity (see Note 16). All intercompany
transactions have been eliminated.

Fiscal Year.The Company reports the results of operations using a 52-53
week basis. Each quarter of the fiscal year contains 13 weeks except for the
infrequent fiscal years with 53 weeks. Fiscal 2003, fiscal 2002 and fiscal
2001 represent 52 week periods.

The Companys fiscal year ended March 1, 2003 is referred to herein as
fiscal 2003, its fiscal year ended March 2, 2002 is referred to herein as
fiscal 2002, and its fiscal year ended March 3, 2001 is referred to herein as
fiscal 2001.

Cash and cash equivalents.The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.

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

Property, Plant and Equipment.Property, plant and equipment are stated
at cost. Expenditures for maintenance and repairs which do not significantly
extend the useful lives of assets are charged to operations whereas additions
and betterments, including interest costs incurred during construction, which
was not material for any year presented, are capitalized.

Depreciation of property, plant and equipment is provided over the
estimated useful lives of the respective assets on the straight-line basis.
Leasehold improvements are depreciated over the shorter of their estimated
useful lives or the terms of the respective leases. Property under capital
leases is amortized in accordance with the Companys normal depreciation
policy. Depreciation expense, along with amortization of intangible assets, is
recorded as a separate line item in the consolidated statements of operations.
Cost of goods sold and selling, general and administrative expenses exclude
depreciation expense.

The Company evaluates the carrying values of long-lived assets for
impairment by assessing recoverability based on forecasted operating cash flows
on an undiscounted basis, and determined no impairment existed at March 1, 2003
or March 2, 2002.

Goodwill and Other Intangible Assets. During fiscal 2002 and prior years,
Goodwill and other intangible assets were being amortized using the straight
line method over a 30 year period. The carrying value of goodwill and other
intangible assets was evaluated periodically as events and circumstances
indicated a possible inability to recover its carrying amount. Amortization
expense recognized for the fiscal years ended March 2, 2002 and March 3, 2001
was $2,693,499 for each year.

F-8



---



##### 



In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS 142, Goodwill and Other Intangible Assets, which was effective for the
fiscal year beginning March 3, 2002. SFAS 142 requires, among other things,
the discontinuance of goodwill amortization. In addition, the standard includes
provisions for the reclassification of certain existing recognized intangibles
as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the identification of reporting units for
purposes of assessing potential future impairments of goodwill. Upon the
Companys adoption of SFAS 142 on March 3, 2002, the Company ceased amortizing
goodwill and indefinite-lived intangibles. Also effective March 3, 2002, the
Company reclassified the value assigned to its assembled workforce to goodwill.

In adopting SFAS 142, the Company considered valuations based discounted
cash flow models and on market values of publicly-traded equity, as adjusted,
plus publicly-owned subordinated notes, which were determined in conjunction
with the Management Buyout in fiscal 2003 (See Note 1  Basis of Presentation,
Acquisition and Discontinued Operations for discussion on Management Buyout).
The Companys analysis determined that the entire carrying amount of the
goodwill balance at March 3, 2002 was impaired. The carrying amount,
$29,019,571 was written-off as the Cumulative Effect of an Accounting Change,
net of income taxes of $10,415,037, in the statement of operations.

F-9



---



##### 



Prior to adopting SFAS 142, the Company had the following acquired intangible
assets recorded as of March 2, 2002:

|                                         |  |            |            |                |            |              |            |              |             |   |            |   |            | 
|---------------------------------------- |  | ---------- | ---------- | -------------- | ---------- | ------------ | ---------- | ------------ | ----------- | - | ---------- | - | ---------- | 
|                                         |  |            |            | Gross Carrying |            | Accumulated  |            | Net Carrying
|                                         |  |            |            | Amount         |            | Amortization |            | Amount      
|                                         |  |            |            |                |            |              |            |             
|Goodwill                                 |  | $          | 33,571,687 |                |            | $            | (4,552,116 | )            |             | $ | 29,019,571 |  
|                                         |  |            |            |                |            |              |            |              |             |   |            |  
|Intangible
assets with
indefinite
lives: |  |            |            |                |            |              |            |              |             |   |            |  
|                                         |  | Trade name |            | $              | 44,340,000 |              |            | $            | (5,531,364  | ) |            | $ | 38,808,636 | 
|                                         |  |            |            |                |            |              |            |              |             |   |            |  
|                                         |  | Total      |            | $              | 77,911,687 |              |            | $            | (10,083,480 | ) |            | $ | 67,828,207 | 
|                                         |  |            |            |                |            |              |            |              |             |   |            |  

As required by SFAS 142, the results for fiscal 2002 and fiscal 2001 have
not been restated. The table below presents the effect on net income (loss)
and income (loss) per share as if SFAS 142 had been in effect for fiscal 2002
and fiscal 2001:

|                                                          |                                                    |                            |             |               |         |               |           |               |       |   |            |            |        |  
|--------------------------------------------------------- | -------------------------------------------------- | -------------------------- | ----------- | ------------- | ------- | ------------- | --------- | ------------- | ----- | - | ---------- | ---------- | ------ | -
|                                                          |                                                    |                            |             | Fiscal        |         | Fiscal        |           | Fiscal       
|                                                          |                                                    |                            |             | Year Ended    |         | Year Ended    |           | Year Ended   
|                                                          |                                                    |                            |             | March 1, 2003 |         | March 2, 2002 |           | March 3, 2001
|                                                          |                                                    |                            |             |               |         |               |           |              
|Reported net income (loss)                                |                                                    | $                          | (16,826,551 | )             |         | $             | 580       |               |       | $ | (4,668,026 | )         
|Add back goodwill and
tradename amortization
(net of tax) |                                                    |                            |            |               |         |               | 1,688,823 |               |       |   | 1,688,880  |           
|                                                          |                                                    |                            |             |               |         |               |           |               |       |   |            |           
|                                                          | Adjusted net income (loss)                         |                            | $           | (16,826,551   | )       |               | $         | 1,689,403     |       |   | $          | (2,979,146 | )     
|                                                          |                                                    |                            |             |               |         |               |           |               |       |   |            |           
|Basic and diluted net                                     |                                                    |                            |             |               |         |               |           |               |       |   |            |           
|                                                          | Income (loss) per share
Reported net income
(loss) |                            | $           | (168.27       | )       |               | $         | (0.01         | )     |   | $          | (46.68     | )     
|Add back goodwill and
tradename amortization
(net of tax) |                                                    |                            |            |               |         |               | 16.89     |               |       |   | 16.89      |           
|                                                          |                                                    |                            |             |               |         |               |           |               |       |   |            |           
|                                                          |                                                    | Adjusted net income
(loss) |             | $             | (168.27 | )             |           | $             | 16.89 |   |            | $          | (29.79 | )
|                                                          |                                                    |                            |             |               |         |               |           |               |       |   |            |           

Deferred Loan Origination Fees.Deferred loan origination fees associated
with the Companys revolving credit facility and long-term debt are amortized
based on the term of the respective agreements. This amortization expense is
included in interest expense.

Revenue Recognition.Revenue from sales of food processing products is
recorded at the time title transfers. Standard shipping terms are FOB
destination, therefore title passes at the time the product is delivered to the
customer.
Revenue is recognized as the net amount to be received after deductions
for estimated discounts, product returns and other allowances.

F-10



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##### 



Promotions.Promotional expenses associated with rebates, marketing
promotions and special pricing arrangements are recorded as a reduction of
revenues at the time the sale is recorded, in accordance with Emerging Issues
Task Force Issue No. 01-9 Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of a Vendors Products). Certain of these
expenses are estimated based on expected future payments to be made under these
programs. The Company believes the estimates recorded in the financial
statements are reasonable estimates of the Companys liability.

Advertising Costs.The Company expenses advertising costs as incurred.
Advertising expense for fiscal 2003, fiscal 2002 and fiscal 2001 was $652,927,
$810,367 and $891,173, respectively.

Research and Development.The Company expenses research and development
costs as incurred. Research and development expense for fiscal 2003, fiscal
2002 and fiscal 2001 was $648,774, $372,797 and $464,594, respectively.

Distribution Expense.The Company expenses distribution costs as
incurred. These costs include warehousing, fulfillment and freight costs, and
are included in selling, general and administrative expense. Distribution
expense included in operations for fiscal 2003, fiscal 2002 and fiscal 2001 was
$21,674,692, $17,828,859 and $18,219,688, respectively (See Note 16).

Income Taxes.Income taxes are provided for temporary differences between
the tax and financial accounting bases of assets and liabilities using the
asset and liability method. The tax effects of such differences are reflected
in the balance sheet at the enacted tax rate applicable to the years when such
differences are scheduled to reverse. The effect on deferred taxes of a change
in tax rates is recognized in the period that includes the enactment date.

Reclassifications.Financial statements for fiscal 2002 and fiscal 2001
have been reclassified, where applicable, to conform to the financial statement
presentation used in fiscal 2003.

Use of Estimates.The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant accounting
estimates include sales discounts and promotional allowances, inventory
reserves, insurance reserves, and useful lives assigned to intangible assets.
Actual results could differ from those estimates.

New Accounting Pronouncements. In June 2001, the FASB issued Statement
of Financial Accounting Standards No. 143 (SFAS 143), Accounting for Asset
Retirement Obligations, which is effective for the Company beginning March 2,
2003. SFAS 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement cost. The Company does not believe that the adoption of SFAS
143 will have a material impact on its financial position and results of
operations.

In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 (SFAS 144), Accounting for the Impairment or Disposal of
Long-Lived Assets, which was effective for the Companys fiscal year beginning
March 3, 2002. SFAS 144 addresses the financial accounting and reporting for
the impairment or disposal of long-lived assets. The Company adopted SFAS 144
and determined that it had no material impact on its financial position and
results of operations.

In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145 recission of FASB Statements No. 4, 44 and 64, and Amendment of FASB
Statement No. 13, and Technical Corrections which is effective for the
Companys fiscal year beginning March 2, 2003. Among the more important
provisions of this statement are the requirements that gains and losses on the
early retirement of debt are classified as extraordinary items only if such
gains and losses meet the requirements of APB 30  Reporting the Results of
Operations  Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions and
the requirement that certain lease modifications that have economic effects
similar to a sales-leaseback transaction to be accounted for as a
sale-leaseback transaction. If this standard had been in effect for this
fiscal year, the loss from early extinguishment of debt in fiscal 2001 would
have been reclassified to other income (expense) and not classified as an
extraordinary item. This statement will be followed for any future
transactions.

F-11



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##### 



In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146 (SFAS 146)   Accounting for Costs Associated with Exit or Disposal.
SFAS 146 is effective for exit or disposal activities initiated after December
31, 2002, and nullifies Emerging Issues Task Force Issue No. (EITF) 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity. The primary difference between this statement and EITF
94-3 is that SFAS 146 requires a liability for costs associated with exit or
disposal activities to be recorded when incurred rather than when management
commits to an exit plan. This statement is not expected to have an impact on
the Companys financial conditions and results of operations.

In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148 (SFAS 148)   Accounting for Stock-Based Compensation 
Transition and Disclosure. This statement amends Statement of Financial
Accounting Standards 123, Accounting for Stock-Based Compensation to provide
alternative methods of transition for an entity that changes to the fair value
based method of accounting for stock-based employee compensation and changes
the disclosure requirements. This statement was effective for financial
statements for fiscal years ending after December 15, 2002. The Company adopted
SFAS No. 148 effective March 1, 2003. During fiscal 2003, effective with the
management buyout discussed in Note 1, all stock option plans were terminated
and all outstanding options were cancelled, however, the necessary disclosure
requirements of SFAS 148 are presented in Note 1 of the Notes to Consolidated
Financial Statements.

In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149 (SFAS 149),  Amendment of Statement 133 on Derivative Instruments
and Hedging Activities. The statement amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities under Statement of Financial Accounting
Standards No. 133. SFAS 149 is effective for all contracts entered into or
modified after June 30, 2003. This Statement is not expected to have an impact
on the Companys financial statements.

In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150 (SFAS 150), Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. This statement requires
certain freestanding financial instruments to be reported as liabilities by
their issuers. The provisions of SFAS 150, which also include a number of new
disclosure requirements, are effective for instruments entered into or modified
after May 31, 2003 and pre-existing instruments as of the beginning of the
first interim period that commences after June 15, 2003. This statement is not
expected to have an impact on the Companys financial statements.

In November 2002, the FASB issued FASB Interpretation No. (FIN) 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others (FIN 45), which expands the
disclosures a guarantor is required to provide in its annual and interim
financial statements regarding its obligations for certain guarantees.
Disclosures are required to be included in financial statements issued after
December 15, 2002 (see Note 7). FIN 45 also requires the guarantor to
recognize a liability for the fair value of an obligation assumed for
guarantees issued or modified after December 31, 2002. The Company does not
believe that the adoption of FIN 45 will have a material impact on its
financial position and results of operations.

In January 2003, the FASB issued FIN 46, Consolidation of Variable
Interest Entities (FIN 46), which addresses how to identify variable
interest entities and the criteria that require a company to consolidate such
entities in its financial statements. As originally issued, FIN 46 was
effective on February 1, 2003 for new transactions and on July 1, 2003 for
existing transactions. In December 2003, the FASB deferred the effective date
for transactions entered into prior to February 1, 2003, to the first interim
or annual period ending after December 15, 2003. The Company does not believe
that the adoption of FIN 46 will have a material impact on its financial
position and results of operations.

F-12



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##### 



Stock Compensation.The Company accounts for its stock option plans using the intrinsic value based method. Accordingly, no
compensation expense was recognized for stock-based compensation relating to options granted in fiscal 2001 since the exercise
price of the options approximated the fair market value on the date of grant. Had compensation for stock options granted been
determined using the fair value based method, the Companys net income (loss) and net income (loss) per common share amounts for
fiscal 2003, 2002, and 2001 would approximate the following pro forma amounts:

|                                                                                                                                    |                                 |   |                    |         |               |   |               |       |   |   |            |        |  
|----------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | - | ------------------ | ------- | ------------- | - | ------------- | ----- | - | - | ---------- | ------ | -
|                                                                                                                                    |                                 |   | Fiscal Years Ended
|                                                                                                                                    |                                 |   |                   
|                                                                                                                                    |                                 |   | March 1, 2003      |         | March 2, 2002 |   | March 3, 2001
|                                                                                                                                    |                                 |   |                    |         |               |   |              
|Net income (loss), as reported                                                                                                      |                                 | $ | (16,826,551        | )       |               | $ | 580           |       |   | $ | (4,668,026 | )     
|Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of tax effects |                                 |   | (171,335           | )       |               |   | (253,434      | )     |   |   | (277,136   | )     
|                                                                                                                                    |                                 |   |                    |         |               |   |               |       |   |   |            |       
|Net income (loss), proforma                                                                                                         |                                 | $ | (16,997,886        | )       |               | $ | (252,854      | )     |   | $ | (4,945,162 | )     
|                                                                                                                                    |                                 |   |                    |         |               |   |               |       |   |   |            |       
|Net income (loss) per common share                                                                                                 |                                 |   |                    |         |               |   |               |       |   |   |            |       
|                                                                                                                                    | basic and diluted, as reported: |   | $                  | (168.27 | )             |   | $             | 0.01  |   |   | $          | (46.68 | )
|                                                                                                                                    |                                 |   |                    |         |               |   |               |       |   |   |            |       
|Net income (loss) per common share                                                                                                 |                                 |   |                    |         |               |   |               |       |   |   |            |       
|                                                                                                                                    | basic and diluted, proforma:    |   | $                  | (169.98 | )             |   | $             | (2.53 | ) |   | $          | (49.45 | )
|                                                                                                                                    |                                 |   |                    |         |               |   |               |       |   |   |            |       

F-13



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##### 



3. ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable consist of the following:

|                                             |                                                                                                                                  |                                  |   |            |            |          |   |            |            | 
|-------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | -------------------------------- | - | ---------- | ---------- | -------- | - | ---------- | ---------- | 
|                                             |                                                                                                                                  |                                  |   | March 1,   |            | March 2,
|                                             |                                                                                                                                  |                                  |   | 2003       |            | 2002    
|                                             |                                                                                                                                  |                                  |   |            |            |         
|Accounts receivable:                         |                                                                                                                                  |                                  |   |            |            |          |   |           
|                                             | Trade accounts receivable (less allowance for doubtful receivables of
$309,741 and $219,118 at March 1, 2003 and March 2, 2002) |                                  | $ | 23,072,351 |            |          | $ | 20,608,422 |           
|                                             | Other receivables                                                                                                                |                                  |   | 582,007    |            |          |   | 860,613    |           
|                                             |                                                                                                                                  |                                  |   |            |            |          |   |            |           
|                                             |                                                                                                                                  | Total accounts receivable        |   | $          | 23,654,358 |          |   | $          | 21,469,035 | 
|                                             |                                                                                                                                  |                                  |   |            |            |          |   |            |           
|Note receivable (includes accrued interest): |                                                                                                                                  |                                  |   |            |            |          |   |           
|                                             | Related parties; interest rates 8.25% to 9.0% (Note 16)                                                                          |                                  | $ | 993,247    |            |          | $ | 993,247    |           
|                                             |                                                                                                                                  |                                  |   |            |            |          |   |            |           
|                                             |                                                                                                                                  | Total noncurrent note receivable |   | $          | 993,247    |          |   | $          | 993,247    | 
|                                             |                                                                                                                                  |                                  |   |            |            |          |   |            |           

See Note 16 regarding a $5,000,000 note receivable from a significant shareholder presented as a reduction of shareholders equity.

The following is a summary of activity in the allowance for doubtful receivables for the three years in the period ended March 1, 2003 :

|               |  |           |         |            |  |           |         |           |  |  |         |  |  |   |         | 
|-------------- |  | --------- | ------- | ---------- |  | --------- | ------- | --------- |  |  | ------- |  |  | - | ------- | 
|               |  |           |         |            |  | Additions |         | Deduction |  |  |         | 
|               |  | Balance   |         | Charged to |  | Amounts   |         | Balance  
|               |  | Beginning |         | Costs and  |  | Charged   |         | End of   
|Year Ended     |  | of Period |         | Expenses   |  | Off-Net   |         | Period   
|               |  |           |         |            |  |           |         |          
|March 1, 2003: |  | $         | 219,118 |            |  |           | 108,646 |           |  |  | 18,023  |  |  | $ | 309,741 | 
|March 2, 2002  |  |           | 244,881 |            |  |           | 199,840 |           |  |  | 225,603 |  |  |   | 219,118 | 
|March 3, 2001  |  |           | 114,661 |            |  |           | 194,470 |           |  |  | 64,250  |  |  |   | 244,881 | 

4. INVENTORIES

A summary of inventories, by major classification, follows:

|                       |       |   |            |            |          |   |            |            | 
|---------------------- | ----- | - | ---------- | ---------- | -------- | - | ---------- | ---------- | 
|                       |       |   | March 1,   |            | March 2,
|                       |       |   | 2003       |            | 2002    
|                       |       |   |            |            |         
|Manufacturing supplies |       | $ | 1,361,313  |            |          | $ | 1,199,647  |           
|Raw materials          |       |   | 6,688,473  |            |          |   | 4,974,350  |           
|Work in process        |       |   | 3,955      |            |          |   | 838        |           
|Finished goods         |       |   | 24,531,036 |            |          |   | 17,678,020 |           
|                       |       |   |            |            |          |   |            |           
|                       | Total |   | $          | 32,584,777 |          |   | $          | 23,852,855 | 
|                       |       |   |            |            |          |   |            |           

F-14



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##### 



5. PROPERTY, PLANT AND EQUIPMENT

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

|                                               |                                    |             |             |  |            |   |            |            |            |   |            |            | 
|---------------------------------------------- | ---------------------------------- | ----------- | ----------- |  | ---------- | - | ---------- | ---------- | ---------- | - | ---------- | ---------- | 
|                                               |                                    |             | Estimated   |  | March 1,   |   | March 2,  
|                                               |                                    |             | Useful Life |  | 2003       |   | 2002      
|                                               |                                    |             |             |  |            |   |           
|Land                                           |                                    |             |             |  |            | $ | 1,304,018  |            |            | $ | 1,270,025  |           
|Land improvements                              |                                    | 10-20 years |             |  | 382,204    |   |            |            | 382,304    |  
|Buildings                                      |                                    | 20-40 years |             |  | 23,454,089 |   |            |            | 16,721,925 |  
|Leasehold improvements                         |                                    | 5-20 years  |             |  | 1,521,889  |   |            |            | 1,517,143  |  
|Machinery and equipment                        |                                    | 5-20 years  |             |  | 38,915,741 |   |            |            | 30,954,454 |  
|Machinery and equipment under capital leases   |                                    | 5-15 years  |             |  | 389,873    |   |            |            | 763,517    |  
|Furniture and fixtures                         |                                    | 5-15 years  |             |  | 5,653,632  |   |            |            | 4,987,449  |  
|Furniture and fixtures under capital leases    |                                    | 5-15 years  |             |  | 58,102     |   |            |            |           |  
|Aircraft (Note 16)                             |                                    | 16 years    |             |  | 6,200,000  |   |            |            | 6,200,000  |  
|Automotive equipment                           |                                    | 2-5 years   |             |  | 816,353    |   |            |            | 542,412    |  
|Construction in progress                       |                                    |             |             |  |            |   | 1,962,435  |            |            |   | 1,318,912  |           
|                                               |                                    |             |             |  |            |   |            |            |            |   |            |           
|                                               | Total                              |             |             |  |            |   |            | 80,658,336 |            |   |            | 64,658,141 | 
|Less accumulated depreciation and amortization |                                    |             |             |  |            |   | 25,109,253 |            |            |   | 21,376,838 |           
|                                               |                                    |             |             |  |            |   |            |            |            |   |            |           
|                                               | Property, plant and equipment, net |             |             |  |            |   | $          | 55,549,083 |            |   | $          | 43,281,303 | 
|                                               |                                    |             |             |  |            |   |            |            |            |   |            |           

6. INTANGIBLE ASSETS

Intangible assets consist of the following:

|                              |       |   |            |            |          |   |            |            | 
|----------------------------- | ----- | - | ---------- | ---------- | -------- | - | ---------- | ---------- | 
|                              |       |   | March 1,   |            | March 2,
|                              |       |   | 2003       |            | 2002    
|                              |       |   |            |            |         
|Tradename                     |       | $ | 44,340,000 |            |          | $ | 44,340,000 |           
|Less accumulated amortization |       |   | (5,531,364 | )          |          |   | (5,531,364 | )         
|                              |       |   |            |            |          |   |            |           
|                              | Total |   | $          | 38,808,636 |          |   | $          | 38,808,636 | 
|                              |       |   |            |            |          |   |            |           
|Goodwill                      |       | $ |           |            |          | $ | 33,571,687 |           
|Less accumulated amortization |       |   |           |            |          |   | (4,552,116 | )         
|                              |       |   |            |            |          |   |            |           
|                              | Total |   | $          |           |          |   | $          | 29,019,571 | 
|                              |       |   |            |            |          |   |            |           

Amortization expense was $2,693,499 for both fiscal 2002 and fiscal 2001.

F-15



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##### 



7. FINANCING ARRANGEMENTS

Long-term debt is comprised of the following:

|                                                                                                        |                           |   |             |             |          |   |             |             | 
|------------------------------------------------------------------------------------------------------- | ------------------------- | - | ----------- | ----------- | -------- | - | ----------- | ----------- | 
|                                                                                                        |                           |   | March 1,    |             | March 2,
|                                                                                                        |                           |   | 2003        |             | 2002    
|                                                                                                        |                           |   |             |             |         
|10.75% Senior Notes, interest payable on June 1 and December 1 of
each year, maturing on June 1, 2006   |                           | $ | 115,000,000 |             |          | $ | 115,000,000 |            
|Revolving line of credit, maximum borrowings of $50 million,
with floating interest rates maturing 2008 |                           |   | 15,085,147  |             |          |   |            |            
|6% Notes Payable maturing 2008 (Note 16)                                                                |                           |   | 270,983     |             |          |   |            |            
|9.25% to 11.9% capitalized lease obligations maturing 2004 (Note 9)                                     |                           |   | 110,655     |             |          |   | 97,291      |            
|                                                                                                        |                           |   |             |             |          |   |             |            
|                                                                                                        | Total long-term debt      |   |             | 130,466,785 |          |   |             | 115,097,291 | 
|                                                                                                        | Less current installments |   |             | 79,611      |          |   |             | 49,686      | 
|                                                                                                        |                           |   |             |             |          |   |             |            
|Long-term debt, excluding current installments                                                          |                           | $ | 130,387,174 |             |          | $ | 115,047,605 |            
|                                                                                                        |                           |   |             |             |          |   |             |            

The Senior Notes are unsecured obligations of the Company, subject to certain financial and non-financial covenants. At March
1, 2003, the Company was in compliance with all covenants under the Senior Notes; but continued compliance will depend on future
cash flows and net income, which are not assured. In November 2002, the Company received a notice alleging that the Company
was in violation of certain non-financial covenants under the Indenture governing the Senior Notes. The Company disagrees that
it has violated any Indenture covenants. (See also Note 17)

Effective May 29, 2002, the Company terminated its $25 million credit facility. Also effective May 29, 2002, the Company
obtained a five-year variable-rate $50 million revolving credit facility from a new lender, which includes a $16 million term
loan subline, a $10 million capital expenditures subline and a $7 million letter of credit subfacility. Funds available under
this facility were available for working capital requirements, permitted investments and general corporate purposes. Borrowings
under the facility bear interest at floating rates based upon the interest rate option selected from time to time by the Company
and were secured by a first-priority security interest in substantially all of the Companys assets. In addition, the Company
was required to satisfy certain financial covenants regarding cash flow and capital expenditures. As of March 1, 2003, the
Company was in compliance with the financial covenants under the facility. Following the allegation of default under the Senior
Notes as noted above, the lender under the credit facility limited the Companys ability to borrow under the credit facility.
However, the lender continued to provide funds to the Company under the credit facility on a limited basis.

The average rate on the $50 million revolving credit line was 8.23% for the fiscal year ended March 1, 2003. The average rate
on the $25 million revolving line of credit was 7.30% and 7.65% for the fiscal years ended March 2, 2002 and March 3, 2001,
respectively. At March 1, 2003, the Company had $0.3 million in cash or cash equivalents on hand, had outstanding borrowings
under the revolving credit facility of $15.1 million, and had approximately $4.6 million of additional borrowing availability.
There were no outstanding borrowings under the $25 million facility at March 2, 2002 or March 3, 2001.

Subsequent to fiscal 2003 year end, effective August 13, 2003, the Company terminated its five-year variable-rate $50 million
revolving credit facility. Also effective August 13, 2003, the Company obtained a three-year variable rate $40 million revolving
credit facility from a new lender, which includes a $5 million real estate term loan subline, a $5 million equipment term loan
subline and a $7.5 million letter of credit subfacility. Funds available under this new facility are available for working
capital requirements, permitted investments and general corporate purposes. Borrowings under the new facility bear interest at
floating rates based upon the interest rate option selected from time to time by the Company and are secured by a first-priority
security interest in substantially all of the Companys assets. The interest rate for borrowings under the new facility at
August 13, 2003 was 5% (prime plus 1%). Borrowings under the new facility are due the earlier of ninety days prior to the
redemption of the Senior Notes or August 13, 2006. Repayment is also required in the amount of the proceeds from the sale of
any collateral. In addition, the Company is required to satisfy certain financial covenants regarding cash flow and capital
expenditures.

F-16



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##### 



7. FINANCING ARRANGEMENTS (CONTINUED)

|                                                             |  |      |            |      |  |      |             |       |  |   |   |  |  |   |             | 
|------------------------------------------------------------ |  | ---- | ---------- | ---- |  | ---- | ----------- | ----- |  | - | - |  |  | - | ----------- | 
|Long-Term Debt Maturities, Including Capital Leases (Note 9)
|                                                            
|2004                                                         |  | 2005 |            | 2006 |  | 2007 |             | Total
|                                                             |  |      |            |      |  |      |             |      
|$79,611                                                      |  | $    | 15,378,004 |      |  | $    | 115,009,170 |       |  | $ |  |  |  | $ | 130,466,785 | 

Obligation of special purpose entity is comprised of a seven year variable rate note payable, due in monthly installments with a balloon payment due in December 2008 (see
Note 16):

|                                                                     |                           |   |           |         |          |   |           |         | 
|-------------------------------------------------------------------- | ------------------------- | - | --------- | ------- | -------- | - | --------- | ------- | 
|                                                                     |                           |   | March 1,  |         | March 2,
|                                                                     |                           |   | 2003      |         | 2002    
|                                                                     |                           |   |           |         |         
|Obligation of special purpose entity                                 |                           | $ | 5,881,669 |         |          | $ | 6,133,524 |        
|                                                                     | Less current installments |   |           | 289,856 |          |   |           | 275,385 | 
|                                                                     |                           |   |           |         |          |   |           |        
|Obligation of special purpose entity, excluding current installments |                           | $ | 5,591,813 |         |          | $ | 5,858,139 |        
|                                                                     |                           |   |           |         |          |   |           |        

|                                     |  |      |         |      |  |      |         |            |  |       |         |  |  |          |           |  |  |   |           | 
|------------------------------------ |  | ---- | ------- | ---- |  | ---- | ------- | ---------- |  | ----- | ------- |  |  | -------- | --------- |  |  | - | --------- | 
|Obligation of Special Purpose Entity
|                                    
|                                     |  |      |         |      |  |      |         |            |  |       |         |  |  | 2008 and |           |  |  |  
|2004                                 |  | 2005 |         | 2006 |  | 2007 |         | Thereafter |  | Total
|                                     |  |      |         |      |  |      |         |            |  |      
|$289,856                             |  | $    | 306,511 |      |  | $    | 324,123 |            |  | $     | 342,747 |  |  | $        | 4,618,432 |  |  | $ | 5,881,669 | 

F-17



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##### 



8. INCOME TAXES

The income tax provision (benefit) is summarized as follows:

|          |         |                           |   |                    |           |          |   |          |         |   |   |            |            |  
|--------- | ------- | ------------------------- | - | ------------------ | --------- | -------- | - | -------- | ------- | - | - | ---------- | ---------- | -
|          |         |                           |   | Fiscal Years Ended
|          |         |                           |   |                   
|          |         |                           |   | March 1,           |           | March 2, |   | March 3,
|          |         |                           |   | 2003               |           | 2002     |   | 2001    
|          |         |                           |   |                    |           |          |   |         
|Current:  |         |                           |   |                    |           |          |   |          |         |   |   |           
|          | Federal |                           | $ | (232,761           | )         |          | $ | (59,063  | )       |   | $ | (1,201,123 | )         
|          | State   |                           |   | 69,048             |           |          |   | (13,981  | )       |   |   | (23,557    | )         
|          |         |                           |   |                    |           |          |   |          |         |   |   |           
|          |         | Total current             |   |                    | (163,713  | )        |   |          | (73,044 | ) |   |            | (1,224,680 | )
|          |         |                           |   |                    |           |          |   |          |         |   |   |           
|Deferred: |         |                           |   |                    |           |          |   |          |         |   |   |           
|          | Federal |                           |   | 1,161,298          |           |          |   | 694,949  |         |   |   | 675,159    |           
|          | State   |                           |   | 124,893            |           |          |   | 111,055  |         |   |   | (217,187   | )         
|          |         |                           |   |                    |           |          |   |          |         |   |   |           
|          |         | Total deferred            |   |                    | 1,286,191 |          |   |          | 806,004 |   |   |            | 457,972    |  
|          |         |                           |   |                    |           |          |   |          |         |   |   |           
|          |         | Total provision (benefit) |   | $                  | 1,122,478 |          |   | $        | 732,960 |   |   | $          | (766,708   | )
|          |         |                           |   |                    |           |          |   |          |         |   |   |           

Actual income tax provision (benefits) are different from amounts computed by applying a statutory federal income tax rate to income or loss. The computed amount is reconciled to total income tax provision (benefit).

|                                               |                                                            |   |                    |           |               |  |               |       |               |   |         |         |             |  |      |      |   |   |            |          |   |  |       |       |   
|---------------------------------------------- | ---------------------------------------------------------- | - | ------------------ | --------- | ------------- |  | ------------- | ----- | ------------- | - | ------- | ------- | ----------- |  | ---- | ---- | - | - | ---------- | -------- | - |  | ----- | ----- | --
|                                               |                                                            |   | Fiscal Years Ended
|                                               |                                                            |   |                   
|                                               |                                                            |   | March 1, 2003      |           | March 2, 2002 |  | March 3, 2001
|                                               |                                                            |   |                    |           |               |  |              
|                                               |                                                            |   |                    |           |               |  | Percent of    |       |               |   |         |         | Percent of  |  |      |      |   |   | Percent of
|                                               |                                                            |   | Amount             |           | Pretax Income |  | Amount        |       | Pretax Income |   | Amount  |         | Pretax Loss
|                                               |                                                            |   |                    |           |               |  |               |       |               |   |         |         |            
|Computed provision (benefit) at statutory rate |                                                            | $ | 986,156            |           |               |  | 34.0          | %     |               | $ | 249,404 |         |             |  | 34.0 | %    |   | $ | (1,693,028 | )        |   |  | (34.0 | )%   
|Tax effect resulting from:                     |                                                            |   |                    |           |               |  |               |       |               |   |         |         |             |  |      |      |   |   |            |          |   |  |       |      
|                                               | State income taxes, net of
federal tax provision (benefit) |   |                    | 128,001   |               |  |               | 4.4   |               |   |         | 55,857  |             |  |      | 7.6  |   |   |            | (158,889 | ) |  |       | (3.2  | ) 
|                                               | Compensation limitation                                    |   |                    | 18,360    |               |  |               | 0.6   |               |   |         | 315,941 |             |  |      | 43.0 |   |   |            | 442,000  |   |  |       | 8.9   |   
|                                               | Income of unconsolidated subsidiaries                      |   |                    | (403,663  | )             |  |               | (13.9 | )             |   |         |        |             |  |      |      |   |   |            |         |   |  |       |       |   
|                                               | Meals and entertainment                                    |   |                    | 386,830   |               |  |               | 13.3  |               |   |         | 80,429  |             |  |      | 11.0 |   |   |            | 117,368  |   |  |       | 2.4   |   
|                                               | Other permanent differences                                |   |                    | 6,794     |               |  |               | 0.3   |               |   |         | 31,329  |             |  |      | 4.3  |   |   |            | 525,841  |   |  |       | 10.5  |   
|                                               |                                                            |   |                    |           |               |  |               |       |               |   |         |         |             |  |      |      |   |   |            |          |   |  |       |      
|                                               | Income tax provision (benefit)                             |   | $                  | 1,122,478 |               |  |               | 38.7  | %             |   | $       | 732,960 |             |  |      | 99.9 | % |   | $          | (766,708 | ) |  |       | (15.4 | )%
|                                               |                                                            |   |                    |           |               |  |               |       |               |   |         |         |             |  |      |      |   |   |            |          |   |  |       |      

F-18



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##### 



8. INCOME TAXES, CONTINUED

The approximate tax effect of each type of temporary difference and carryforward that gave rise to the Companys deferred income tax assets and liabilities for fiscal 2003 and fiscal 2002 is as follows:

|            |                                             |                              |   |               |            |               |   |            |            |        |   |             |           |       |   |           |           |  |   |            |            |   |   |            |            |  
|----------- | ------------------------------------------- | ---------------------------- | - | ------------- | ---------- | ------------- | - | ---------- | ---------- | ------ | - | ----------- | --------- | ----- | - | --------- | --------- |  | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|            |                                             |                              |   | March 1, 2003 |            | March 2, 2002
|            |                                             |                              |   |               |            |              
|            |                                             |                              |   | Assets        |            | Liabilities   |   | Total      |            | Assets |   | Liabilities |           | Total
|            |                                             |                              |   |               |            |               |   |            |            |        |   |             |           |      
|Current:    |                                             |                              |   |               |            |               |   |            |            |        |   |             |           |       |   |           |           |  |   |            |            |   |   |           
|            | Allowance for doubtful receivables          |                              | $ | 355,239       |            |               | $ |           |            |        | $ | 355,239     |           |       | $ | 342,421   |           |  | $ |           |            |   | $ | 342,421    |           
|            | Inventory                                   |                              |   | 1,102,107     |            |               |   |           |            |        |   | 1,102,107   |           |       |   | 657,455   |           |  |   |           |            |   |   | 657,455    |           
|            | Accrued promotional expense                 |                              |   | 840,698       |            |               |   |           |            |        |   | 840,698     |           |       |   | 757,957   |           |  |   |           |            |   |   | 757,957    |           
|            | Accrued vacation pay                        |                              |   | 419,132       |            |               |   |           |            |        |   | 419,132     |           |       |   | 487,329   |           |  |   |           |            |   |   | 487,329    |           
|            | Reserve for returns                         |                              |   | 45,925        |            |               |   |           |            |        |   | 45,925      |           |       |   | 48,591    |           |  |   |           |            |   |   | 48,591     |           
|            | Reserves  other                            |                              |   | 18,865        |            |               |   |           |            |        |   | 18,865      |           |       |   | 127,726   |           |  |   |           |            |   |   | 127,726    |           
|            | Prepaid expenses                            |                              |   |               |            |               |   | (257,087   | )          |        |   | (257,087    | )         |       |   |          |           |  |   | (172,885   | )          |   |   | (172,885   | )         
|            | Accrued bonus                               |                              |   |              |            |               |   |           |            |        |   |            |           |       |   |          |           |  |   |           |            |   |   |           |           
|            | Accrued workers compensation               |                              |   | 142,396       |            |               |   |           |            |        |   | 142,396     |           |       |   | 51,921    |           |  |   |           |            |   |   | 51,921     |           
|            | Other                                       |                              |   |              |            |               |   | (24,749    | )          |        |   | (24,749     | )         |       |   | 49,102    |           |  |   |           |            |   |   | 49,102     |           
|            |                                             |                              |   |               |            |               |   |            |            |        |   |             |           |       |   |           |           |  |   |            |            |   |   |            |           
|            |                                             | Total current                |   |               | 2,924,362  |               |   |            | (281,836   | )      |   |             | 2,642,526 |       |   |           | 2,522,502 |  |   |            | (172,885   | ) |   |            | 2,349,617  |  
|            |                                             |                              |   |               |            |               |   |            |            |        |   |             |           |       |   |           |           |  |   |            |            |   |   |           
|Noncurrent: |                                             |                              |   |               |            |               |   |            |            |        |   |             |           |       |   |           |           |  |   |            |            |   |   |           
|            | Property, plant and equipment               |                              |   |              |            |               |   | (5,237,655 | )          |        |   | (5,237,655  | )         |       |   |          |           |  |   | (4,303,962 | )          |   |   | (4,303,962 | )         
|            | Consulting agreements                       |                              |   | 270,562       |            |               |   |           |            |        |   | 270,562     |           |       |   | 402,751   |           |  |   |           |            |   |   | 402,751    |           
|            | Goodwill amortization                       |                              |   | 5,331,733     |            |               |   |           |            |        |   | 5,331,733   |           |       |   |          |           |  |   | (3,650,651 | )          |   |   | (3,650,651 | )         
|            | General business credit
carryforward        |                              |   | 1,070,799     |            |               |   |           |            |        |   | 1,070,799   |           |       |   | 1,070,799 |           |  |   |           |            |   |   | 1,070,799  |           
|            | Alternative minimum tax credit
carryforward |                              |   | 206,421       |            |               |   |           |            |        |   | 206,421     |           |       |   | 654,317   |           |  |   |           |            |   |   | 654,317    |           
|            | Federal loss carryforward                   |                              |   | 3,510,287     |            |               |   |           |            |        |   | 3,510,287   |           |       |   | 1,980,513 |           |  |   |           |            |   |   | 1,980,513  |           
|            | State loss carryforward                     |                              |   | 430,000       |            |               |   |           |            |        |   | 430,000     |           |       |   | 609,988   |           |  |   |           |            |   |   | 609,988    |           
|            | Charitable contribution carryforward        |                              |   | 231,758       |            |               |   |           |            |        |   | 231,758     |           |       |   | 157,180   |           |  |   |           |            |   |   | 157,180    |           
|            | Other                                       |                              |   | 469,966       |            |               |   |           |            |        |   | 469,966     |           |       |   | 546,453   |           |  |   | (19,454    | )          |   |   | 526,999    |           
|            |                                             |                              |   |               |            |               |   |            |            |        |   |             |           |       |   |           |           |  |   |            |            |   |   |            |           
|            |                                             | Total noncurrent             |   |               | 11,521,526 |               |   |            | (5,237,655 | )      |   |             | 6,283,871 |       |   |           | 5,422,001 |  |   |            | (7,974,067 | ) |   |            | (2,552,066 | )
|            |                                             |                              |   |               |            |               |   |            |            |        |   |             |           |       |   |           |           |  |   |            |            |   |   |           
|            |                                             | Total current and
noncurrent |   | $             | 14,445,888 |               |   | $          | (5,519,491 | )      |   | $           | 8,926,397 |       |   | $         | 7,944,503 |  |   | $          | (8,146,952 | ) |   | $          | (202,449   | )
|            |                                             |                              |   |               |            |               |   |            |            |        |   |             |           |       |   |           |           |  |   |            |            |   |   |           

At March 1, 2003, federal and state loss carryovers of approximately $10,324,000 and $9,327,000, respectively, are available to offset future federal and state taxable income. The carryover periods range from
fifteen to twenty years, which will result in expirations of varying amounts beginning in fiscal 2015 and continuing through fiscal 2022.

Realization of certain deferred tax assets is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the carryforward periods. Although realization is not
assured, management believes it is more likely than not the deferred tax assets will be realized.

F-19



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##### 



9. LEASED PROPERTIES

The Company operates certain machinery and equipment and furniture and fixtures under leases classified as capital leases. The machinery and equipment leases have original terms ranging
from one to eight years. The assets covered under these leases have carrying values of $162,358,$163,256 and $279,034 at March 1, 2003, March 2, 2002 and March 3, 2001, respectively.

Certain machinery and equipment and real estate are under operating leases with terms that are effective for varying periods until 2008. Certain of these leases have remaining renewal
clauses, exercisable at the option of the lessee. Amounts below include leases with related parties (see Note 16).

At March 1, 2003, minimum rental payments required under operating and capital leases are summarized as follows:

|                                                                      |  |                  |           |          |  |         |          |        |  |         |           |  |  |   |         |   |  |   |           | 
|--------------------------------------------------------------------- |  | ---------------- | --------- | -------- |  | ------- | -------- | ------ |  | ------- | --------- |  |  | - | ------- | - |  | - | --------- | 
|                                                                      |  | Operating Leases |           |          |  |         |          |        |  |        
|                                                                      |  |                  |           |          |  |         |          |        |  |        
|                                                                      |  |                  |           |          |  | Minimum |          |        |  |         |           |  |  |   |         |   |  |  
|                                                                      |  | Minimum          |           | Sublease |  |         |          |        |  | Capital |           |  |  |  
|Fiscal Year                                                           |  | Payments         |           | Receipts |  | Total   |          | Leases |  | Total  
|                                                                      |  |                  |           |          |  |         |          |        |  |        
|2004                                                                  |  | $                | 788,266   |          |  | $       | (34,260  | )      |  | $       | 754,006   |  |  | $ | 86,139  |   |  | $ | 840,145   | 
|2005                                                                  |  |                  | 554,377   |          |  |         | (34,260  | )      |  |         | 520,117   |  |  |   | 24,087  |   |  |   | 544,204   | 
|2006                                                                  |  |                  | 316,384   |          |  |         | (34,260  | )      |  |         | 282,124   |  |  |   | 9,385   |   |  |   | 291,509   | 
|2007                                                                  |  |                  | 256,071   |          |  |         | (34,260  | )      |  |         | 221,811   |  |  |   |        |   |  |   | 221,811   | 
|2008                                                                  |  |                  | 77,769    |          |  |         | (34,260  | )      |  |         | 43,509    |  |  |   |        |   |  |   | 43,509    | 
|Later years                                                           |  |                  |          |          |  |         |         |        |  |         |          |  |  |   |        |   |  |   |          | 
|                                                                      |  |                  |           |          |  |         |          |        |  |         |           |  |  |   |         |   |  |   |           | 
|Total minimum lease payments                                          |  | $                | 1,992,867 |          |  | $       | (171,300 | )      |  | $       | 1,821,567 |  |  |   | 119,611 |   |  | $ | 1,941,178 | 
|                                                                      |  |                  |           |          |  |         |          |        |  |         |           |  |  |   |         |   |  |   |           | 
|Less amount representing interest                                     |  |                  |           |          |  |         |          |        |  |         |           |  |  |   | (8,956  | ) |  |   |           | 
|                                                                      |  |                  |           |          |  |         |          |        |  |         |           |  |  |   |         |   |  |   |           | 
|Present value of minimum lease
payments under
capital leases
(Note 7) |  |                  |           |          |  |         |          |        |  |         |           |  |  | $ | 110,655 |   |  |   |           | 
|                                                                      |  |                  |           |          |  |         |          |        |  |         |           |  |  |   |         |   |  |   |           | 

Rental expense charged to continuing operations is as follows:

|            |  |                   |           |          |  |          |           |  |  |   |           | 
|----------- |  | ----------------- | --------- | -------- |  | -------- | --------- |  |  | - | --------- | 
|            |  | Fiscal Year Ended
|            |  |                  
|            |  | March 1,          |           | March 2, |  | March 3,
|            |  | 2003              |           | 2002     |  | 2001    
|            |  |                   |           |          |  |         
|Real estate |  | $                 | 192,396   |          |  | $        | 164,003   |  |  | $ | 185,103   | 
|Equipment   |  |                   | 981,533   |          |  |          | 1,185,738 |  |  |   | 998,012   | 
|            |  |                   |           |          |  |          |           |  |  |   |           | 
|Total       |  | $                 | 1,173,929 |          |  | $        | 1,349,741 |  |  | $ | 1,183,115 | 
|            |  |                   |           |          |  |          |           |  |  |   |           | 

F-20



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##### 



10. EMPLOYEE BENEFITS

On March 1, 1994, the Company established an employee stock purchase plan
through which employees, after meeting minimum eligibility requirements, may
contribute up to 10% of their base earnings toward the purchase of the
Companys common stock. The plan provides that the Company will make matching
contributions of 25% of the employees contribution. Participation in the plan
is voluntary. All contributions are funded monthly and vest immediately. The
Companys contributions to the plan included in continuing operations totaled
$11,699 in fiscal 2001. Effective June 16, 2000, the Company terminated the
plan. During fiscal 2001, the plan assets, comprised of the Companys common
stock and cash, totaling approximately $230,000 were distributed to plan
participants based on their respective account balances.

The Company maintains a 401(k) Retirement Plan for its employees which
provides that the Company will make a matching contribution of up to 50% of an
employees voluntary contribution, limited to the lesser of 5% of that
employees annual compensation or $11,000 for fiscal 2003. The Companys
contributions were $484,639, $450,085, and $396,883 in fiscal 2003, 2002 and
2001, respectively.

The Company provides employee health insurance benefits to employees.
During both fiscal 2001 and 2002, benefits were provided through both fully
insured and self insurance group medical plans, which are partially funded by
the Company. During fiscal 2003, medical benefits were provided primarily
through self insurance group medical plans. During fiscal 2003, 2002 and 2001,
contributions included in operations were $2,833,789, $1,579,999 and
$1,789,926, respectively.

Effective August 1, 2000, the Company adopted the Pierre Foods, Inc.
Compensation Exchange Plan. The Plan is a non-qualified deferred compensation
plan in which eligible participants consist of highly compensated employees and
the Companys Board of Directors. Cash contributions to the Plan were $43,839,
$55,270 and $56,167 during fiscal 2003, fiscal 2002 and fiscal 2001,
respectively. Effective December 31, 2002, the Company terminated the plan.

F-21



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##### 



11. CAPITAL STOCK

Stock Options

The Companys 1997 Incentive Stock Option Plan, as amended, provided for the issuance of up to 1,000,000 shares of the Companys common stock to key employees, including officers of the Company. The Company may grant Incentive Stock Options
(ISOs) or nonqualified stock options to eligible employees. Stock options granted under this plan have terms of ten years, vest evenly over five years, and are assigned an exercise price of not less than the fair value on the date of grant.

The Companys 1997 Special Stock Option Plan, as amended, provided for the issuance of up to 1,500,000 shares of the Companys common stock to key management employees, including officers and directors of the Company and certain other
individuals. All options granted under this Plan are nonqualified stock options. Stock options granted under this plan have terms of ten years, vest immediately, and are assigned an exercise price of not less than the fair value on the date of
the grant.

During fiscal 2001, the pro forma weighted average fair value of options granted was $63.02.

During fiscal 2003, effective with the management buyout discussed in Note 1  Basis of Presentation, Acquisition and Discontinued Operations, all stock option plans were terminated and all outstanding options were cancelled.

A summary of the changes in shares under option and the weighted-average exercise prices for these Plans follows:

|                         |                        |  |                   |          |                   |   |          |      |                |  |         |          |          |   |       |       | 
|------------------------ | ---------------------- |  | ----------------- | -------- | ----------------- | - | -------- | ---- | -------------- |  | ------- | -------- | -------- | - | ----- | ----- | 
|                         |                        |  | 1997 Incentive    |          | 1997 Special     
|                         |                        |  | Stock Option Plan |          | Stock Option Plan
|                         |                        |  |                   |          |                  
|                         |                        |  |                   |          |                   |   | Weighted |      |                |  |         |          | Weighted
|                         |                        |  |                   |          |                   |   | Average  |      |                |  |         |          | Average 
|                         |                        |  | Shares            |          | Exercise Price    |   | Shares   |      | Exercise Price
|                         |                        |  |                   |          |                   |   |          |      |               
|Balance at March 4, 2000 |                        |  | 482,175           |          |                   | $ | 8.75     |      |                |  | 250,000 |          |          | $ | 6.84  |      
|                         | Forfeited or cancelled |  |                   | (246,375 | )                 |   |          | 7.12 |                |  |         | (12,500  | )        |   |       | 2.90  | 
|                         | Granted                |  |                   | 25,000   |                   |   |          | 2.00 |                |  |         |         |          |   |       |      | 
|                         |                        |  |                   |          |                   |   |          |      |                |  |         |          |          |   |       |      
|Balance at March 3, 2001 |                        |  | 260,800           |          |                   |   | 8.52     |      |                |  | 237,500 |          |          |   | 7.04  |      
|                         | Forfeited or cancelled |  |                   | (80,800  | )                 |   |          | 8.95 |                |  |         | (112,500 | )        |   |       | 3.20  | 
|                         |                        |  |                   |          |                   |   |          |      |                |  |         |          |          |   |       |      
|Balance at March 2, 2002 |                        |  | 180,000           |          |                   |   | 8.33     |      |                |  | 125,000 |          |          |   | 10.50 |      
|                         | Forfeited or cancelled |  |                   | (180,000 | )                 |   |          | 8.33 |                |  |         | (125,000 | )        |   |       | 10.50 | 
|                         | Exercised              |  |                   |         |                   |   |          |     |                |  |         |         |          |   |       |      | 
|                         |                        |  |                   |          |                   |   |          |      |                |  |         |          |          |   |       |      
|Balance at March 1, 2003 |                        |  |                  |          |                   |   |         |      |                |  |        |          |          |   |      |      
|                         |                        |  |                   |          |                   |   |          |      |                |  |         |          |          |   |       |      

F-22



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##### 



12. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS

The Companys nonderivative financial instruments consist primarily of
cash and cash equivalents, trade and note receivables, trade payables and
long-term debt. The estimated fair values of the financial instruments have
been determined by the Company using available market 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 herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.

At March 1, 2003 excluding long-term debt, the book values of each of the
nonderivative financial instruments recorded in the Companys balance sheet are
considered representative of fair value due to variable interest rates, short
terms to maturity and/or short length of time outstanding.

The fair value of the Companys Senior Notes is estimated based on quoted
market prices and interest rates currently available for issuance of debt with
similar terms and maturities. As of March 1, 2003 and March 2, 2002, the fair
value of the Senior Notes was $85,100,000 and $57,500,000, respectively.

13. MAJOR BUSINESS SEGMENTS

During fiscal 2003, fiscal 2002 and fiscal 2001, the Company operated
solely in the food manufacturing segment. Sales by major product line are as
follows:

|                      |                  |                               |  |                        |  |               |             |               |             |   |             |   |             |   |             |   |             | 
|--------------------- | ---------------- | ----------------------------- |  | ---------------------- |  | ------------- | ----------- | ------------- | ----------- | - | ----------- | - | ----------- | - | ----------- | - | ----------- | 
|                      |                  |                               |  | Net Revenues by Source
|                      |                  |                               |  | Fiscal Years Ended    
|                      |                  |                               |  |                        |  |               |             |               |             |   |             |   |             |   |             |   |             | 
|                      |                  |                               |  | March 1, 2003          |  | March 2, 2002 |             | March 3, 2001
|                      |                  |                               |  |                        |  |               |             |              
|                      | Food Processing: |                               |  |                        |  |               |             |               |             |   |             |   |             |   |             |   |            
|                      |                  | Fully-Cooked Protein Products |  |                        |  |               |             | $             | 149,302,819 |   |             | $ | 139,634,468 |   |             | $ | 111,221,290 | 
|                      |                  | Microwaveable Sandwiches      |  |                        |  |               |             |               | 119,087,550 |   |             |   | 95,779,980  |   |             |   | 85,196,416  | 
|                      |                  | Bakery and Other Products     |  |                        |  |               |             |               | 7,948,454   |   |             |   | 7,863,374   |   |             |   | 7,057,619   | 
|                      |                  |                               |  |                        |  |               |             |               |             |   |             |   |             |   |             |  
|Total Food Processing |                  |                               |  |                        |  | $             | 276,338,823 |               |             | $ | 243,277,822 |   |             | $ | 203,475,325 |  
|                      |                  |                               |  |                        |  |               |             |               |             |   |             |   |             |   |             |  

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

F-23



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##### 



14. COMMITMENTS AND CONTINGENCIES

The Companys five-year variable-rate $50 million revolving credit facility includes a $7 million letter of credit subfacility. The Company provides a secured letter of credit in the amount of $3,500,000 to
its insurance carrier for the underwriting of certain performance bonds, which expires in fiscal 2004. The Company also provides secured letters of credit to its insurance carriers for outstanding and
potential workers compensation and general liability claims. Letters of credit for these claims totaled $125,000, $225,000 and $360,000 in fiscal 2003, fiscal 2002 and fiscal 2001, respectively. In
addition, the Company provides secured letters of credit to a limited number of suppliers. Letters of credit for suppliers totaled $250,000, $500,000 and $250,000 in fiscal 2003, fiscal 2002 and fiscal
2001, respectively.

Subsequent to fiscal 2003 year end, effective August 13, 2003, the Company terminated its five-year variable-rate $50 million revolving credit facility. Also effective August 13, 2003, the Company obtained
a three year variable rate $40 million revolving credit facility from a new lender, which includes a $5 million real estate term loan subline, a $5 million equipment term loan subline and a $7.5 million
letter of credit subfacility. Funds available under this new facility are available for working capital requirements, permitted investments and general corporate purposes.

Borrowings under the new facility bear interest at floating rates based upon the interest rate option selected from time to time by the Company and are secured by a first-priority security interest in
substantially all of the Companys assets. The interest rate for borrowings under the new facility at August 13, 2003 was 5% (prime plus 1%). Borrowings under the new facility are due the earlier of
ninety days prior to the redemption of the Senior Notes or August 13, 2006. Repayment is also required in the amount of the proceeds from the sale of any collateral. In addition, the Company is required to
satisfy certain financial covenants regarding cash flow and capital expenditures.

The Company is involved in various legal proceedings. Management believes, based on the advice of legal counsel, that the outcome of such proceedings will not have a materially adverse effect on the
Companys financial position or future results of operations and cash flows.

|                                          |       |   |                            |           |      |   |      |   |      |   |            |   |       |   |   |   |  |   |          |   |  |   |           |           | 
|----------------------------------------- | ----- | - | -------------------------- | --------- | ---- | - | ---- | - | ---- | - | ---------- | - | ----- | - | - | - |  | - | -------- | - |  | - | --------- | --------- | 
|                                          |       |   | Commitments by Fiscal Year
|                                          |       |   |                           
|                                          |       |   |                            |           |      |   |      |   |      |   |            |   |       |   |   |   |  |   | 2008 and |   |  |   |          
|                                          |       |   | 2004                       |           | 2005 |   | 2006 |   | 2007 |   | Thereafter |   | Total
|                                          |       |   |                            |           |      |   |      |   |      |   |            |   |      
|Letters of Credit                         |       | $ | 3,875,000                  |           |      | $ |     |   |      | $ |           |   |       | $ |  |   |  | $ |         |   |  | $ | 3,875,000 |          
|Purchase Commitments for
Capital Projects |       |   | 3,729,986                  |           |      |   |     |   |      |   |           |   |       |   |  |   |  |   |         |   |  |   | 3,729,986 |          
|                                          |       |   |                            |           |      |   |      |   |      |   |            |   |       |   |   |   |  |   |          |   |  |   |           |          
|                                          | Total |   | $                          | 7,604,986 |      |   | $    |  |      |   | $          |  |       |   | $ |  |  |   | $        |  |  |   | $         | 7,604,986 | 
|                                          |       |   |                            |           |      |   |      |   |      |   |            |   |       |   |   |   |  |   |          |   |  |   |           |          

|                                     |       |   |                                        |           |      |   |            |            |      |   |             |             |       |   |         |         |  |   |           |           |  |   |             |             | 
|------------------------------------ | ----- | - | -------------------------------------- | --------- | ---- | - | ---------- | ---------- | ---- | - | ----------- | ----------- | ----- | - | ------- | ------- |  | - | --------- | --------- |  | - | ----------- | ----------- | 
|                                     |       |   | Contractual Obligations by Fiscal Year
|                                     |       |   |                                       
|                                     |       |   |                                        |           |      |   |            |            |      |   |             |             |       |   |         |         |  |   | 2008 and  |           |  |   |            
|                                     |       |   | 2004                                   |           | 2005 |   | 2006       |            | 2007 |   | Thereafter  |             | Total
|                                     |       |   |                                        |           |      |   |            |            |      |   |             |             |      
|Long-Term Debt                       |       | $ |                                       |           |      | $ | 15,356,129 |            |      | $ | 115,000,000 |             |       | $ |        |         |  | $ |          |           |  | $ | 130,356,129 |            
|Capital Lease Obligations            |       |   | 79,611                                 |           |      |   | 21,875     |            |      |   | 9,170       |             |       |   |        |         |  |   |          |           |  |   | 110,656     |            
|Operating Lease Obligations          |       |   | 788,266                                |           |      |   | 554,377    |            |      |   | 316,384     |             |       |   | 256,071 |         |  |   | 77,769    |           |  |   | 1,992,867   |            
|Consulting and Noncompete
Agreements |       |   | 334,901                                |           |      |   | 358,504    |            |      |   |            |             |       |   |        |         |  |   |          |           |  |   | 693,405     |            
|Obligation of Special Purpose
Entity |       |   | 289,856                                |           |      |   | 306,511    |            |      |   | 324,123     |             |       |   | 342,747 |         |  |   | 4,618,432 |           |  |   | 5,881,669   |            
|                                     |       |   |                                        |           |      |   |            |            |      |   |             |             |       |   |         |         |  |   |           |           |  |   |             |            
|                                     | Total |   | $                                      | 1,492,634 |      |   | $          | 16,597,396 |      |   | $           | 115,649,677 |       |   | $       | 598,818 |  |   | $         | 4,696,201 |  |   | $           | 139,034,726 | 
|                                     |       |   |                                        |           |      |   |            |            |      |   |             |             |       |   |         |         |  |   |           |           |  |   |             |            

See Note 17 to the Consolidated Financial Statements for a further discussion of commitments, contingencies and contractual obligations.

F-24



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##### 



15. SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest, income taxes refunded and non-cash transactions
consisting of notes issued for assets acquired and capital lease additions are
as follows:

|                                 |  |                    |            |               |  |               |            |  |  |   |            | 
|-------------------------------- |  | ------------------ | ---------- | ------------- |  | ------------- | ---------- |  |  | - | ---------- | 
|                                 |  | Fiscal Years Ended
|                                 |  |                   
|                                 |  | March 1, 2003      |            | March 2, 2002 |  | March 3, 2001
|                                 |  |                    |            |               |  |              
|Interest                         |  | $                  | 13,515,920 |               |  | $             | 12,612,803 |  |  | $ | 12,790,175 | 
|Income taxes refunded            |  | $                  | 68,506     |               |  | $             | 1,164,569  |  |  | $ | 2,760,172  | 
|Notes issued for assets acquired |  | $                  | 270,983    |               |  |               |           |  |  |   |           | 
|Capital lease additions          |  | $                  | 73,475     |               |  |               |           |  |  |   |           | 

During the fourth quarter of fiscal 2002, the special purpose leasing
entity exchanged a note payable in the amount of $6,200,000 for the purchase of
an aircraft for $6,200,000, in a non-cash transaction (see Note 16).

16 TRANSACTIONS WITH RELATED PARTIES

Related party transactions during fiscal 2003, 2002 and 2001 arose in
connection with the following relationships:

Under an agreement with a management services entity owned by certain
officers and directors, as amended on December 17, 1999, the Company received
corporate management services, which included, among other things, strategic
planning, investor relations, management of the Companys banking, accounting
and legal relationships and general oversight. Management fees paid under this
agreement were in lieu of salary compensation for certain of the Companys
senior executives. Amounts paid under the agreement were $925,000 in fiscal
2002 and $1,300,000 during fiscal 2001. In addition, during fiscal 2001 the
Company paid bonuses of $1,775,000 to the management services entity and its
senior executives. Effective April 25, 2001, the agreement was assigned to
another management services entity, owned by certain officers and directors.
Fees paid in fiscal 2002 under the assigned agreement were $325,000, with an
additional $350,000 paid as a termination fee, and $292,500 paid in bonuses to
its senior executives. This agreement was cancelled as of September 3, 2001.
In addition, $426,435 was paid to this entity for reimbursement of expenses
incurred in connection with the exchange as required by the amended exchange
agreement (see Note 1).

The Company uses the services of an entity in which the Companys
principal shareholders have substantial ownership interests. Services provided
by this entity include accounting, tax and administrative services, as well as
consulting services related to the development of new sales, warehousing and
distribution programs. Total payments for such services were $647,300,
$1,133,850 and $862,400 in fiscal 2003, 2002 and 2001, respectively.

The Company uses the services of an entity owned by the Companys
principal shareholders. This entity serves as the exclusive purchasing agent
pursuant to a three-year agreement that commenced September 3, 2001. Under the
agreement, the entity pays $100,000 per quarter for the right to serve as
exclusive purchasing agent. Net payments to the purchasing entity were
$3,963,999 and $620,191 in fiscal 2003 and fiscal 2002, respectively, and are
recorded in cost of goods sold.

During the fourth quarter of fiscal 2002, the Company leased an aircraft
from an entity owned by the Companys principal shareholders. Under this
lease, the Company maintained its own flight department and was responsible for
all operating costs. Total payments under that lease were $168,263 in fiscal
2002. Effective March 1, 2002, that lease was cancelled and replaced with a
four-year non-exclusive operating lease agreement. Pursuant to the new lease,
the Company is obligated to make minimum quarterly lease payments of $471,500
each for the right to use the aircraft for a specified number of hours. Under
this lease arrangement, the entity is responsible for all expenses incurred in
the operation and use of the aircraft, except that the Company must provide its
own crew. On March 1, 2002, the Company paid $943,000 as a refundable deposit
under the agreement and $471,500 for its first quarterly lease payment. During
fiscal 2003, the Company paid $3,187,979 for the aircraft lease.

F-25



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##### 



The aircraft leasing entity is not a subsidiary of the Company, however
the Company considers the entity a non-independent special purpose leasing
entity. Accordingly, the entitys assets and liabilities, results of
operations and cash flows have been included in the Companys consolidated
financial statements. Under the terms of the operating lease with the entity,
and the financing agreements between the entity and its creditor, the Company
does not maintain the legal rights of ownership to the aircraft, nor does the
entitys creditor maintain any legal recourse to the Company.

Effective March 3, 2002, the Company entered into a one-year logistics
agreement with PF Distribution, LLC (PF Distribution), owned 50% by each of
Messrs. Richardson and Clark. Under the agreement, PF Distribution will serve
as the exclusive logistics agent for the Company, and will provide all
warehousing, fulfillment and transportation services to the Company. The cost
of PF Distributions services is based on flat rates per pound, which are
calculated based on weight and volume characteristics of products, inventory
pounds maintained and inventory pounds shipped. Rates were determined based on
historical costs and industry standards. In fiscal 2003, distribution expense
recorded in selling, general and administrative expense was approximately $21.7
million, of which approximately $21.3 million had been paid to PF Distribution
as of March 1, 2003.

Effective May 29, 2002, the Company terminated its $25 million credit
facility with Fleet Capital. Also, effective May 29, 2002, the Company
obtained a five-year variable-rate $50 million revolving credit facility from
Foothill Capital Corporation, which includes a $16 million term loan subline, a
$10 million capital expenditures subline and a $7 million letter of credit
subfacility. Funds available under this facility were available for working
capital requirements, permitted investments and general corporate purposes.
Borrowings under the facility were bearing interest at floating rates based
upon the interest rate option selected from time to time by the Company and
were secured by a first-priority security interest in substantially all of the
Companys assets. In addition, the Company was required to satisfy certain
financial covenants regarding cash flow and capital expenditures. The
collateral for the facility included substantially all of the Companys assets.
Messrs. Richardson and Clark guaranteed payment of the facility in exchange
for guarantee fees. The Company paid such fees to each of Messrs. Richardson
and Clark, annually in advance, equal to 1.5% of the amount committed for
lending under the facility. In fiscal 2003, the Company paid each of Messrs.
Richardson and Clark $750,000.

Effective August 13, 2003, the Company terminated its $50 million
revolving credit facility. Also effective August 13, 2003, the Company
obtained a new three year variable rate $40 million revolving credit facility
from a new lender. Messrs. Richardson and Clark did not guarantee payment of
the new facility, nor are they receiving guarantee fees.

The Company has agreed to lease warehouse space from an entity in which
the Companys principal shareholders have substantial ownership interests. The
lease is a ten-year term to begin the first day the facility is operational.
During fiscal 2001, the Company paid $250,000 for specialized construction
costs.

The Company uses the services of an entity in which one of the Companys
principal shareholders has a substantial ownership interest. This entity
provides general construction and maintenance services. Total payments for
such services were $142,050 in fiscal 2002.

The Company uses the services of an entity in which the Companys
principal shareholders have substantial ownership interests. This entity
provides team-building opportunities for customers and employees. Total
payments for such services were approximately $530,000 and $90,000 in fiscal
2003 and fiscal 2002, respectively. During fiscal 2003, Messrs. Richardson and
Clark each became 50% owners of the entity. Effective February 21, 2003,
Messrs. Richardson and Clark sold their net assets in the entity to the Company
for a total of $270,983. In exchange for the net assets, the Company issued
notes in the amount of $135,491.46 to each of Messrs. Richardson and Clark.
The notes are five-year notes, bearing interest at 6% per annum, with interest
and principal due at maturity.

During fiscal 2003, 2002 and 2001, the Company maintained a note
receivable from its principal shareholders. Note is payable on demand and bears
interest at the prime rate.

The Company obtained public relations, investor relations and graphic
design services from a marketing services entity that was owned by a current
director. Payments for these services totaled $7,000 during fiscal 2001.
During fiscal 2001, the marketing services entity was sold by the director.

F-26



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##### 



The Company has mutual leasing agreements with certain related individuals
and with certain companies in which the Companys principal shareholders have
substantial ownership interests. Total payments under such leasing agreements
were $176,000 in fiscal 2003, $103,000 in fiscal 2002 and $103,200 in fiscal
2001.

Until February 2001, two directors had direct and indirect interests in an
entity with which a product licensing agreement had been signed. Under the
terms of the agreement, the Company could produce and market certain products
under brand names owned by the entity in exchange for royalty payments.
Production of such a product began in mid-fiscal 1999. Royalties paid totaled
$156,000 during fiscal 2001. During February 2001, these directors resigned
their positions.

On January 14, 2000, the Company entered into a Consulting and Noncompete
Agreement with Mr. Charles F. Connor, Jr., who at the time was a significant
shareholder and co-founder of the Company. The agreement, which has a
five-year term, provides payments of $200,000 per year and family medical
insurance coverage. The net present value of payments under the agreement,
including the net present value of the medical insurance coverage over the
term, is estimated to be $831,000. This amount was expensed in selling,
general and administrative expense during the fourth quarter of fiscal 2000,
and the balance is reflected in other long-term liabilities.

On January 6, 2000, the Company entered into a Consulting and Noncompete
Agreement with Mr. L. Dent Miller, who at the time was a significant
shareholder, former President of Claremont Restaurant Group and former member
of the Companys Board of Directors. The agreement, which has a five-year term,
provides payments of $200,000 per year. The net present value of payments
under the agreement is estimated to be $807,000. This amount was expensed in
selling, general and administrative expense during the fourth quarter of fiscal
2000, and the balance is reflected in other long-term liabilities. Mr. Miller
resigned from his position as a member of the Board of Directors of the
Company, pursuant to his Consulting and Noncompete Agreement. Subsequent to
fiscal 2000, Mr. Miller is no longer a shareholder or related party.

On December 16, 1999, the Board of Directors approved a loan to Mr. James
C. Richardson, the Companys current Chairman, of an amount up to $8.5 million
for the purpose of enabling Mr. Richardson to purchase shares of the Companys
common stock owned by certain shareholders. The terms of the loan provide that
outstanding amounts will bear a simple interest rate of 8.5%, with principal
and interest due at maturity, three years from the date of the loan. At March
4, 2000, disbursements under the loan approval totaled $5 million. Due to the
nature of the loan, the outstanding balance is presented as a reduction of
shareholders equity.

On July 6, 1999, the Company replaced certain existing Change in Control
Agreements with the Companys current Chairman (Mr. Richardson) and current
Vice Chairman (Mr. Clark) with revised Change in Control Agreements. The
revised agreements provided that, if a change in control of the Company
occurred, the following benefits would be provided by the Company: three times
the amount of the annual base salary of the officer; three times the amount of
the cash bonus paid or payable to such person for the most recent fiscal year;
and a gross-up payment for all excise and income tax liabilities resulting
from payments under the Change in Control Agreements. The Richardson Change in
Control Agreement was cancelled on October 21, 2002, and the Clark Change in
Control Agreement was cancelled October 17, 2002.

On September 3, 2001, the Company entered into Employment Agreements with
the Companys current Chairman (Mr. Richardson) and current Vice-Chairman (Mr.
Clark). The agreements specify terms relating to salary, bonus and benefits to
be paid to the executive during the three-year term of the agreements.

The Company purchases pork products from an entity in which one of the
Companys Principal Shareholders has a substantial ownership interest. During
fiscal 2003 and 2002, the Company purchased pork products totaling $194,170 and
$150,720, respectively.

On August 18, 1999, the Company entered into an Incentive Agreement with
the Companys current President (Mr. Woodhams), which replaced a Change in
Control Agreement and Employment Contract. The agreement, as amended on
January 1, 2000 and December 31, 2001, specifies terms relating to salary and
bonus amounts to be paid to the executive during the four-year term of the
agreement, as well as severance and disposition bonus amounts to be received
upon any sale of the Company.

F-27



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##### 



On December 31, 2001, the Company entered into Employment Agreements with
the Companys current Chief Financial Officer (Ms. Witters) and current Senior
Vice President of Sales (Mr. Naylor). The agreements specify terms relating to
salary, bonus and benefit amounts to be paid to the executive during the
three-year term of the agreements, as well as severance and disposition bonus
amounts to be received upon any sale of the Company.

As described in Note 17. Subsequent Events below, on March 8, 2004 the
Company and the Trustee under the Companys Indenture executed a Fourth
Supplemental Indenture and, pursuant to the terms of the Fourth Supplemental
Indenture, the Company terminated substantially all of its related party
transactions.

17. SUBSEQUENT EVENTS

Restructuring of Senior Notes.

On November 6, 2002, the Company received a notice of default from Cede &
Co., a nominee for the Depository Trust Company (DTC), as the recordholder
for the beneficial owners of approximately $50.5 million in principal amount of
the Companys 10-3/4% Senior Notes due 2006 (the Notes). This notice alleged
that the Company was in non-financial default of the Indenture governing the
Notes. On November 21, 2002, the Company received a letter from Foothill
Capital Corporation (Foothill), its lender at that time, stating that the
Company was in technical default of its Loan and Security Agreement with
Foothill due to the alleged default under the Indenture. However, Foothill
continued to provide funds to the Company under the loan agreement, including
providing the Company with the funds necessary to make the interest payment due
to the Noteholders under the Indenture on December 2, 2002.

On or about December 27, 2002, the Company received an acceleration notice
given by DTC on behalf of the beneficial owners of approximately $45.0 million
in principal amount of the Notes. This notice said that the due date of the
Notes was being accelerated based on the Companys failure to cure the alleged
defaults described in the November 6 letter. On December 31, 2002, the Company
sent a letter to all Noteholders, in care of U.S. Bank, National Association,
the Indenture trustee (the Trustee), reiterating its position that the
Company had violated no Indenture covenants and that there was therefore no
basis for accelerating the Notes.

On January 6, 2003, the Company received a letter from counsel to the
Trustee requesting instructions from the Company with respect to action the
Trustee should take in light of the alleged default under the Indenture, and
asked the Company to provide information in response to the alleged default.
The Company provided information in response to the alleged defaults. The
Trustee subsequently requested additional information and the Company complied
with that request. In reliance on two officers certificates from the Company,
which the Trustee is entitled to rely on under the terms of the Indenture, that
explained why the alleged covenant violations did not constitute an event of
default, the Trustee took the position in February 2003 that no event of
default had occurred under the Indenture.

While the Company did not believe that it had violated the Indenture and
therefore there was no basis for accelerating the Notes, in order to settle the
dispute with certain noteholders, on August 1, 2003, the Company agreed in
principle with a committee (the Ad Hoc Committee) representing holders of
$53.2 million in principal amount of the Companys Notes (approximately 46% of
the outstanding Notes) to a restructuring of the Notes (the Restructuring).
The Company and the Ad Hoc Committee subsequently engaged in negotiations
regarding the terms of a Fourth Supplemental Indenture and other documents to
effectuate the Restructuring. On January 30, 2004, the Company and the Ad Hoc
Committee completed these negotiations and distributed consent solicitation
materials to all noteholders of record on January 30, 2004.

The Fourth Supplemental Indenture agreed upon by the Company and the Ad
Hoc Committee and sent with the consent solicitation materials to the
noteholders contained the following terms:



| |  |  | an increase in the annual interest rate on the Notes to 12.25%
through March 31, 2005, and 13.25% thereafter;
| | - |  | -------------------------------------------------------------------------------------------------------------

F-28



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##### 



| | a grant to the noteholders of liens on the assets of the Company and
its subsidiaries, such liens being junior to the senior liens securing the
Companys current credit facility with Fleet Capital Corporation
(Fleet);
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |      a repurchase right allowing all of the noteholders to require the
Company to repurchase their Notes at par plus accrued interest on March
31, 2005;                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      the payment of a portion of certain cash flow of the Company
(referred to as excess cash) to reduce the principal amount of Notes
outstanding at the end of the Companys fiscal years;                                                                               
|
| |      the addition of restrictive covenants limiting the compensation
payable to certain senior executives of the Company and limiting future
related party transactions;                                                                                                     
|
| |      the termination of all related party transactions, except for
certain specifically-permitted transactions;                                                                                                                                                              
|
| |      the assumption by the Company of approximately $15.4 million of
subordinated debt of PF Management;                                                                                                                                                                     
|
| |       requirement that the Company comply with certain corporate
governance standards, appoint an independent director acceptable to the
Company and the noteholders to its board and hire an independent auditor
to monitor the Companys compliance with the Indenture; and
|
| |      the payment of a cash consent fee payment (the Consent Payment)
equal to 3% of the principal amount of Notes held by each noteholder that
consented to the Restructuring.                                                                                             

In consideration for the Restructuring, the Fourth Supplemental Indenture
also provided that any and all existing defaults under the Indenture would be
waived if holders of a majority in aggregate principal amount of the Notes
approved the Restructuring. In addition, the consenting noteholders would
waive any other claims they may have against the Company and its affiliates.

The consent solicitation terminated at 5:00 P.M. Eastern time, on Monday,
March 1, 2004. Consents of holders of $112.4 million in aggregate principal
amount of the outstanding Notes, representing 97.74% of the outstanding Notes,
consented to the Fourth Supplemental Indenture. In addition, the Company
satisfied the other conditions to the closing of the Restructuring, as follows:



| |      paying the fees of the Ad Hoc Committees legal counsel and financial advisor;                                                                                                                                              
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      paying the fees of the Trustee and its legal counsel;                                                                                                                                                                       
|
| |      obtaining executed Consents to Assignment and Assumption and
Subordination from each creditor of PF Management whose debt was assumed
by the Company;                                                                       
|
| |      paying the Consent Payment to the Trustee (which payment will be
disbursed by the Trustee to the noteholders who consented to the
Restructuring); and                                                                       
|
| |      delivering to the Trustee an officers certificate and an opinion
of counsel concluding that all conditions precedent to the closing of the
Restructuring and all covenants required under the Indenture had been
satisfied.

Accordingly, because consents of holders of a majority in aggregate
principal amount of the Notes were received by the Company and the other
conditions precedent to the closing of the Restructuring were satisfied, the
Trustee and the Company executed the Fourth Supplemental Indenture on March 8,
2004 (the Closing Date). Concurrently with the

F-29



---



##### 



execution of the Fourth Supplemental Indenture, the Company terminated all of
its contracts with related parties, except the following related party
relationships that are specifically permitted under the terms of the Fourth
Supplemental Indenture:



| |      the Company will continue to compensate its directors and officers,
subject to approval of such compensation by the Companys board, including
the independent director;                                                                                                         
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      the Companys $5 million loan to Mr. James Richardson will remain
outstanding until a Change of Control event (as defined in the Indenture)
has occurred. Subject to the lien of Fleet, the note underlying this loan
will be pledged to the Trustee as collateral for the Notes;
|
| |      the Company will continue to lease its Hickory, North Carolina
office from a related party for aggregate annual rent payments of not more
than $116,000; and                                                                                                                     
|
| |      the guarantees of value and validity of the collateral securing the
Companys credit facility with Fleet given by Messrs. James Richardson and
David Clark will remain outstanding.                                                                                              

As a result of the termination of all other related party transactions,
subsequent to March 8, 2004, the Company will perform the purchasing and
distribution services internally. Other related party services will be
outsourced as necessary at comparable cost. In addition, certain executive
compensation is limited, with provisions for bonuses based on EBITDA and cash
payments made on the Senior Notes which could significantly increase the
limitation.

Also concurrently with the execution of the Fourth Supplemental Indenture,
the Company assumed approximately $15.4 million of debt of PF Management and
took title to an aircraft transferred from a related party subject to existing
purchase money debt. Principal payments of the former PF Management debt will
be $4.8 million during fiscal year 2005, $3.6 million during fiscal year 2006
and $7.0 million during fiscal year 2007.

As noted above, the Fourth Supplemental Indenture contains a waiver of all
defaults of the Indenture through the Closing Date (the Default Waivers). In
accordance with the terms of the Indenture, the Default Waivers bind all
holders of Notes regardless of whether a particular holder consented to the
Fourth Supplemental Indenture. The waiver of all other claims the consenting
noteholders have against the Company and its affiliates, however, does not bind
the noteholders that did not consent to the Fourth Supplemental Indenture.

F-30



---



##### 



18.
    
    RESTATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)  The following quarterly financial information for the Companys fiscal year 2003 is, by means of this filing, being restated, except for the fourth
quarter of fiscal 2003, to reflect the adoption of FASB Statement No. 142 effective March 3, 2002, as discussed in Note 2. Three Months
    
    Six Months
    
    Nine MonthsEnded
    
    Ended
    
    EndedJune 1, 2002
    
    31-Aug-02
    
    30-Nov-02Previously
    
    
    
    
    
    Previously
    
    
    
    
    
    PreviouslyReported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    Restated(Dollars in thousands, except per share amounts)CONSOLIDATED STATEMENT OF OPERATIONS:REVENUES, NET:
    
    $
    61,879
    
    
    $
    61,879
    
    
    $
    123,722
    
    
    $
    123,722
    
    
    $
    202,755
    
    
    $
    202,755COSTS AND EXPENSES:Cost of goods sold
    
    
    40,253
    
    
    
    40,253
    
    
    
    81,232
    
    
    
    81,232
    
    
    
    133,888
    
    
    
    133,888Selling, general and administrative expenses
    
    
    17,577
    
    
    
    17,577
    
    
    
    34,886
    
    
    
    34,886
    
    
    
    53,310
    
    
    
    53,310Net loss on disposition of property, plant and equipment
    
    
    23
    
    
    
    23
    
    
    
    10
    
    
    
    10
    
    
    
    4
    
    
    
    4Depreciation and amortization
    
    
    989
    
    
    
    989
    
    
    
    1,968
    
    
    
    1,968
    
    
    
    2,972
    
    
    
    2,972Total costs and expenses
    
    
    58,842
    
    
    
    58,842
    
    
    
    118,096
    
    
    
    118,096
    
    
    
    190,174
    
    
    
    190,174OPERATING INCOME
    
    
    3,037
    
    
    
    3,037
    
    
    
    5,626
    
    
    
    5,626
    
    
    
    12,581
    
    
    
    12,581OTHER INCOME (EXPENSE):Interest expense
    
    
    (3,418
    )
    
    
    (3,418
    )
    
    
    (7,034
    )
    
    
    (7,034
    )
    
    
    (10,621
    )
    
    
    (10,621
    )Other income, net
    
    
    213
    
    
    
    213
    
    
    
    427
    
    
    
    427
    
    
    
    443
    
    
    
    443Other expense, net
    
    
    (3,205
    )
    
    
    (3,205
    )
    
    
    (6,607
    )
    
    
    (6,607
    )
    
    
    (10,178
    )
    
    
    (10,178
    )INCOME (LOSS) BEFORE INCOME TAX AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE
    
    
    (168
    )
    
    
    (168
    )
    
    
    (981
    )
    
    
    (981
    )
    
    
    2,403
    
    
    
    2,403INCOME TAX (PROVISION) BENEFIT
    
    
    54
    
    
    
    54
    
    
    
    196
    
    
    
    196
    
    
    
    (1,027
    )
    
    
    (1,027
    )INCOME
(LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
    
    
    (114
    )
    
    
    (114
    )
    
    
    (785
    )
    
    
    (785
    )
    
    
    1,376
    
    
    
    1,376CUMULATIVE EFFECT OF ACCOUNTING CHANGE (net of income tax
benefit of $10,415 in fiscal 2003)
    
    
    
    
    
    
    (18,605
    )
    
    
    
    
    
    
    (18,605
    )
    
    
    
    
    
    
    (18,605
    )NET INCOME (LOSS)
    
    $
    (114
    )
    
    $
    (18,719
    )
    
    $
    (785
    )
    
    $
    (19,390
    )
    
    $
    1,376
    
    
    $
    (17,229
    )NET INCOME (LOSS) PER COMMON SHARE  BASIC AND DILUTEDIncome(loss) before cumulative effect of accounting change
    
    $
    (1.14
    )
    
    $
    (1.14
    )
    
    $
    (7.85
    )
    
    $
    (7.85
    )
    
    $
    13.76
    
    
    $
    13.76Cumulative effect of accounting change
    
    
    
    
    
    
    (186.05
    )
    
    
    
    
    
    
    (186.05
    )
    
    
    
    
    
    
    (186.05
    )Net income(loss) per common share  basic
and diluted
    
    $
    (1.14
    )
    
    $
    (187.19
    )
    
    $
    (7.85
    )
    
    $
    (193.90
    )
    
    $
    13.76
    
    
    $
    (172.29
    )WEIGHTED AVERAGE SHARES OUTSTANDING  BASIC AND DILUTED
    
    
    100,000
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    100,000
    
    
    
    100,000
 F-31




---



##### 



18.
    
    RESTATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED), CONTINUED June 1, 2002
    
    August 31, 2002
    
    November 30, 2002Previously
    
    
    
    
    
    Previously
    
    
    
    
    
    PreviouslyReported
    
    Restated
    
    Reported
    
    Restated
    
    Reported
    
    Restated(Dollars in thousands, except per share amounts)CONSOLIDATED BALANCE SHEETS:ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    64
    
    
    $
    64
    
    
    $
    86
    
    
    $
    86
    
    
    $
    414
    
    
    $
    414Certificate of deposit of special purpose entity
    
    
    1,240
    
    
    
    1,240
    
    
    
    1,240
    
    
    
    1,240
    
    
    
    1,240
    
    
    
    1,240Accounts receivable, net
    
    
    18,510
    
    
    
    18,510
    
    
    
    23,346
    
    
    
    23,346
    
    
    
    25,081
    
    
    
    25,081Inventories
    
    
    31,386
    
    
    
    31,386
    
    
    
    33,705
    
    
    
    33,705
    
    
    
    27,515
    
    
    
    27,515Refundable income taxes
    
    
    57
    
    
    
    57
    
    
    
    199
    
    
    
    199
    
    
    
    
    
    
    
    Deferred income taxes
    
    
    2,350
    
    
    
    3,929
    
    
    
    2,350
    
    
    
    3,929
    
    
    
    2,350
    
    
    
    3,929Prepaid expenses and other current assets
    
    
    2,116
    
    
    
    2,116
    
    
    
    3,433
    
    
    
    3,434
    
    
    
    2,866
    
    
    
    2,866Total current assets
    
    
    55,723
    
    
    
    57,302
    
    
    
    64,359
    
    
    
    65,939
    
    
    
    59,466
    
    
    
    61,045PROPERTY, PLANT AND EQUIPMENT, NET
    
    
    44,197
    
    
    
    44,197
    
    
    
    50,089
    
    
    
    50,089
    
    
    
    52,882
    
    
    
    52,882OTHER ASSETS:Tradename, net
    
    
    38,809
    
    
    
    38,809
    
    
    
    38,809
    
    
    
    38,809
    
    
    
    38,809
    
    
    
    38,809Goodwill, net
    
    
    29,020
    
    
    
    
    
    
    
    29,020
    
    
    
    
    
    
    
    29,020
    
    
    
    Note receivable-related party
    
    
    993
    
    
    
    993
    
    
    
    993
    
    
    
    993
    
    
    
    993
    
    
    
    993Deferred income taxes
    
    
    
    
    
    
    6,284
    
    
    
    
    
    
    
    6,284
    
    
    
    
    
    
    
    6,284Deferred loan origination fees, net
    
    
    3,514
    
    
    
    3,514
    
    
    
    3,337
    
    
    
    3,337
    
    
    
    3,134
    
    
    
    3,134Other
    
    
    423
    
    
    
    423
    
    
    
    405
    
    
    
    405
    
    
    
    386
    
    
    
    386Total other assets
    
    
    72,759
    
    
    
    50,023
    
    
    
    72,564
    
    
    
    49,828
    
    
    
    72,342
    
    
    
    49,606Total Assets
    
    $
    172,679
    
    
    $
    151,522
    
    
    $
    187,012
    
    
    $
    165,856
    
    
    $
    184,690
    
    
    $
    163,533LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current installments of long-term debt
    
    $
    329
    
    
    $
    329
    
    
    $
    334
    
    
    $
    334
    
    
    $
    357
    
    
    $
    357Trade accounts payable
    
    
    4,441
    
    
    
    4,441
    
    
    
    7,505
    
    
    
    7,505
    
    
    
    6,180
    
    
    
    6,180Accrued payroll and payroll taxes
    
    
    4,033
    
    
    
    4,033
    
    
    
    5,215
    
    
    
    5,215
    
    
    
    6,031
    
    
    
    6,031Accrued interest
    
    
    6,181
    
    
    
    6,181
    
    
    
    3,074
    
    
    
    3,074
    
    
    
    6,147
    
    
    
    6,147Accrued promotions
    
    
    2,137
    
    
    
    2,137
    
    
    
    1,916
    
    
    
    1,916
    
    
    
    2,440
    
    
    
    2,440Income taxes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,025
    
    
    
    1,025Accrued taxes (other than income and payroll)
    
    
    733
    
    
    
    733
    
    
    
    791
    
    
    
    791
    
    
    
    441
    
    
    
    441Other accrued liabilities
    
    
    3,090
    
    
    
    3,090
    
    
    
    2,292
    
    
    
    2,292
    
    
    
    3,694
    
    
    
    3,694Total current liabilities
    
    
    20,944
    
    
    
    20,944
    
    
    
    21,127
    
    
    
    21,127
    
    
    
    26,315
    
    
    
    26,315LONG-TERM DEBT, less current installments
    
    
    115,606
    
    
    
    115,606
    
    
    
    131,271
    
    
    
    131,271
    
    
    
    121,575
    
    
    
    121,575OBLIGATION OF SPECIAL PURPOSE ENTITY
    
    
    5,855
    
    
    
    5,855
    
    
    
    5,783
    
    
    
    5,783
    
    
    
    5,666
    
    
    
    5,666OTHER LONG-TERM LIABILITIES
    
    
    950
    
    
    
    950
    
    
    
    866
    
    
    
    866
    
    
    
    781
    
    
    
    781DEFERRED INCOME TAXES
    
    
    2,552
    
    
    
    
    
    
    
    2,552
    
    
    
    
    
    
    
    2,552
    
    
    
    COMMITMENTS AND CONTINGENCIES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    SHAREHOLDERS EQUITY:Common stock  no par value, authorized 100,000 shares; issued and
outstanding at June 1, 2002 and August 31, 2002  5,781; and no par
value, 100 shares authorized, issued and outstanding at November 30, 2002
    
    
    5,781
    
    
    
    5,781
    
    
    
    5,781
    
    
    
    5,781
    
    
    
    5,781
    
    
    
    5,781Additional paid in capital
    
    
    23,336
    
    
    
    23,336
    
    
    
    23,657
    
    
    
    23,657
    
    
    
    23,657
    
    
    
    23,657Retained earnings
    
    
    2,655
    
    
    
    (15,950
    )
    
    
    975
    
    
    
    (17,629
    )
    
    
    3,363
    
    
    
    (15,242
    )Note receivable-related party
    
    
    (5,000
    )
    
    
    (5,000
    )
    
    
    (5,000
    )
    
    
    (5,000
    )
    
    
    (5,000
    )
    
    
    (5,000
    )Total shareholders equity
    
    
    26,772
    
    
    
    8,167
    
    
    
    25,413
    
    
    
    6,809
    
    
    
    27,801
    
    
    
    9,196Total Liabilities and Shareholders Equity
    
    $
    172,679
    
    
    $
    151,522
    
    
    $
    187,012
    
    
    $
    165,856
    
    
    $
    184,690
    
    
    $
    163,533
 F-32




---



##### 



REPORT OF MANAGEMENT The management of Pierre Foods, Inc. is responsible for the preparation
and integrity of the consolidated financial statements of the Company. The
financial statements and notes have been prepared by the Company in accordance
with accounting principles generally accepted in the United States of America
and, in the judgment of management, present fairly and consistently the
Companys financial position and results of operations and cash flows. The
financial information contained elsewhere in this annual report is consistent
with that in the financial statements. The financial statements and other
financial information in this annual report include amounts that are based on
managements best estimates and judgments. The Company maintains a system of internal accounting controls to provide
reasonable assurance that assets are safeguarded and that transactions are
executed in accordance with managements authorization and recorded properly to
permit the preparation of financial statements in accordance with generally
accepted accounting principles. The Companys financial statements have been audited by Deloitte & Touche
LLP. Management has made available to them all of the Companys financial
records and related data, and believes that all representations made to
Deloitte & Touche LLP during this audit were valid and appropriate. Their
report provides an independent opinion upon the fairness of the financial
statements. /S/ NORBERT E. WOODHAMS
    
    /S/ PAMELA M. WITTERSNorbert E. Woodhams
    
    Pamela M. WittersPresident and Chief Executive Officer
    
    Chief Financial Officer and Treasurer
 F-33




---



##### 



SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Quarters Ended6/1/2002
    
    8/31/2002
    
    11/30/2002
    
    3/1/2003Operating revenues, net
    
    $
    61,878,429
    
    
    $
    61,843,102
    
    
    $
    79,032,831
    
    
    $
    73,584,461Gross profit
    
    $
    21,625,594
    
    
    $
    20,864,004
    
    
    $
    26,377,329
    
    
    $
    23,380,324Net income (loss)
    
    $
    (18,718,136
    )
    
    $
    (671,138
    )
    
    $
    2,160,880
    
    
    $
    401,843Income/(loss) from operations per
common share - basic and diluted
    
    $
    (187.18
    )
    
    $
    (6.71
    )
    
    $
    21.61
    
    
    $
    4.02
 6/2/2001
    
    9/1/2001
    
    12/1/2001
    
    3/2/2002Operating revenues, net
    
    $
    50,862,375
    
    
    $
    58,038,199
    
    
    $
    68,249,782
    
    
    $
    66,127,467Gross profit
    
    $
    17,606,310
    
    
    $
    19,583,341
    
    
    $
    22,913,994
    
    
    $
    22,392,790Net income (loss)
    
    $
    (760,635
    )
    
    $
    (251,171
    )
    
    $
    887,587
    
    
    $
    124,799Income/(loss) from operations per
common share - basic and diluted
    
    $
    (7.61
    )
    
    $
    (2.51
    )
    
    $
    8.88
    
    
    $
    1.25
 F-34