** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC  20549**

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**FORM 10-K**

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**(Mark One)**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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**                                                Forthe fiscal year ended March 3, 2007**

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**OR**

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**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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**                                                Forthe transition period from                           to                           **

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**Commission file number0-7277**

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**PIERRE FOODS, INC.**

(Exact Name of Registrantas Specified in Its Charter)

| **North Carolina**                         |   | **56-0945643**       |
|--------------------------------------------|--------|----------------------|
| (State or Other  Jurisdiction              |   | (I.R.S. Employer     |
| of Incorporation  or Organization)         |   | Identification  No.) |
|                                       |   |                 |
| **9990  Princeton Road, Cincinnati, Ohio** |   | **45246**            |
| (Address of  Principal Executive Offices)  |   | (Zip Code)           |

 

Registrant’s telephonenumber, including area code:  (513)874-8741

Securitiesregistered pursuant to Section 12(b) of the Act:  None.

Securities registered pursuant toSection 12(g) of the Act:  None.

Indicate by check mark if theregistrant is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act.  Yes  o    No  x

Indicate by check markwhether the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act. Yes  x    No  o

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

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to thebest of the registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K.  o

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

Indicate by check markwhether the registrant is a shell company (as defined in Exchange Act Rule12b-2 of the Exchange Act).  Yes  o    No  x

Theaggregate market value of the voting and non-voting common equity held bynon-affiliates as of the last business day of the registrant’s most recentlycompleted second fiscal quarter (September 2, 2006) was $0.00.

As of June 14, 2007, therewere 100,000 Class A Common Shares of the registrant outstanding.

Documents Incorporated by Reference:  None.

 

 

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**PIERRE FOODS, INC. AND SUBSIDIARIES**
| **ITEM**    | ** **                                                                                        | ** ** | ** ** |
|-------------|---------------------------------------------------------------------------------------------------|------------|------------|
| **NUMBER**  | ** **                                                                                        | ** ** | ** ** | ** ** |
| ** **  | ** **                                                                                        | ** ** | ** ** |
| ** **  | **Part I**                                                                                        | ** ** | ** ** |
|        |                                                                                              | ** ** | ** ** |
| Item 1.     | Description of  Business                                                                          | ** ** | ** ** |
| Item 1A.    | Risk  Factors                                                                                     | ** ** | ** ** |
| Item 1B.    | Unresolved Staff  Comments                                                                        | ** ** | ** ** |
| Item 2.     | Properties                                                                                        | ** ** | ** ** |
| Item 3.     | Legal Proceedings                                                                                 | ** ** | ** ** |
| Item 4.     | Submission of  Matters to a Vote of Security Holders                                              | ** ** | ** ** |
|        |                                                                                              | ** ** | ** ** |
|        | **Part II**                                                                                       | ** ** | ** ** |
|        |                                                                                              | ** ** | ** ** |
| Item 5.     | Market for the  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases | ** ** | ** ** |
|        |      of Equity Securities                                                     | ** ** | ** ** |
| Item 6.     | Selected Financial  Data                                                                          | ** ** | ** ** |
| Item 7.     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations       | ** ** | ** ** |
|        | Results of Operations                                                                             | ** ** | ** ** |
|        | Liquidity and  Capital Resources                                                                  | ** ** | ** ** |
|        | Commercial  Commitments, Contingencies, and Contractual Obligations                               | ** ** | ** ** |
|        | Inflation                                                                                         | ** ** | ** ** |
|        | Critical Accounting Policies and Estimates                                                        | ** ** | ** ** |
| Item 7A.    | Quantitative  and Qualitative Disclosures About Market Risk                                       | ** ** | ** ** |
| Item 8.     | Financial  Statements and Supplementary Data                                                      | ** ** | ** ** |
| Item 9.     | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure             | ** ** | ** ** |
| Item 9A.    | Controls and  Procedures                                                                          | ** ** | ** ** |
| Item 9A(T). | Controls and  Procedures                                                                          | ** ** | ** ** |
| Item 9B.    | Other Information                                                                                 | ** ** | ** ** |
|        |                                                                                              | ** ** | ** ** |
|        | **Part III**                                                                                      | ** ** | ** ** |
|        |                                                                                              | ** ** | ** ** |
| Item 10.    | Directors,  Executive Officers, and Corporate Governance                                          | ** ** | ** ** |
| Item 11.    | Executive  Compensation                                                                           | ** ** | ** ** |
| Item 12.    | Security  Ownership of Certain Beneficial Owners and Management and Related                       | ** ** | ** ** |
|        |      Stockholder Matters                                                      | ** ** | ** ** |
| Item 13.    | Certain  Relationships, Related Transactions, and Director Independence                           | ** ** | ** ** |
| Item 14.    | Principal  Accountant Fees and Services                                                           | ** ** | ** ** |
|        |                                                                                              | ** ** | ** ** |
|        | **Part IV**                                                                                       | ** ** | ** ** |
|        |                                                                                              | ** ** | ** ** |
| Item 15.    | Exhibits and  Financial Statement Schedules                                                       | ** ** | ** ** |
| ** **  |                                                                                              | ** ** | ** ** |
| ** **  |                                                                                              | ** ** | ** ** |
| ** **  |                                                                                              | ** ** | ** ** |
| ** **  |                                                                                              | ** ** | ** ** |
| ** **  |                                                                                              | ** ** | ** ** |
| ** **  | Signatures                                                                                        | ** ** | ** ** |
| ** **  | Index  to Exhibits                                                                                | ** ** | ** ** |
|             |                                                                                                   |            |            |  |

 

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**CautionaryStatement As To Forward-Looking Information**

This report includes “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, asamended, including statements about the business, operations, financialresults, and future prospects of the Company. Forward-looking statements relate to future events or future financialperformance.  In some cases, you canidentify forward-looking statements by terminology such as “may,” “should,” “expect,”“plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,”the negative of such terms or other comparable terminology.  These statements may involve risks anduncertainties related to, among other things:

·                  adverse changes in foodcosts and availability of supplies or costs of distribution;

·                  the Company’s level ofindebtedness;

·                  restrictions imposed bythe Company’s debt instruments;

·                  acquisitions, if any,including identification of appropriate targets and successful integration ofany acquired businesses, including the integration of the Clovervale and Zarticbusinesses;

·                  dependence on co-packers,some of whom may be competitors or sole-source suppliers;

·                  increased competitiveactivity;

·                  government regulatoryactions, including those relating to federal and state environmental and laborlaws;

·                  dependence on significantcustomers;

·                  changes in consumerpreferences and diets;

·                  consolidation of theCompany’s customers;

·                  general risks of the foodindustry, including risk of contamination, mislabeling of food products, adecline in meat consumption, and outbreak of disease among cattle, chicken orpigs, or any change in consumer perception of certain protein products;

·                  adverse change to, orefficient utilization or successful rationalization of, the Company’sfacilities;

·                  dependence on keypersonnel;

·                  changes in theavailability and relative costs of labor and potential labor disruptions orunion organization activities;

·                  changes in federalgovernment procurement laws or failure to retain contracts in re-biddingprocesses;

·                  changes in economic andbusiness conditions in the world;

·                  potential impact ofhurricanes and other natural disasters on sales, raw material costs, fuelcosts, insurance costs, and bad debt expense resulting from uncollectibleaccounts receivables; and

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

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

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**PART I**

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

**General Development of Business**.**  **Pierre Foods, Inc. andits subsidiaries (the “Company” or “Pierre”) manufactures, markets, anddistributes high-quality, differentiated processed food solutions, focusing onformed, pre-cooked and ready-to-cook protein products, compartmentalized meals,and hand-held convenience sandwiches. The Company’s products include beef, pork, poultry, and bakeryitems.  Pierre offers comprehensive foodsolutions to its customers, including proprietary product development, specialingredients and recipes, as well as custom packaging and marketingprograms.  Pierre’s pre-cooked andready-to-cook proteins include flamebroiled burger patties, homestyle meatloaf,chicken strips, and boneless, barbecued pork rib products.  Pierre markets its pre-cooked andready-to-cook protein products to a broad array of customers that includerestaurant chains, schools, and other foodservice providers.

In thisdocument, unless the context otherwise requires, the term “Company” or “Pierre”refers to Pierre Foods, Inc. and its current and former subsidiaries.  The Company’s fiscal years ended March 3,2007 and March 4, 2006 are referred to as “successor fiscal 2007” and “successorfiscal 2006”, respectively.  On June 30,2004, as a result of the Acquisition of Pierre discussed below, the Company’sfiscal year ended March 5, 2005 is comprised of two short periods.  The periods of March 7, 2004 through June 30,2004 and July 1, 2004 through March 5, 2005 are referred to as “predecessorfiscal 2005” and “successor fiscal 2005,” respectively.  These two short periods collectively arereferred to as “predecessor fiscal 2005 and successor fiscal 2005 combined”.

***Restructuring.***   On March 8, 2004, following a consentsolicitation in which consents of holders of $112.4 million in aggregateprincipal amount of the Company’s then outstanding notes (“Old Notes”),representing 97.74% of the outstanding Old Notes, consented to a Fourth SupplementalIndenture between the Company and the Trustee thereunder, the Company enteredinto the Fourth Supplemental Indenture with the Trustee.  Among other things, the Fourth SupplementalIndenture increased the annual interest rate on the Old Notes from 10.75% to12.25% through March 31, 2005 and 13.25% thereafter; required the payment of acash consent fee of $3.5 million (3% of the principal amount of Old Notes heldby each consenting noteholder); granted to the noteholders’ liens on the assetsof the Company and its subsidiaries, such liens being junior to the seniorliens securing the Company’s credit facility, granted to noteholders arepurchase right allowing all of the noteholders to require the Company torepurchase their Old Notes at par plus accrued interest on March 31, 2005;provided for the payment of a portion of certain cash flow of the Company(referred to as “excess cash”) to reduce the principal amount of Old Notesoutstanding at the end of the Company’s fiscal years; added restrictivecovenants limiting the compensation payable to certain senior executives of theCompany and limiting future related party transactions; required thetermination of all related party transactions, except for certainspecifically-permitted transactions; provided for the assumption by the Companyof approximately $15.3 million of subordinated debt of PF Management, Inc., thesole shareholder of the Company (“PFMI”), required the Company to comply withcertain corporate governance standards, including appointing an independentdirector acceptable to the Company and the noteholders to its board and hiringan independent auditor to monitor the Company’s compliance with the Indenture;and waived any and all defaults of the Indenture existing as of March 8,2004.  The restrictive covenants limitingcompensation payable to certain senior executives of the Company permitted forbonus payments to those executives above the compensation limitations.  The bonus payments were based on theprofitability of the Company and cash payments made on the Old Notes.

Concurrently with the execution of the Fourth Supplemental Indenture,the Company took title to an aircraft transferred from a related party subjectto $5.6 million of existing debt; assumed $15.3 million of debt from PFMI;cancelled the $1.0 million related party note receivable against the debtassumed from PFMI; cancelled the balances owed by the Company to certainrelated parties, as follows: $0.5 million owed to Columbia Hill Aviation (“CHA”);$3.5 million owed to PF Purchasing, a former affiliate of the Company; $0.5million owed to PF Distribution, a former affiliate of the Company; and assumedthe operating leases of PF Distribution in connection with the FourthSupplemental Indenture.  We refer tothese transactions as the “Restructuring”.

***Acquisition of Pierre.****  *On June 30, 2004, the shareholders ofPFMI sold their shares of stock in PFMI (the “Acquisition of Pierre”) to PierreHolding Corp. (“Holding”), an affiliate of Madison Dearborn Partners, LLC (“MDP”).  The fair value adjustments related to theAcquisition of Pierre, were pushed down to the Company from Holding, whichprimarily included adjustments in property, plant, and equipment, inventories,goodwill, other intangible assets and related deferred taxes.  The following occurred in conjunction withthe Acquisition of Pierre:

·                  The Company merged with Pierre Merger Corp.,an affiliate of MDP, with the Company being the surviving corporation followingthe merger.

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

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·                  The Company terminated its few remainingrelated party transactions as described in Note 16 —“Transactions with RelatedParties,” to the Company’s Consolidated Financial Statements, transferredmiscellaneous assets to Messrs. James C. Richardson and David R. Clark, theCompany’s former Chairman and Vice Chairman, respectively, including theCompany’s airplane, which was distributed to Mr. Richardson.

·                  Pierre Merger Corp. closed a cash tender offerand consent solicitation for the Company’s Old Notes.  Holders of approximately $106.3 million, orapproximately 92%, of aggregate principal amount of the Company’s outstandingOld Notes tendered their Old Notes.  TheCompany, as the surviving corporation of the merger with Pierre Merger Corp.,accepted and paid for all Old Notes tendered pursuant to the tender offer.  A redemption notice for the Old Notes nottendered (approximately $8.7 million) was issued on June 30, 2004 and these OldNotes were redeemed on July 20, 2004.

·                  The Company issued $125.0 million of 9-7/8%Senior Subordinated Notes due 2012 (the “New Notes”).  The proceeds of the New Notes, together withthe equity contributions from MDP and certain members of management (as describedbelow) and borrowings under the Company’s new senior credit facility, were usedto finance the Acquisition of Pierre and to repay outstanding indebtedness.

·                  The Company’s President and Chief ExecutiveOfficer, Norbert E. Woodhams, and its Senior Vice President of Sales andMarketing, Robert C. Naylor, signed employment agreements committing them tocontinue working for the Company after the Acquisition of Pierre.  The stated term of employment for each executiveis one year, but each agreement renews year-to-year unless terminated.

·                  The management investors, Norbert E. Woodhamsand Robert C. Naylor, invested approximately $4.9 million in a deferredcompensation plan.  This deferredcompensation plan is funded through a rabbi trust that owns preferred stock ofHolding with an aggregate liquidation value of approximately $6.3 million as ofMarch 3, 2007.

·                  In addition to the base purchase price, thestock purchase agreement entitled the selling shareholders to earn-out cashpayments, which included an additional aggregate amount of $13.0 million in theevent that, at the end of any fiscal quarter during the fiscal year ended March5, 2005, the Company achieved EBITDA (as defined in the stock purchaseagreement) for the prior four fiscal quarters then ended of $56.0 million ormore.  No portion of the additionalamount was payable as the EBITDA target was not met.

·                  The Company and the selling shareholders****entered into a tax sharing and indemnification agreementcontaining certain representations and warranties of the selling shareholderswith respect to taxes.  The agreementprovides that any net operating loss carryforwards attributable to expensesrelating to the sale of the Company (“Deal Related NOLs”) and certain otherdeal related expenses, will be for the benefit of the sellingshareholders.  As of the date of theAcquisition of Pierre, these Deal Related NOLs and other deal related expensestotaled approximately $24.2 million and $6.6 million, respectively.  Accordingly, the Company is required to payand has paid to the selling shareholders the amount of any tax benefitattributable to such Deal Related NOLs and other deal related expenses, exceptthat the first $4.0 million of such tax benefits was paid into an escrowaccount that will secure the selling shareholders indemnification obligationsunder the tax sharing and indemnification agreement.  The Company is required to make payments tothe selling shareholders or the escrow account for tax benefits derived fromsuch utilization 20 days after the filing of the tax return that utilizes suchDeal Related NOLs or other deal related expenses.  See Note 14 – “Commitments, Contingencies,and Contractual Obligations,” to the Company’s Consolidated FinancialStatements for additional information.

The Acquisition of Pierre was recorded under thepurchase method of accounting.  Thepurchase price was allocated to assets acquired and liabilities assumed basedon the estimated fair market value at the date of Acquisition of Pierre.  The allocation of the purchase price was asfollows:

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

 

The Company obtained outside appraisals of acquiredassets and liabilities in successor fiscal 2005.  Deferred tax liabilities were finalized basedon the final allocation of the purchase price and the determination of the taxbasis of the assets and liabilities acquired.

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***Acquisition of Clovervale.*****  **OnAugust 21, 2006, the Company acquired all of the outstanding shares of stock ofClovervale Farms, Inc., two of its subsidiaries, and certain of the realproperty used in its business (“Clovervale”). The acquisition of Clovervale is referred to herein as the “Acquisitionof Clovervale”.  The preliminaryaggregate purchase price was $22.8 million, which was paid in cash at theclosing.  After repayment of indebtednessand other post-closing adjustments, the net purchase price was $21.8 millionand is subject to a post-closing working capital adjustment.  Pierre funded the Acquisition of Clovervalethrough an amendment to its Credit Agreement (“Amendment No. 2”).  See Note 7, “Financing Arrangements” to theCompany’s Consolidated Financial Statements for further discussion.** **Pierre’s investmentin Clovervale was based on the expectation that such an investment wouldincrease Pierre’s presence with targeted customer channels and add capacity andproduction capabilities in order to increase product offerings.

Clovervale was a privately held company and currentlyemploys approximately 96 employees. Clovervale has operations in Amherst, Ohio and Easley, South Carolinaand manufactures and sells a variety of food items including individuallyproportioned entrees, vegetables, sandwiches, fruits, cobblers, peanut butterand jelly bars, sandwiches and cups, sherbets, apple sauce, and other similarproducts through various customer channels including schools, military,hospitals, and senior citizen meal programs. The operating results for Clovervale are included in the Company’sConsolidated Statement of Operations from the date of the Acquisition of Clovervale.

In conjunction with the Acquisition of Clovervale,management of the Company, with the assistance of an independent valuationfirm, performed valuations on the Clovervale other intangibles for financialreporting purposes.  Assets identifiedthrough this valuation process included customer relationships, non-competeagreements, and certain tradenames and trademarks.  The increases in the carrying amounts ofgoodwill and other intangible assets presented in Note 6, “Goodwill and OtherIntangible Assets” to the Company’s Consolidated Financial Statements arepartially due to the preliminary valuations performed in conjunction with theAcquisition of Clovervale.  In addition,other fair value adjustments were made in conjunction with the Acquisition of Clovervale,which primarily include adjustments to property, plant, and equipment,inventory, and related deferred taxes.

The Acquisition ofClovervale was recorded under the purchase method of accounting.  The preliminary net purchase price has beenallocated to assets acquired and liabilities assumed based on the estimatedfair market value at the date of the Acquisition of Clovervale.  The preliminary allocation of the netpurchase price is as follows:

| Current assets                      |   | $          | 5,253,602  |   |   |   |
|-------------------------------------|--------|------------|------------|--------|--------|--------|
| Property, plant,  and equipment     |   | 12,876,729 |       |   |   |
| Non-current  assets                 |   | 17,625     |       |   |   |
| Goodwill                            |   | 6,623,270  |       |   |   |
| Other  intangibles                  |   | 2,730,000  |       |   |   |
| Debt and other  liabilities assumed |   | (4,411,625 | )          |   |   |
| Deferred tax  liabilities           |   | (1,244,173 | )          |   |   |
| Net assets acquired                 |   | $          | 21,845,428 |   |   |   |

 

Of the $2.7 million of acquired other intangibleassets, $2.4 million was assigned to customer relationships with aweighted-average estimated useful life of 10 years.  The remaining acquired other intangibleassets include tradenames and trademarks of $280,000 with a weighted-averageuseful life of 3 years and a non-compete agreement of $50,000 with a usefullife of 2 years.  The goodwill related tothe Acquisition of Clovervale is not expected to be deductible for taxpurposes.

The initial allocation of the preliminary net purchase price to specificassets and liabilities was based, in part, upon preliminary appraisals, and wastherefore subject to change. Net assets acquired totaling $21,815,976 werepreviously reported in the Company’s Quarterly Report on Form 10-Q for theperiod ended December 2, 2006.  Theincrease in net assets acquired is due to miscellaneous adjustments.  The Company expects to further adjust and finalizethe appraisals of acquired assets and liabilities in its fiscal year endingMarch 1, 2008 (“successor fiscal 2008”). Deferred tax liabilities will also be finalized after the finalallocation of the purchase price and the final tax basis of the assets andliabilities has been determined.

***Acquisition of Zartic.*****  **On December11, 2006, the Company acquired substantially all of the assets of Zartic, Inc.and its affiliated distribution company, Zar Tran, Inc. and certain realproperty and other assets used in the businesses (collectively,  “Zartic”). The acquisition of Zartic is referred to herein as the “Acquisition ofZartic”.  The preliminary aggregatepurchase price was $94.0 million, plus the assumption of certain liabilities,which was paid in cash at the closing and is subject to certain post-closingadjustments.  After repayment ofindebtedness and other post-closing adjustments, the net purchase price was$91.6 million and is subject to additional post-closing adjustments, includingfor working capital.  Pierre funded theAcquisition of Zartic through an amendment to its Credit Agreement (“AmendmentNo. 3”).  See Note 7, “FinancingArrangements” to the Company’s Consolidated Financial Statements for furtherdiscussion.** **Pierre’sinvestment in Zartic was based on the expectation that such an investment wouldincrease Pierre’s presence with targeted customer channels and add capacity andproduction capabilities in order to increase product offerings.

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Zartic was a privately held company and currentlyemploys approximately 925 employees. Zartic has operations in Rome, Georgia, Cedartown, Georgia, andHamilton, Alabama and manufactures, sells, delivers, and distributes a varietyof food items including packaged beef, poultry, pork, and veal products andother similar products through various customer channels including restaurantchains, schools, military, and other foodservice providers.  Operating results for Zartic are included inthe Company’s Consolidated Statement of Operations from the date of theAcquisition of Zartic.

In conjunction with the Acquisition of Zartic,management of the Company, with the assistance of an independent valuationfirm, performed valuations on the Zartic other intangibles for financialreporting purposes.  Assets identifiedthrough this valuation process included customer relationships, non-competeagreements, and certain tradenames and trademarks.  The increases in the carrying amounts ofgoodwill and other intangible assets presented in Note 6, “Goodwill and OtherIntangible Assets” to the Company’s Consolidated Financial Statements are partiallydue to the preliminary valuations performed in conjunction with the Acquisitionof Zartic.  In addition, other fair valueadjustments were made in conjunction with the Acquisition of Zartic, whichprimarily include adjustments to property, plant, and equipment, and inventory.

The Acquisition ofZartic was recorded under the purchase method of accounting.  The preliminary net purchase price has beenallocated to assets acquired and liabilities assumed based on the estimatedfair market value at the date of the Acquisition of Zartic.  The preliminary allocation of the netpurchase price is as follows:

| Current assets                      |   | $           | 25,009,255 |   |   |   |
|-------------------------------------|--------|-------------|------------|--------|--------|--------|
| Property, plant,  and equipment     |   | 29,809,308  |       |   |   |
| Non-current  assets                 |   | 319,691     |       |   |   |
| Goodwill                            |   | 23,734,459  |       |   |   |
| Other  intangibles                  |   | 27,700,000  |       |   |   |
| Debt and other  liabilities assumed |   | (14,970,139 | )          |   |   |
| Net assets acquired                 |   | $           | 91,602,574 |   |   |   |

 

Of the $27.7 million of acquired other intangible assets, $15.1 millionwas assigned to customer relationships with a weighted-average estimated usefullife of 14 years.  The remaining acquiredother intangible assets include formula and recipes of $9.9 million with aweighted-average useful life of 15 years, tradenames and trademarks of $2.4million with a weighted-average useful life of 2 years, and a non-competeagreement of $0.3 million with a useful life of 3 years.  The goodwill related to the Acquisition ofZartic is expected to be deductible for tax purposes.

The initial allocation of the preliminary net purchaseprice to specific assets and liabilities is based, in part, upon preliminaryappraisals, and is therefore subject to change. Net assets acquired totaled$91.6 million.  The Company expects toadjust and finalize the appraisals of acquired assets and liabilities in successorfiscal 2008.

***Unaudited ProForma Results***.   The following tables presentunaudited pro forma information for successor fiscal 2007 and successor fiscal2006, as if the Acquisition of Clovervale and the Acquisition of Zartic hadbeen completed at the beginning of the respective periods.

|                    | ** ** | **Successor Fiscal 2007** | ** **  | **Successor Fiscal 2006** | ** ** |
|--------------------|------------|-------------------------------------|-------------|-------------------------------------|------------|
| ** **         | ** ** | **Actual**                          | ** **  | **Pro Forma**                  | ** ** | **Actual** | ** ** | **Pro Forma** | ** ** |
|               |       |                                |        |                                |       |   |   |   |   |
| Revenues           |       | $                                   | 487,842,986 |                                | $          | 615,714,811 |   | $ | 431,632,864 |   | $ | 637,049,384 |   |
|               |       |                                |        |                                |       |   |   |   |   |
| Net income  (loss) |       | $                                   | 1,799,854   |                                | $          | (13,162,387 | ) | $ | 2,161,702 |   | $ | (7,168,999 | ) |

 

These unaudited pro forma results, based onassumptions deemed appropriate by the Company’s management, have been preparedfor informational purposes only and are not necessarily indicative of theamounts that would have resulted if the Company had acquired Clovervale andZartic at the beginning of the respective periods.  Purchase related adjustments to the resultsof operations include the effects on depreciation and amortization, interestexpense, cost of goods sold, and income taxes.

In addition to the purchase related adjustments,included in these pro forma results are certain reclassifications of Clovervale’sand Zartic’s expenses, which are consistent with the classifications ofPierre.  These reclassifications includethe presentation of various sales discounts previously reported by Clovervaleas selling expenses, but more appropriately classified as a reduction ofrevenues.  In addition, thesereclassifications include the presentation of depreciation and amortizationpreviously reported by Zartic within operating expenses.

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Also included in these pro forma results are theelimination of interest expense related to Clovervale’s debt and Zartic’s debt,both of which were partially paid off in conjunction with the Acquisition ofClovervale and the Acquisition of Zartic, and will no longer be present in theCompany’s results of operations. Included in these pro forma results is the estimated interest expensefor the debt incurred by the Company to finance the Acquisition of Clovervaleand the Acquisition of Zartic.

**NarrativeDescription of Business**.   The Company manufactures, markets, and distributeshigh-quality, differentiated processed food solutions, focusing on formed,pre-cooked and ready-to-cook protein products, compartmentalized meals, andhand-held convenience sandwiches.  TheCompany’s products include beef, pork, poultry, and bakery items.  Pierre offers comprehensive food solutions toits customers, including proprietary product development, special ingredientsand recipes, as well as custom packaging and marketing programs.  Pierre’s pre-cooked and ready-to-cookproteins include flamebroiled burger patties, homestyle meatloaf, chickenstrips, and boneless, barbecued pork rib products.  Pierre markets its pre-cooked andready-to-cook protein products to a broad array of customers that includesrestaurant chains, schools, and other foodservice providers.

The Company’s product line consists of over 2,400stock keeping units (“SKUs”).  Pierremanufactures its products, which include but are not limited to, pre-cooked andready-to-cook proteins, hand-held convenience sandwiches, sausage, and bakeryitems in its eight manufacturing facilities located throughout the mid-westernUnited States.  Pierre forms, portions,seasons, cooks, and freezes beef, poultry, and pork in its facilities locatedin Cincinnati, Ohio, Rome, Georgia, Amherst, Ohio, Easley, South Carolina,Cedartown, Georgia, and Hamilton, Alabama. These frozen products are either shipped to customers or sent to one ofthe Company’s sandwich assembly and entree assembly facilities.  Pierre’s Claremont, North Carolina planthouses high-speed baking and sandwich assembly lines.  Pierre’s Amherst, Ohio and Easley, SouthCarolina plants portion, assemble, and package a variety of sandwiches and mealcomponents.

The followingtable sets forth the Company’s net revenue and percent of revenue contributedduring the past three fiscal years by its various product channels and classes.
| ** **                     | ** ** | **Net Revenues by Source  (in millions)** | ** ** | ** **           |
|--------------------------------|------------|---------------------------------------------------------------|------------|----------------------|
| ** **                     | ** ** | ** **                                                    | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | **Predecessor Fiscal 2005** | ** ** | ** ** |
| ** **                     | ** ** | **Successor**                                                 | ** ** | **Successor**        | ** ** | **And Successor Fiscal 2005** | ** ** | ** ** |
| ** **                     | ** ** | **Fiscal 2007**                                          | ** ** | **Fiscal 2006** | ** ** | **Combined** | ** ** | ** ** |
| ** **                     | ** ** | ** **                                                    | ** ** | **%**                | ** ** | ** ** | ** ** | **%** | ** ** | ** ** | ** ** | **%** | ** ** | ** ** |
| Food processing:               |       |                                                          |       |                 |   |   |   |   |   |   |   |   |   |   |
| Fully-cooked protein products  |       | $                                                             | 263.2      |                 | 54.0 |   | $ | 254.8 |   | 59.0 |   | $ | 255.3 |   | 62.2 |   |   |
| Ready-to-cook protein products |       | 6.7                                                           |       | 1.4                  |   | — |   | — |   | — |   | — |   |   |
| Sandwiches                     |       | 195.5                                                         |       | 40.1                 |   | 168.4 |   | 39.0 |   | 147.3 |   | 35.9 |   |   |
| Bakery and other products      |       | 22.4                                                          |       | 4.5                  |   | 8.4 |   | 2.0 |   | 7.8 |   | 1.9 |   |   |
|                           |       |                                                          |       |                 |   |   |   |   |   |   |   |   |   |   |
| Total food processing:         |       | $                                                             | 487.8      |                 | 100.0 |   | $ | 431.6 |   | 100.0 |   | $ | 410.4 |   | 100.0 |   |   |

 

***Significant Customer.  ***Sales to CKE Restaurants, Inc. (“CKE”)accounted for approximately 14%, 21%, and 25% of the Company’s net sales insuccessor fiscal 2007, successor fiscal 2006 and, predecessor fiscal 2005 andsuccessor fiscal 2005 combined, respectively. No other customer accounted for 10% or more of net sales duringsuccessor fiscal 2007, successor fiscal 2006, and predecessor fiscal 2005 andsuccessor fiscal 2005 combined.

***Sales, Marketing and New Product Development.  ***The Company’s team of sales andmarketing professionals has significant experience in the Company’s markets forfully-cooked and ready-to-cook protein products, sandwiches,compartmentalized meals, and bakery products. The sales and marketing department are organized predominantly by saleschannel.  In addition to its direct salesforce, the Company utilizes a nationwide network of over 164 independent foodbrokers, all of whom are compensated primarily by payment of salescommissions.  The Company’s new productdevelopment department is organized by functional expertise areas with linkagesto the sales channels.

The Company’s marketing strategy includes distributorand consumer promotions, trade promotions, advertising, and participation intrade shows and exhibitions. The Company participates in numerous conferencesand is a member of more than 15 industry organizations. Certain members of theCompany’s management serve on the boards of a number of industry organizations,including the American Meat Institute, the American School Food ServiceAssociation, the American Commodity Distribution Association, and the NationalAssociation of Convenience Stores.

The Company is actively involved in all aspects ofdeveloping food solutions systems to meet customers’ needs.  The Company’s sales force works directly withbrokers and customers to define product and menu needs, assess marketopportunities, and create and implement packaging, merchandising, and marketingstrategies. The Company’s ability to develop and implement innovative foodsolutions is an important aspect of the Company’s success.

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The Company employs 14 food scientists and culinaryexperts in the product and process development department.  These employees primarily work in four of theCompany’s eight manufacturing facilities. Ongoing food production research and development activities includedevelopment of new products, improvement of existing products, and refinementof food production processes.  Theseactivities resulted in the launch of approximately 300 new SKUs in successorfiscal 2007.  Approximately 35% of theCompany’s successor fiscal 2007 net revenues were derived from product SKUsdeveloped during the last two fiscal years. In successor fiscal 2007, successor fiscal 2006, and predecessor fiscal2005 and successor fiscal 2005 combined, the Company spent approximately $1.8million, $1.9 million, and $1.7 million, respectively, on product developmentprograms.

***Raw Materials.  ***The primary raw materials used inthe Company’s food processing operations are boneless beef, chicken and pork,flour, yeast, seasonings, cheese, breading, soy proteins, and packagingsupplies. Meat proteins are generally purchased under seven day payment terms,with the exception of a few that require payment at the time the product isshipped.  Historically, the Company hasnot hedged in the futures markets, and over time, the Company’s raw materialcosts have fluctuated with movement in the relevant commodity markets.  Prices for beef, chicken, pork, and cheese,the Company’s principal protein raw materials, reached historical highs duringpredecessor fiscal 2005 and successor fiscal 2005 combined.  However, during successor fiscal 2007and successor fiscal 2006, in the aggregate, the weighted average prices paidfor raw materials (excluding market-related pricing contracts) decreased fromthe historical highs experienced in predecessor fiscal 2005 and successorfiscal 2005 combined.  The Company manages raw material fluctuationsthrough purchase orders, market-related pricing contracts, and by passing onsuch cost increases to customers.

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

***Trademarks and Licensing.  ***The Company markets its productsunder a number of brand names, such as PierreTM, Zartic®, Z-Bird®, Circle Z®,Jim’s Country Mill Sausage®, Clovervale Farms®, Chef’s Pantry®, Fast Choice®,Rib-B-Q®, Blue Stone GrillTM, Hot ‘n’ Ready®, Big AZ®, Chicken FryZ®, SmokieGrill®, and Chop House®.  The Companyregards its trademarks and service marks as having significant value inmarketing its food products.  The Companyalso has proprietary rights, including trade secret and other intellectualproperty protection, in formulations and processes used to make its products.  In addition, the Company has licenses to sellsandwiches using well-known brands, such as Checkers®, Rally’s®, Krystal®, TonyRoma’s®, and Nathan’s Famous®.  The termof each such license is subject to renewal and satisfaction of sales volumerequirements.

***Seasonality.  ***The Company experiences seasonalfluctuations in sales and operating results as a result of sales to schooldistricts.  Sales to school districtsdecline significantly during summer, late November, and December.  During successor fiscal 2007, successor fiscal2006, and predecessor fiscal 2005 and successor fiscal 2005 combined, sales toschools represented approximately 24%, 20%, and 18%, respectively, of theCompany’s net revenues.

***Competition.  ***The food production business ishighly competitive and is often affected by changes in tastes and eating habitsof the public, economic conditions affecting the public’s spending habits, andother demographic factors.  The Companycompetes with manufacturers and distributors of value-added meat products,compartmentalized meal, and packaged sandwich suppliers. The Company facescompetition from a variety of meat processing companies in sales of its proteinproducts, including Advance Food Company, Tyson, JTM Food Group, King’s CommandFoods, Inc., Don Lee Farms, and from smaller local and regionaloperations.  The sandwich industry isextremely fragmented and has few large direct competitors, however, indirectcompetition in the form of numerous other products exists.  Pierre’s competitors in the sandwich industryinclude Sara Lee/Jimmy Dean Foods, Bridgford Foods Corp., Deli Express, andLandshire.  In sales of biscuit and yeastroll products, the Company competes with a number of large bakeries in variousparts of the country.

***GovernmentRegulation***.   Thefood production industry is subject to extensive federal, state, and localregulations. The Company’s food processing facilities and food products aresubject to frequent inspection by the UnitedStates Department of Agriculture (“USDA”), the Food and DrugAdministration (“FDA”), and various state and local health and agriculturalagencies. Applicable statutes and regulations governing food products includerules for identifying the content of specific types of foods, the nutritionalvalue of that food, its serving size and allergen labeling, as well as rulesthat protect against contamination of products by food-borne pathogens andsanitation requirements. Many jurisdictions also require that foodmanufacturers adhere to good manufacturing practices (the definition of whichmay vary by jurisdiction) with respect to production processes. Recently, thefood safety practices and procedures in the meat processing industry have beensubject to more intense scrutiny and oversight by the USDA and future outbreaksof diseases among cattle, poultry or pigs could lead to further governmentalregulation.  In July 1996, the USDA issued strict new policies against contaminationby food-borne pathogens and established the Hazard Analysis and CriticalControl Points (“HACCP”) system.  TheCompany believes that it is in substantial compliance with such applicable lawsand regulations and the Company is not aware of any pending changes in suchlaws and regulations that are likely to have a material impact on the Company’soperations.

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In addition, the Company’s operations are governed bylaws and regulations relating to workplace health and safety that, among otherthings, establish noise standards and regulate fire codes and the use ofhazardous chemicals in the workplace. The Company is also subject to numerous federal, state, and localenvironmental laws. Under applicable environmental laws, the Company may beresponsible for remediation of environmental conditions and may be subject toassociated liabilities relating to its facilities and the land on which itsfacilities are or had been situated, regardless of whether the Company leasesor owns the facilities or land in question and regardless of whether suchenvironmental conditions were created by the Company or by a prior owner ortenant.

As described in Note 17 – “Legal Proceedings,” to the Company’sConsolidated Financial Statements, the Hamilton County Department ofEnvironmental Services (“HCDOES”) determined that in order for the Company tobe compliant with emissions requirements in its Cincinnati facility, theCompany must install additional control equipment. The Company is estimatingthe cost of such upgrades to existing equipment in its Cincinnati facility tobe $1.9 million, of which $1.6 million has been spent on suchupgrades as of the end of successor fiscal 2007. In addition, the Company iscurrently evaluating compliance with environmental laws in its recentlyacquired facilities. Additional capital requirements may be required should theCompany determine they are not compliant with such laws; however,indemnification from applicable sellers may be available to partially offsetthe costs of compliance.

The Company’s operations are subject to licensing andregulation by a number of state and local governmental authorities, whichinclude health, safety, sanitation, building, and fire agencies.  Operating costs are affected by increases incosts of providing health care benefits, the minimum hourly wage, unemploymenttax rates, sales taxes, and other similar matters over which the Company mayhave no control. The Company is subject to laws governing relationships withemployees, including minimum wage requirements, overtime, working conditions,and citizenship requirements.

***Employees.***   As of March 3, 2007, the Company employedapproximately 2,800 persons.  The Company’semployees are non-unionized. The Company has experienced no work stoppageattributable to labor disputes, and considers employee relations to be good.

**Financial InformationAbout Geographic Areas***.*   Substantially all revenues and long-lived assets ofthe Company are derived from and reside in the United States. Less than 2% of the Company’s sales revenues are derived from outsidethe United States and are primarily from sales to Canada.

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**Item  1A.**   *Risk Factors.*

***Increases in the price of raw materials,particularly beef, chicken, pork, and cheese, could reduce the Company’soperating margins.***   The primary raw materials used in the Company’s foodprocessing operations are boneless beef, chicken, and pork, cheese, breading,soy proteins, and packaging supplies.  Meat proteins are generally purchased underseven day payment terms, with the exception of a few that require payment atthe time the product is shipped. Historically, the Company has not hedged in the futures markets, andover time, the Company’s raw material costs have fluctuated with movement inthe relevant commodity markets.  Pricesfor beef, chicken, pork, and cheese, the Company’s principal protein rawmaterials, reached historical highs during predecessor fiscal 2005 andsuccessor fiscal 2005 combined.  However,during successor fiscal 2007 and successor fiscal 2006, in the aggregate, theweighted average prices paid for raw materials (excluding market-relatedpricing contracts) decreased from the historical highs experienced inpredecessor fiscal 2005 and successor fiscal 2005 combined.  Duringsuccessorfiscal 2007, the weighted average prices the Company paid for beef, chicken,pork, and cheese (increased)/decreased by approximately 1.2%, (8.3)%, (6.6)%and 7.3%, respectively, over the weighted average prices the Company paid forthese raw materials during the fourth quarter of successor fiscal 2006.  While historically the Company has managed such fluctuations through purchase orders,market-related pricing contracts, and by passing on such cost increases tocustomers, the Company may be unable to protect itself from futureincreases in the prices of raw materials on a timely basis, or at all.  In addition, some of the Company’s customerspurchase products based on bid contracts with set prices, which would preventthe Company from recovering any raw materials price increases from thesecustomers during the life of those contracts. If prices for beef, chicken, pork, and cheese were to increasesignificantly without a commensurate increase in the price for processedprotein food products, the Company’s financial condition and operating resultscould be adversely affected.

***If the Company’s products become contaminated or aremislabeled, the Company may be subject to product liability claims, productrecalls, and increased scrutiny by regulators, any of which could adverselyaffect the Company’s business.***   Beef, chicken, and pork products are vulnerable tocontamination by organisms producing food-borne illnesses.  These organisms are generally found in theenvironment, and, as a result, there is a risk that as a result of foodprocessing, they could be found in the Company’s products.  For example, E. coli is one of many food-borne pathogenscommonly associated with beef products. In addition, certain of the Company’s products contain wheat gluten,which has potential contamination risks. If contaminated products are shipped for distribution, illness and deathcould result if the pathogens are not eliminated by processing at thefoodservice or consumer level.  The riskcan be controlled, but not eliminated, by use of good manufacturing practicesand finished product testing.  Also,products purchased from others for re-packing or distribution may containcontaminants that the Company is unable to identify.  The Company may also encounter the same risksif a third party tampers with its products or if its products are inadvertentlymislabeled.  Shipment of adulteratedproducts, even if inadvertent, is a violation of law and may lead to productliability claims, product recalls and increased scrutiny by federal and stateregulatory agencies, any of which could have a material adverse effect on theCompany’s reputation, business, prospects, results of operations, and financialcondition.

***The Company’s insurance and indemnificationagreements may be inadequate to cover all the liabilities the Company mayincur.***   The Company faces the risk of exposure to product liabilityclaims and adverse public relations in the event that the consumption of itsproducts causes injury or illness.  If aproduct liability claim is successful, the Company’s insurance may not be adequateto cover all liabilities it may incur, including harm to its reputation, andthe Company may not be able to continue to maintain such insurance, or obtaincomparable insurance at a reasonable cost, if at all.  The Company generally seeks contractual indemnificationand insurance coverage from its suppliers, but this indemnification orinsurance coverage is limited by the creditworthiness of the indemnifying partyand their insurance carriers, if any, as well as the insured limits of anyinsurance provided by those suppliers. If the Company does not have adequate insurance or contractualindemnification available, product liability claims relating to defectiveproducts could have a material adverse effect on its reputation, business,prospects, financial condition and operating results.

***A decline in meat consumption, or in the consumptionof processed food products, would have a material adverse effect on the Company’sbusiness, financial condition, and operating results.***   Adverse publicity relating to health concerns and thenutritional value of meat and meat products or individual states implementingnutrition guidelines limiting the degree to which the Company can sell itsproducts, could adversely affect demand for the Company’s products.  In addition, as substantially all of theCompany’s operations consist of the production and distribution of processedfood products, a change in consumer preferences relating to processed foodproducts or in consumer perceptions regarding the nutritional value ofprocessed food products could significantly reduce the Company’s salesvolume.  A reduction in demand for theCompany’s products caused by these factors would have a material adverse effecton the Company’s business, financial condition, and operating results.

The food industry in general is subject to changingconsumer trends, demands, and preferences. The Company’s processed protein and bakery products compete with otherprocessed convenience foods, as well as other foods.  The Company’s failure to anticipate, identifyor react to changes in consumer preferences could lead to, among other things,reduced demand and reduced margins for its products, and could have a materialadverse effect on its business, financial condition, and operating results.

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***Outbreaks of disease among cattle, chicken or pigscould significantly reduce demand for the Company’s products and restrict itsability to produce meat and sandwich products, adversely affecting its salesvolume.***   Anoutbreak of disease affecting livestock, such as bovine spongiformencephalopathy (commonly referred to as “mad cow disease” or BSE),foot-and-mouth disease, Asian bird flu, or most recently, the contamination ofwheat gluten, could result in reductions in demand and restrictions on sales ofproducts to the Company’s customers or purchases of meat and poultry productsfrom its suppliers.  Health concernsabout BSE in particular have had an adverse impact on the livestock industryand on sales of beef products in Europe, South America and Japan in past years,which, in turn, could have an adverse impact on the Company’s financialcondition and results of operation.

***The categories of the food industry in which theCompany operates are highly competitive, and the Company’s inability to competesuccessfully could adversely affect its business, results of operations, andfinancial condition.***   Competition in each of thecategories of the food industry in which the Company operates is intense.  The Company’s formed, pre-cooked andready-to-cook protein products compete with the products of several meatprocessors, which include Advance Food Company, Tyson, JTM. Food Group, King’sCommand Foods, Inc., and Don Lee Farms, in addition to competing with smallerlocal and regional producers.  The marketfor hand-held convenience sandwiches has low barriers to entry and is extremelyfragmented, with several direct competitors, including Sara Lee/Jimmy DeanFoods, Bridgford Foods Corp., Deli Express, and Landshire, and indirectcompetition from a variety of substitute products.  Many of the Company’s competitors in each ofthese categories have substantially greater financial resources, namerecognition, research and development, marketing, and human resources.  In addition, if any of the Company’scompetitors develop new or enhanced products that are superior to the Company’sproducts, or market and sell their products more successfully than the Company,the Company may be unable to compete successfully with any or all of thesecompanies.  Increased competition for anyof the Company’s products could result in price reductions, reduced margins orloss of market share, any of which could negatively affect the Company’sbusiness, results of operations, and financial condition.

***The Company’s top ten customers have historicallyaccounted for a significant portion of its net revenues and its largestcustomer accounted for approximately 14% of net revenues for successor fiscal2007.***   The Company’s top ten customersaccounted for approximately 51% and 55% of its net revenues in successor fiscal2007 and successor fiscal 2006, respectively. In particular, the Company’s largest customer accounted forapproximately 14% and 21% of net revenues in successor fiscal 2007 andsuccessor fiscal 2006, respectively.  If,for any reason, one of the Company’s key customers were to purchasesignificantly less of the Company’s products in the future or were to terminatepurchases from the Company, or if for any reason the Company was unable torenew an existing contract with a key customer on favorable terms, or at all,and the Company was not able to sell its products to new customers atcomparable or greater levels, its business, financial condition, and operatingresults would suffer.

***The consolidation of and market strength among theCompany’s retail and foodservice customers may put pressure on its operatingmargins.***   In recent years, the trend amongthe Company’s retail and foodservice customers, such as warehouse clubs andfoodservice distributors, has been toward consolidation.  In addition, the Company’s customers includetwo of the five largest quick-service hamburger restaurant chains in the UnitedStates.  These factors have resulted inincreased negotiating strength among many of the Company’s customers, which hasand may continue to allow them to exert pressure on the Company with respect topricing terms, product quality, and the introduction of new products.  To the extent the Company’s customer basecontinues to consolidate, competition for the business of fewer customers mayintensify.  If the Company cannotcontinue to negotiate favorable contracts, whether upon renewal or otherwise,with these customers, implement appropriate pricing and introduce new productofferings acceptable to its customers, or if the Company loses its existinglarge customers, its profitability could decrease.

***Significant increases in the cost of distributionwould have an adverse effect on the Company’s financial condition and operatingresults.***   The Company’s distribution costsinclude fuel for transportation and electricity for cold storage.  Significant increases in these distributioncosts would adversely affect the Company’s financial condition and operating results.  In addition to Zar Tran, the Company uses acore group of contract carriers that have established rates based on mileage toregions or destination states.  A fuelsurcharge addendum is a component of all rates to offset the fluctuating priceof diesel fuel, primarily to limit the contract carrier’s exposure.  These fuel surcharges have risen over thepast year and remain at a historic high. If these surcharges continue to rise, or if the Company is unable topass increased distribution costs on to its customers in the form of higherprices for our products, its financial condition and operating results wouldsuffer.

The Company uses commercial cold storage vendors tostore finished goods.  A major componentof cold storage operations expense is electricity cost.  Although the Company tries to minimizestorage costs, any significant increase in electricity rates for the vendor arepassed along in the form of higher storage rates.  If the Company’s storage rates increasesignificantly, it may be unable to pass these costs on to its customers, whichwould have an adverse effect on its financial condition and operating results.

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***The Company manufactures many of its products usingproprietary formulations and markets its products under a variety of brand names.The termination of, or failure to renew a license agreement under which theCompany sells branded products, the reduction in value of an underlying licenseor its inability to protect ownership of proprietary formulations, couldnegatively impact the Company’s ability to produce and sell its products.***   The market for the Company’s products depends to asignificant extent upon the proprietary formulations used in manufacturing itsproducts and the goodwill associated with the brand names under which itsproducts are sold.  The Company relies onpatent, trademark and trade secret law to establish and protect itsintellectual property rights, including its proprietary formulations.  The Company may be required from time to timeto bring lawsuits against third parties to protect its intellectualproperty.  Similarly, from time to timethe Company may be party to proceedings in which third parties challenge itsrights, including those to the Company’s product formulations.  Any lawsuits or other actions the Companybrings to enforce its rights may not be successful, and the Company may in factbe found to infringe on the intellectual property rights of others, in eitherof which case the Company may not be able to prevent others from using suchintellectual property and/or may be prevented from using such intellectualproperty, including proprietary formulations.

In addition to its own brand names, the Company haslicenses with third parties that own certain trademarks or trade names used inthe marketing of some of the Company’s products.  In the event that any such license isterminated, the Company may lose the right to use or have reduced rights to usethe intellectual property covered by such agreement.  In such event, the Company may not be able tosecure licenses to use alternative trademarks or trade names in the marketingof its products, and its products may not be as attractive to customers.  In addition, certain events, including eventsbeyond the Company’s control, could make certain of its brand names, or thebrand names it licenses, less attractive to its customers, making its productsless desirable as a result.  Any loss inthe value of a brand name or loss of a license for a brand name could adverselyaffect the Company’s sales volume for affected products.

***The Company is subject to extensive governmentalregulations, which require significant compliance expenditures and theCompany’s failure to comply with such regulations could adversely affect theCompany’s financial condition and results of operation.***   The Company is subject toextensive federal, state and local regulations.   Its food processing facilities and foodproducts are subject to frequent inspection by the USDA, FDA, and various state,and local health and agricultural agencies. Applicable statutes and regulations governing food products includerules for identifying the content of specific types of foods, the nutritionalvalue of that food and its serving size, as well as rules that protect againstcontamination of products by food-borne pathogens.  Many jurisdictions also require that food processorsadhere to good manufacturing practices (the definition of which may vary byjurisdiction) with respect to production processes.  Recently, the food safety practices andprocedures in the meat processing industry have been subject to more intensescrutiny and oversight by the USDA and future outbreaks of diseases amongcattle, poultry or pigs could lead to further governmental regulation.  In addition, the Company’s production anddistribution facilities are subject to various federal, state and local lawsand regulations relating to workplace safety and workplace health.  Failure to comply with all applicable lawsand regulations could subject the Company to civil remedies, including fines,injunctions, product recalls or seizures and criminal sanctions, any of whichcould have a material adverse effect on the Company’s business, financialcondition and results of operations. Furthermore, compliance with current or future laws or regulations couldrequire the Company to make material expenditures or otherwise adversely affectthe way the Company operates its business, financial condition and operatingresults.

***Compliance with environmental regulations may resultin significant costs and the Company’s failure to comply with environmentalregulations may result in civil as well as criminal penalties, liability for damagesand negative publicity.***   The Company’s operations aresubject to extensive and increasingly stringent regulations pertaining to thedischarge of materials into the environment and the handling and disposition ofwastes.  Failure to comply with theseregulations can have serious consequences for the Company, including criminalas well as civil and administrative penalties and negative publicity.  The Company has incurred and will continue toincur significant capital and operating expenditures to avoid violations ofthese laws and regulations.  Additionalenvironmental requirements imposed in the future could require currently unanticipatedinvestigations, assessments or expenditures, and may require the Company toincur significant additional costs.

***Any material changes to, cutbacks in or termination ofthe USDA’s Commodity Reprocessing Program could have a material adverse effecton the Company’s sales to schools.***   A substantial portion of the products that the Company sellsto schools use meat provided to the schools through the USDA’s CommodityReprocessing Program.  If this programwere terminated or significantly curtailed due to budgetary constraints, or ifthe program were changed in a way that neutralizes what the Company believes isits competitive advantage in complying with program guidelines, the Company maybe unable to continue to sell these products to schools at current volumes.  These programs provide food and nutritionassistance to certain eligible institutions. The programs are designed toassist farmers, commodity producers and processors to maintain stable commodityprices and to provide nutritious foods to children.  The Company produces many of its pre-cookedand ready-to-cook proteins using meat provided by customers through thisprogram, which it re-sells to these customers. A material change to, cutback inor termination of the USDA’s Commodity Reprocessing Program could have anadverse effect on the Company’s financial condition and operating results.

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***Labor disruptions or increased labor costs couldadversely affect the Company’s business.***   As of March 3, 2007, theCompany had approximately 2,800 employees. The Company considers its relations with its employees to be good.  However, the Company could experience amaterial labor disruption or significantly increased labor costs at one or moreof its facilities in the future, which would have a material adverse effect onits business, financial condition and operating results.

***The Company sells a large percentage of its productsto schools, which subjects its sales volumes and, thus, its operating results,to seasonal variations.***   The Company’s quarterly operatingresults are affected by the seasonal fluctuations of its sales and operatingprofits.  The Company derivedapproximately 24% and 20% of its net revenues in successor fiscal 2007 andsuccessor fiscal 2006, respectively, from sales to schools.  Since schools comprise a significant portionof the Company’s customer base, sales of its products tend to be lower duringthe summer months.  These lower salesvolumes negatively impact its operating profits during the second quarter ofeach fiscal year.  As a result of thesefluctuations, the Company believes that comparisons of its sales and operatingresults among different quarters within a single fiscal year are notnecessarily meaningful and that they cannot be relied upon as indicators of theCompany’s future performance.

***The Companyproduces its ready-to-cook and fully-cooked meat products, packaged sandwiches,compartmentalized meals, and specialty bread products in its eightmanufacturing and processing facilities.***  Amaterial disruption at one of these plants or an increase in demand causinginability to meet customer demands could seriously harm the Company’s financialcondition and operating results.   A material disruption at one ofthe Company’s manufacturing and processing facilities could be caused by anumber of different events, including:

·       maintenance outages;

·       prolonged power failures;

·       equipment failure;

·       chemical spill or release;

·       widespread contamination of ourequipment;

·       fires, floods, earthquakes or othernatural disasters; or

·       other operational problems.

Any material malfunction or prolonged disruption inthe operations at one of its facilities could prevent the Company from fulfillingorders to existing customers, and would limit its ability to sell products tonew customers.  Any material malfunctionor prolonged disruption at one of the Company’s meat processing facilities, ora significant increase in customer demands, could result in the Company’sinability to meet manufacturing requirements. Any of these events could adversely affect the Company’s business,financial condition and operating results.

***The Company depends upon the continued services ofcertain members of its senior management team, without whom its businessoperations would be significantly disrupted.***   The Company’s success depends, in part, on the continuedcontributions of its executive officers and other key employees.  The Company’s management team has significantindustry experience and would be difficult to replace.  If the Company loses or suffers an extendedinterruption in the service of one or more of its senior officers, itsfinancial condition and operating results may be adversely affected.  Moreover, the market for qualifiedindividuals may be highly competitive and the Company may not be able toattract and retain qualified personnel to replace or succeed members of itssenior management or other key employees, should the need arise.

***The Company’s ability to service its debt and meet itscash requirements depends on many factors, some of which are beyond itscontrol. These factors could have a material adverse affect on the Company’sbusiness, financial condition and results of operations.***   The Company’s ability tosatisfy its obligations, including its New Notes and its credit facility will dependon the Company’s future operating performance and financial results, which willbe subject, in part, to factors beyond the Company’s control, includinginterest rates and general economic, financial and business conditions.  If the Company is unable to generatesufficient cash flow, it may be required to refinance all or a portion of itsdebt, including the New Notes and its credit facility, obtain additionalfinancing in the future for acquisitions, working capital, capital expendituresand general corporate or other purposes, redirect a substantial portion of itscash flow to debt service, which as a result, might not be available for itsoperations or other purposes, sell some of its assets or operations, reduce ordelay capital expenditures, or revise or delay its operations or strategicplans.  If the Company is required totake any of these actions, it could have a material adverse effect on itsbusiness, financial condition and results of operations.  In addition, the Company cannot guarantee itwould be able to take any of these actions, that these actions would enable itto continue to satisfy its capital requirements, or that these actions would bepermitted under the terms of its New Notes or credit facility.

11

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***Restrictivecovenants in the Company’s debt instruments restrict or prohibit the Company’sability to engage in or enter into a variety of transactions, which couldadversely affect the Company.***   The indenture governing theCompany’s New Notes and its credit facility contain various restrictivecovenants that limit the Company’s discretion in operating its business.  In particular, those agreements limit theCompany’s ability to, among other things:

·                  incur additionalindebtedness;

·                  make certain investments oracquisitions;

·                  create liens on its assets tosecure additional debt;

·                  engage in certaintransactions with affiliates;

·                  merge, consolidate ortransfer substantially all of its assets; and

·                  transferand sell assets.

These covenants could have a material adverse effect on theCompany’s business by limiting its ability to take advantage of financing,merger and acquisition or other corporate opportunities to fund itsoperations.  Any future debt could alsocontain financial and other covenants more restrictive than those imposed underthe indenture governing the Company’s New Notes and its credit facility.

***If the Company’s management determines that itsgoodwill or other intangible assets are impaired, the Company may be requiredto write off part of such assets, which would adversely affect its financialposition and results of operations.***   The Company has goodwill and other intangible assets ofapproximately $357.8 million and $321.4 million as of March 3, 2007 and March4, 2006, respectively, which constituted approximately 60% and 68%, respectively,of its total assets. The Company periodically evaluates goodwill and otherintangible assets for impairment.  Anyfuture determination requiring the write off of a significant portion of itsgoodwill or other intangible assets could adversely affect the Company’sresults of operations and financial position.

***If the Company is unable to maintain or upgrade itsinformation systems and software programs or if the Company is unable toconvert to alternate systems in an efficient and timely manner, the Company’soperations may be disrupted or become less efficient.***   The Company depends on a variety of information systems forthe efficient functioning of its business. The Company relies on certainsoftware vendors to maintain and periodically upgrade many of these systems sothat they can continue to support the Company’s business. The software programssupporting many of the Company’s systems were licensed to the Company byindependent software developers.  Costsand potential interruptions associated with the implementation of new orupgraded systems and technology or with maintenance or adequate support ofexisting systems could disrupt or reduce the efficiency of the Company’sbusiness.

***Acquisitions by the Company and the integration ofsuch businesses acquired by the Company could impair the Company’s business,financial condition, and operating results.***   The Company made two significant acquisitions duringsuccessor fiscal 2007 and may acquire other businesses in the future. Althoughthe Company has procedures in place to conduct due diligence reviews ofpotential acquisition candidates, there is no assurance that such procedureswill detect all potential problems. Acquisitions involve inherent uncertainties including the ability toidentify suitable acquisition candidates and negotiate acceptable terms for theacquisition, the ability to integrate the acquired businesses into a largerorganization, and the availability of management resources to oversee theoperations of the businesses.  Successfulintegration requires the consolidation of financial functions and synergies,the integration of key personnel, and the maintenance and growth of theexisting business.  If the Company isunable to successfully integrate recently acquired businesses and businessesacquired in the future, it could adversely affect the Company’s business,financial condition and operating results.

**Item  1B.   *Unresolved Staff Comments***

Not Applicable.

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**Item 2.**   *Properties*

The Company’s corporate headquarters is located in a facility it owns inCincinnati, Ohio.  In addition tothe administrative offices located at the Company’s headquarters, the Companyutilizes office space in its other manufacturing and processing facilities. The Company produces its ready-to-cook andfully-cooked meat products, packaged sandwiches, compartmentalized meals, andspecialty bread products in its eight manufacturing and processingfacilities.  Set forth below is certaininformation relating to Pierre’s principal operating facilities (includingthese eight manufacturing and processing facilities), all of which are owned bythe Company.
| **Location**              | ** ** | **Square Feet** | ** ** | **Description**                                |
|---------------------------|------------|-----------------|------------|------------------------------------------------|
| Cincinnati, Ohio          |       | 26,427          |       | Corporate Headquarters, Administrative Offices |
| Cincinnati, Ohio          |       | 197,545         |       | Manufacturing                                  |
| Claremont, North Carolina |       | 150,000         |       | Manufacturing                                  |
| Amherst, Ohio             |       | 115,689         |       | Manufacturing/Administrative Offices(1)        |
| Easley, South Carolina    |       | 61,277          |       | Manufacturing/Warehouse(1)                     |
| Cedartown, Georgia        |       | 124,674         |       | Manufacturing(2)                               |
| Cedartown, Georgia        |       | 58,444          |       | Manufacturing/Administrative Offices(2)        |
| Cedartown, Georgia        |       | 10,920          |       | Depot/Administrative Offices(2)                |
| Rome, Georgia             |       | 166,836         |       | Manufacturing(2)                               |
| Rome, Georgia             |       | 28,226          |       | Administrative Offices(2)                      |
| Rome, Georgia             |       | 40,084          |       | Laboratory/Administrative Offices(2)           |
| Hamilton, Alabama         |       | 11,900          |       | Manufacturing(2)                               |

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(1)      Acquired as part of the Acquisition ofClovervale.

(2)      Acquired as part of the Acquisition ofZartic.

All of the Company’s manufacturing facilities arefederally inspected facilities.** **The Company is highly committed tothe quality of its products and the safety of its operations.  The Company’s modern equipment is cleanableand monitored by physical, chemical, and microbiological quality assuranceprograms.  The Company believes that itsfacilities are generally in good condition and that they are suitable for theircurrent uses.  The Company neverthelessengages periodically in construction and other capital improvement projectsthat the Company believes are necessary to expand and improve the efficiency ofits facilities.  In addition to thefacilities owned by the Company, warehouse facilities are leased by the Companythroughout the United States and Canada.

**Item 3.   *Legal Proceedings***

***Environmental.  ***On August 19, 2003, as a result ofcomplaints from neighboring businesses, the Company received a Notice ofViolation (“NOV”) from the Hamilton County Department of Environmental Services(“HCDOES”) relating to operations at its Cincinnati, Ohio plant facility.  The NOV alleged that the Company violated itspermits by exceeding the visual emission (“VE”) specification of 20%opacity.  The Company received additionalNOV’s for opacity violations on October 22, 2003 and November 26, 2003, all ofwhich were the result of complaints from neighboring businesses.

Subsequent to the original NOV received in August2003, the Company began investigating and testing various emission reductiontechnologies. The Company found a solution that enabled operations to continuewith less smoke output and completed the upgrade during early 2004. HCDOESinspected the upgrade in April 2004 and determined that the Company hadreturned to compliance with the opacity limit. In connection with the upgrade, the Company was required to submit arevised Permit to Install (“PTI”) application.

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

 

13

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The Company contracted with an independentenvironmental consulting firm to perform the audit and evaluation.  As part of the overall audit, this firmperformed preliminary testing in early September 2005, which indicated thatviolations of emission levels may have occurred, and retested in late September2005. The firm conducted additional tests during October and November of 2005.The Company received the results of the audit in January 2006. The resultsallowed the Company to evaluate the facility’s current and historical potentialand actual emissions. The testing revealed that assumptions made by the Company’sformer outside engineering firm concerning particulate emissions and throughputwere incorrect. This miscalculation caused the Company to receive permit limitsthat are lower than actual emissions for certain cook lines.  The Company met with HCDOES in February 2006,to discuss the results of the emissions audit program.

On March 20, 2006, HCDOES sent an NOV to the Companyalleging that the Company violated its permit limits for particulate matter (“PM”)and reserved the right to pursue an enforcement action and a civil penalty inthe future.  On July 7, 2006, HCDOES sentanother NOV to the Company alleging that the Company was in violation of itspermit limits for PM emissions and again reserved the right to pursue anenforcement action in the future. Depending on HCDOES’ interpretation of the data, HCDOES may allegeadditional violations of emission limits and other regulatoryrequirements.  To date, the Company hasspent approximately $1.6 million for emissions control equipment purchases to complywith relevant laws, and expects to spend an additional $0.3 in successor fiscal2008.  The Company installed this controlequipment in first and second quarter of its successor fiscal 2007.Furthermore, in August 2006, HCDOES requested that the Company submit adetermination as to whether or not it was subject to Title V or major new sourcepermitting requirements. The Company responded to HCDOES’ request in September2006, concluding that the Company was not subject to Title V or major newsource permitting requirements based on the Company’s interpretation of suchregulations.  The Company received aletter on April 3, 2007, from the Director of the Ohio EPA agreeing thatthe Company did not trigger major new source permitting requirements.  The ultimate resolution of whether or not theCompany was subject to Title V permitting requirements depends on potentiallydisputed legal issues. The Company is cooperating with the authorities in allaspects of these matters. In addition, the Company consulted with its outsidelegal counsel to assist them in resolving these matters and estimate thepotential fines and penalties that may be assessed in the future.

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

As part of its ongoing operations in the foodprocessing industry, the Company is subject to extensive federal, state, andlocal regulations and its food processing facilities and food products aresubject to frequent inspection, audits and inquiries by the USDA, the FDA, andvarious local health and agricultural agencies and by federal, state, and localagencies responsible for the enforcement of environmental, labor, and otherlaws and regulations.  The Company isalso involved in various legal actions arising in the normal course ofbusiness.  These matters are continuouslybeing evaluated and, in some cases, are being contested by the Company and theoutcome is not predictable. Consequently, an estimate of the possible loss orrange of loss associated with these actions cannot be made.  Although occasional adverse outcomes (orsettlements) may occur and could possibly have an adverse effect on the resultsof operations in any one accounting period, the Company believes that the finaldisposition of such matters will not have a material adverse affect on theCompany’s consolidated financial position.

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

The sole stockholder of the Company re-elected all ofthe directors of the Company by unanimous written consent effective May 24,2007.  The directors are listed in PartIII, Item 10, of this report.

**PART II**

**Item 5.   *Market for the Registrant’sCommon Equity, Related Stockholder Matters and Issuer Purchases of Equity***

***Securities***

Since the Company’s going-private transaction on July26, 2002, the Company has been a wholly-owned subsidiary of PFMI; accordingly,there is no public trading market for the Company’s common stock.  The Company did not declare a cash dividendduring successor fiscal 2007, successor fiscal 2006, or predecessor fiscal 2005and successor fiscal 2005 combined.  TheCompany’s debt instruments restrict its ability to pay dividends.  See “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations—Liquidity and Capital Resources”in this report and Note 7 – “Financing Arrangements,” to the Company’sConsolidated Financial Statements. Regardless of the scope of such restrictions, the Company’s policy is toreinvest any earnings rather than pay dividends.

 

14

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The Company has no compensation plans or individualarrangements under which equity securities of the Company are authorized forissuance; however, Holding, the sole stockholder of PFMI, implemented a stockoption plan in successor fiscal 2005 pursuant to which options to purchaseshares of common stock of Holding may be issued to officers, employees andconsultants of the Company.  In addition,on July 12, 2005, Holding issued 2,000 shares of restricted common stock thatvest over time to Scott W. Meader, a director of the Company.  The shares were purchased by Mr. Meader for$10.00 per share. See Note 11 – ”Stock-Based Compensation,” to the Company’sConsolidated Financial Statements.

No equity securities of the Company were purchased orsold by the Company during successor fiscal 2007.

The following table sets forth the number of shares ofcommon stock of Holding subject to options granted pursuant to Holding’s optionplan, which is the only outstanding equity compensation plan relating to theCompany.

**Equity Compensation Plan Information**
| **Plan Category**                                        | ** ** | **Number of Securities to   be Issued Upon   Exercise of  Outstanding Options  (a)** | ** ** | **Weighted-Average  Exercise Price of  Outstanding   Options  (b)** | ** ** | **Number of Securities   Remaining Available   for Future Issuance  under Equity Compensation  Plans (excluding Securities  Reflected in Column (a))  (c)** |
|---------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Equity  Compensation  Plans Approved by  Security-Holders     |       | 126,219                                                                                                                      |       | $10.00                                                                             |       | 37,559                                                                                                                                                                                                                       |
|                                                          |       |                                                                                                                         |       |                                                                               |       |                                                                                                                                                                                                                         |
| Equity  Compensation  Plans Not Approved by  Security-Holders |       | —                                                                                                                       |       | N/A                                                                                |       | —                                                                                                                                                                                                                       |
|                                                          |       |                                                                                                                         |       |                                                                               |       |                                                                                                                                                                                                                         |
| TOTAL                                                         |       | 126,219                                                                                                                      |       | $10.00                                                                             |       | 37,559                                                                                                                                                                                                                       |

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

 

15

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**Item 6.**   *Selected Financial Data*

The followingselected historical financial information has been derived from auditedconsolidated financial statements of the Company.  Such financial information should be read inconjunction with the consolidated financial statements of the Company, thenotes thereto and the other financial information contained elsewhereherein.  See “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” and the Company’s ConsolidatedFinancial Statements and supplementary data.
| ** **                                                         | ** ** | **Successor**                                                                   | ** ** | ** ** | ** **             | **Predecessor** | ** ** | ** **             |
|--------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|------------|------------------------|-----------------|------------|------------------------|
| ** **                                                         | ** ** | **Fiscal   2007**                                                          | ** ** | ** ** | **Fiscal   2006** | ** **      | ** ** | **Fiscal   2005** | ** ** | ** ** | ** ** | **Fiscal   2005** | ** ** | ** ** | **Fiscal   2004** | ** ** | ** ** | **Fiscal   2003** | ** ** | ** ** |
| ** **                                                         | ** ** | **(dollars in thousands, except per share data)** | ** ** | ** ** |
| ** **                                                         | ** ** | ** **                                                                      | ** ** | ** ** | ** **             | ** **      | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| STATEMENT OF  OPERATIONS DATA:                                     |       |                                                                            |       |       |                   |            |       |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues, net                                                      |       | $                                                                               | 487,843    |       |                   | $               | 431,633    |                   |   | $ | 294,867 |   |   |   | $ | 115,549 |   |   | $ | 358,549 |   |   | $ | 276,339 |   |   |
| Cost of goods sold                                                 |       | 344,165                                                                         |       |       | 309,273                |            |       | 217,323                |   |   |   | 87,025 |   |   | 254,235 |   |   | 184,092 |   |   |
| Selling, general, and administrative                               |       | 85,404                                                                          |       |       | 67,839                 |            |       | 39,826                 |   |   |   | 26,447 |   |   | 79,982 |   |   | 71,352 |   |   |
| Net (gain) loss on disposition of property,   plant, and equipment |       | (2                                                                              | )          |       | 6                      |            |       | 5                      |   |   |   | 340 |   |   | 11 |   |   | 89 |   |   |
| Depreciation and amortization                                      |       | 30,368                                                                          |       |       | 30,638                 |            |       | 23,170                 |   |   |   | 1,545 |   |   | 4,605 |   |   | 4,125 |   |   |
| Operating income                                                   |       | 27,908                                                                          |       |       | 23,877                 |            |       | 14,543                 |   |   |   | 192 |   |   | 19,716 |   |   | 16,681 |   |   |
| Interest expense                                                   |       | (25,377                                                                         | )          |       | (22,331                | )               |       | (19,493                | ) |   |   | (6,538 | ) |   | (16,979 | ) |   | (14,228 | ) |   |
| Other income, net                                                  |       | 115                                                                             |       |       | 151                    |            |       | 24                     |   |   |   | 2 |   |   | — |   |   | 447 |   |   |
| Income tax benefit (provision)                                     |       | (846                                                                            | )          |       | 465                    |            |       | 597                    |   |   |   | 2,080 |   |   | (1,303 | ) |   | (1,122 | ) |   |
| Income (loss) from continuing operations                           |       | 1,800                                                                           |       |       | 2,162                  |            |       | (4,329                 | ) |   |   | (4,264 | ) |   | 1,434 |   |   | 1,778 |   |   |
| Cumulative effect of accounting change (1)                         |       | —                                                                          |       |       | —                 |            |       | —                 |   |   |   | — |   |   | — |   |   | (18,605 | ) |   |
| Net income (loss)                                                  |       | $                                                                               | 1,800      |       |                   | $               | 2,162      |                   |   | $ | (4,329 | ) |   |   | $ | (4,264 | ) |   | $ | 1,434 |   |   | $ | (16,827 | ) |   |
|                                                               |       |                                                                            |       |       |                   |            |       |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| NET INCOME  (LOSS) PER SHARE — BASIC AND DILUTED:             |       |                                                                            |       |       |                   |            |       |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (loss) from continuing operations                           |       | $                                                                               | 18.00      |       |                   | $               | 21.62      |                   |   | $ | (43.29 | ) |   |   | $ | (42.64 | ) |   | $ | 14.34 |   |   | $ | 17.78 |   |   |
| Cumulative effect of accounting change                             |       | —                                                                          |       |       | —                 |            |       | —                 |   |   |   | — |   |   | — |   |   | (186.05 | ) |   |
| Net income (loss)                                                  |       | $                                                                               | 18.00      |       |                   | $               | 21.62      |                   |   | $ | (43.29 | ) |   |   | $ | (42.64 | ) |   | $ | 14.34 |   |   | $ | (168.27 | ) |   |
|                                                               |       |                                                                            |       |       |                   |            |       |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| OTHER DATA:                                                        |       |                                                                            |       |       |                   |            |       |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital expenditures                                               |       | $                                                                               | 8,658      |       |                   | $               | 7,150      |                   |   | $ | 3,677 |   |   |   | $ | 2,084 |   |   | $ | 10,041 |   |   | $ | 16,216 |   |   |
|                                                               |       |                                                                            |       |       |                   |            |       |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE SHEET  DATA:                                               |       |                                                                            |       |       |                   |            |       |                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Working capital                                                    |       | $                                                                               | 87,755     |       |                   | $               | 61,997     |                   |   | $ | 62,145 |   |   |   | n/a |   |   | $ | 46,110 |   |   | $ | 40,716 |   |   |
| Total assets                                                       |       | 599,829                                                                         |       |       | 472,425                |            |       | 496,588                |   |   |   | n/a |   |   | 175,771 |   |   | 168,781 |   |   |
| Total debt                                                         |       | 358,844                                                                         |       |       | 244,994                |            |       | 263,580                |   |   |   | n/a |   |   | 143,694 |   |   | 136,348 |   |   |
| Shareholder’s equity                                          |       | 149,820                                                                         |       |       | 148,058                |            |       | 146,023                |   |   |   | n/a |   |   | 6,621 |   |   | 8,998 |   |   |

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(1)                   Reflects a lossdue to cumulative effect of accounting change in the amount of $18,605 inpredecessor fiscal 2003. The loss represents the write-off of goodwill upon adoptionof Statement of Financial Accounting Standards No. 142, “Goodwill andOther Intangible Assets.”

 

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**Item 7.**   *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations*

The following discussion relates to the financialcondition and results of operations for successor fiscal 2007, successor fiscal2006, successor fiscal 2005, and predecessor fiscal 2005.  Successor fiscal 2005 and predecessor fiscal2005 collectively are referred to as “predecessor fiscal 2005 and successorfiscal 2005 combined.”  This sectionshould be read in conjunction with the Company’s Consolidated FinancialStatements and considered with “Risk Factors” discussed in Item 1A above, Item7A – “Quantitative and Qualitative Disclosures About Market Risk” below, and “CautionaryStatements Regarding Forward Looking Statements,” which precedes Part I, Item 1above.

Pierre operates on a 52-week or 53-week fiscal yearending on the first Saturday in March or if the last day of February is aSaturday, the last day of February.  Eachquarter of the fiscal year contains 13 weeks except for the infrequentfiscal years with 53 weeks.  Theresults for all years presented contain 52 weeks.

**Results ofOperations**

Results forsuccessor fiscal 2007, successor fiscal 2006, successor fiscal 2005, andpredecessor fiscal 2005 are shown below:
| ** **                                                 | ** ** | **Successor**          | ** ** | ** **             | ** ** | ** **             | **Predecessor** | ** ** |
|------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|-----------------|------------|
| ** **                                                 | ** ** | **Fiscal   2007** | ** ** | **Fiscal   2006** | ** ** | **Fiscal   2005** | ** **      | ** ** | ** ** | ** ** | **Fiscal   2005** | ** ** |
| Revenues, net                                              |       | $                      | 487.8      |                   | $          | 431.6                  |            | $          | 294.9 |   |   |   |   | $ | 115.5 |   |
| Cost of goods sold                                         |       | 344.1                  |       | 309.3                  |       | 217.3                  |            |       |   |   | 87.0 |   |
| Selling, general, and  administrative                      |       | 85.4                   |       | 67.8                   |       | 39.8                   |            |       |   |   | 26.4 |   |
| Net loss on disposition  of property, plant, and equipment |       | —                 |       | —                 |       | —                 |            |       |   |   | 0.4 |   |
| Depreciation and  amortization                             |       | 30.4                   |       | 30.6                   |       | 23.2                   |            |       |   |   | 1.5 |   |
| Operating income                                           |       | 27.9                   |       | 23.9                   |       | 14.6                   |            |       |   |   | 0.2 |   |
| Interest expense, net                                      |       | (25.3                  | )          | (22.2                  | )          | (19.5                  | )               |       |   |   | (6.5 | ) |
| Income (loss) before  income tax                           |       | 2.6                    |       | 1.7                    |       | (4.9                   | )               |       |   |   | (6.3 | ) |
| Income tax benefit  (provision)                            |       | (0.8                   | )          | 0.5                    |       | 0.6                    |            |       |   |   | 2.0 |   |
| Net income (loss)                                          |       | $                      | 1.8        |                   | $          | 2.2                    |            | $          | (4.3 | ) |   |   |   | $ | (4.3 | ) |

 

***SuccessorFiscal 2007 Compared to Successor Fiscal 2006***

***Revenue, net***.   Netrevenues increased by $56.2 million in successor fiscal 2007 compared tosuccessor fiscal 2006, or 13.0%.  Thisincrease was primarily due to (1) increased sales volume as a result ofthe Acquisition of Zartic (approximately $36.2 million); (2) increasedsales volume as a result of the Acquisition of Clovervale (approximately $18.5 million);(3) increased sales volume within the Warehouse Club selling channel(approximately $20.2 million); and (4) increased sales volume across mostof the Company’s other end-markets. This increased sales volume was offset by(5) decreased sales volume to the National Accounts end-market(approximately $24.2 million) of which approximately $18.5 millionwas specific to two large restaurant chain customers due to promotionalactivity of products not produced by the Company; (6) a decrease inrevenues due to lower net sales prices (approximately $8.7 million) as aresult of declining commodity protein pricing attributable to market-relatedpricing contracts with two large National Accounts restaurant chain customers;and (7) a decrease in revenues due to a change in mix to lower pricedproduct offerings.

17

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***Cost of goods sold.  ***Cost of goods sold increased by $34.9 million insuccessor fiscal 2007 compared to successor fiscal 2006, or 11.3%. Thisincrease was primarily due to (1) increased sales volume as a result ofthe Acquisition of Zartic (approximately $26.8 million); (2) increasedsales volume as a result of the Acquisition of Clovervale (approximately $14.8million); (3) increased sales volume within the Warehouse Club sellingchannel (approximately $13.9 million); (4) increased sales volumeacross most of the Company’s other end-markets (approximately $11.6 million);(5) increased labor and overhead costs related to complying with theDepartment of Homeland Security’s Basic Pilot Employment Verification Program(approximately $2.9 million); and (6) increased costs due to decreasedefficiencies related to decreased sales volume to the National Accountsend-market and increases in other overhead expenses which include utilities,insurance, maintenance parts, and property taxes.

These increases were partially offset by (1) decreasedsales volume to the National Accounts end-market (approximately $22.2 million);and (2) decreased raw material protein costs (approximately $17.3 million), of which$8.9 million was due to declining commodity protein pricing attributableto market-related pricing contracts with two large National Accounts restaurantchain customers.

As a percentage of revenues, cost of goods solddecreased from 71.7% to 70.5%, a decrease of 1.2%. This decrease was primarilydue to (1) the net impact of decreased prices paid for raw materialproteins and formulation mix (approximately 2.4%) of which 0.7% is attributableto market-related pricing contracts with two large National Accounts restaurantchain customers; (2) decreased costs as a result of a change in mix due toincreased volume of lower cost products (approximately 1.0%); partially offsetby (3) increased labor and overhead costs (approximately 0.7%); (4) a change inmix due to increased volume as a result of the Acquisition of Zartic(approximately 0.3%) and the Acquisition of Clovervale (approximately 0.4%); and(5) increased costs due to decreased efficiencies related to decreased salesvolume to the National Accounts end-market and increases in other overheadexpenses which include utilities, insurance, maintenance parts, and propertytaxes.

The primary materials used in the Company’s foodprocessing operations include boneless beef, chicken, pork, flour, yeast,seasonings, cheese, breading, soy proteins, and packaging supplies.  Meat proteins are generally purchased under7-day payment terms.  Historically, theCompany has not hedged in the futures markets, and over time, the Company’s rawmaterial costs have fluctuated with movement in the relevant commoditymarkets.  Additionally, the Company has market-relatedpricing contracts that require the Company to immediately pass along commodityprice variances.

Approximately 33.4% of total sales for successorfiscal 2007 were protected from commodity exposure, of which 26.3% wereattributable to market-related pricing contracts, while the other 7.1% wererelated to the USDA Commodity Reprocessing Program, which also insulates theCompany from raw material price fluctuations. For successor fiscal 2006, approximately 42.0% of total sales wereprotected from commodity exposure, of which 35.8% were attributable tomarket-related pricing contracts, while the other 6.2% were related to the USDACommodity Reprocessing Program.

The following table represents the (increase)/decreasein the weighted average prices the Company paid for beef, chicken, pork, andcheese excluding unfavorable formulation mix and market-related pricingcontracts during successor fiscal 2007 compared to successor fiscal 2006:

|            | ** ** | **(Increase)/Decrease**                                     | ** ** |
|------------|------------|-------------------------------------------------------------|------------|
| ** ** | ** ** | **Successor Fiscal 2007   Compared to** | ** ** |
| ** ** | ** ** | **Successor Fiscal 2006**                         | ** ** |
| Beef       |       | 5.9%)                                                       |       |
| Chicken    |       | (1.9%)                                                      |       |
| Pork       |       | 4.6                                               |       |
| Cheese     |       | 11.2%                                                       |       |
| Aggregate  |       | 6.4%                                                        |       |

 

***Selling, general, and administrative*.  **Selling, general andadministrative expenses increased by $17.6 million, or 25.9%.  This increase was primarily due to (1)increased volume as a result of the Acquisition of Zartic (approximately$6.6 million); (2) increased selling expenses (approximately $6.5 million);(3) increased distribution costs (approximately $9.8 million); (4) increasedvolume as a result of the Acquisition of Clovervale (approximately $3.3 million);and (5) increased administrative costs, which included approximately$0.6 million of integration expenses related to the Acquisition of Zarticand the Acquisition of Clovervale offset in part by decreased incentivecompensation expense. As a percentage of revenues, selling, general, andadministrative expenses increased from 15.7% to 17.5%.

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Increased selling expense was incurred primarily as aresult of the Acquisition of Zartic and the Acquisition of Clovervale(approximately $2.5 million), as well as increased volume and a shift in salesmix to customers with higher burden rates for sales and marketing expenses,including demonstration expenses (approximately $1.0 million) related to growthin the Warehouse Club selling channel.

Increased distribution expenses resulted primarilyfrom higher storage costs (approximately $1.9 million) resulting frominventories built to maintain customer service levels for customerrequirements, and increased freight costs due to higher fuel surcharges, andincreased sales volumes across most of the Company’s end-markets (approximately$1.1 million).

***Depreciation and amortization.  ***Depreciation and amortizationexpense decreased by $0.3 million primarily due to decreased amortization($2.0 million); offset by increased depreciation expense ($1.7 million).  The decrease in amortization expense wasprimarily due to the accelerated methods of amortization used for theamortizable intangible assets recorded in conjunction with the Acquisition ofPierre; offset by additional amortization expense as a result of additionalamortizable intangible assets recorded as a result of the Acquisition of Zarticand the Acquisition of Clovervale.  Theincreased depreciation expense was primarily due to the allocation of theAcquisition of Zartic and the Acquisition of Clovervale purchase prices andvaluations of property, plant, and equipment as a result of purchase accountingdue to the Acquisition of Zartic and the Acquisition of Clovervale.

***Interest expense and other income, net*.  **Interest expense and other income,net consists primarily of interest on fixed and variable-rate long-term debtand interest on the revolving loan. Interest expense and other income, net increased by $3.1 million,or 13.9%.  This increase is primarily dueto increased average outstanding borrowings under the term loan as a result ofAmendment No. 2 in order to finance the Acquisition of Clovervale and AmendmentNo. 3 in order to finance the Acquisition of Zartic, increased floatinginterest rates related to the Company’s variable-rate interest (approximately8.75% in successor fiscal 2007 compared with approximately 8.15% in successorfiscal 2006), and increased average borrowings under the Company’s revolvingcredit facility (approximately $270.0 million in successor fiscal 2007 comparedwith approximately $253.7 million in successor fiscal 2006).

***Income taxes*.**   Theeffective tax rate for successor fiscal 2007 was 32.0% compared to 27.4% forsuccessor fiscal 2006.  The change in theeffective tax rate is primarily due to (1) the phase-out of Ohio franchise taxand the phase-in of a gross receipts tax referred to as the Commercial ActivityTax (“CAT”); (2) the impact of permanent differences between GAAP and tax basisincome/deductions; (3) the estimated impact of the Section 199 adjustment (the “DomesticManufacturing Deduction”) in the current year; (4) the impact ofExtra-Territorial Income deduction (“ETI”) in the current year as a result ofthe Company’s sales and business activity in foreign countries (primarilyCanada); and (5) the true-up of the provision to return differences inconjunction with the filing of the fiscal 2006 federal tax return on November15, 2006.

***SuccessorFiscal 2006 Compared to Predecessor Fiscal 2005 and Successor Fiscal 2005Combined***

As a result of the Acquisition of Pierre as describedin Note 1 — “Basis of Presentation and Acquisitions” to the Company’sConsolidated Financial Statements and elsewhere in this report, the followingresults of operations comparisons demonstrate a significant difference betweencompared periods.  The Acquisition of Pierrewas accounted for under the purchase method of accounting, resulting in anincrease in the basis of the Company’s assets. Due to the change in basis, the Company’s results of operations andthose of its predecessor are not considered comparable.  The Company’s results of operations includeamortization related to the identifiable intangible assets and interest expenserelated to the borrowings incurred in connection with the Acquisition ofPierre.  The results for predecessorfiscal 2005 and successor fiscal 2005 are combined in the discussion below inorder to provide a more meaningful period-to-period comparison.

***Revenue, net.  ***Net revenues increased by $21.2 million, or5.2%.  This increase was primarily due tosales volume growth in most of the Company’s end-market segments ($30.1 million),net price increases to customers, and higher margin product sales; offset bydecreased sales volume to two large National Accounts customers ($18.2million).  Sales to these NationalAccounts customers were impacted, in part, by their promotional activity towardsandwiches that do not include Pierre’s products and to a lesser extent, highergasoline prices, which impacted the store traffic of these National Accountscustomers.

Net price increases to customers in successor fiscal2006 consisted of $4.0 million attributable to market-related pricing contractswith two large National Accounts customers, which enable the Company to limitits exposure to raw material price fluctuations, and $3.3 million related tothe impact of price increases implemented during the prior year in response tohigher raw material prices.

***Cost of goods sold.  ***Cost of goods sold increased by $4.9 million insuccessor fiscal 2006 compared to predecessor fiscal 2005 and successor fiscal2005 combined, or 1.6%.  This increasewas primarily due to (1) an increase in costs as a result of increased netrevenues due to volume growth; (2) an increase in raw material protein costs (approximately$3.8 million) attributable to market-related pricing contracts with two largeNational Accounts customers, which enable the Company to limit its exposure toraw material price fluctuations; (3) an increase in utility costs (approximately$1.0 million) primarily due to natural gas and electric cost increases offsetby increased efficiencies related to water usage; offset by (4) start-up costs (approximately$3.1 million) incurred in predecessor fiscal 2005 and successor fiscal 2005combined associated with a National Accounts customer that were not incurredduring successor fiscal 2006; (5) a favorable impact as a result of a $2.0million purchase accounting adjustment on beginning inventory in the prior yearcomparable period made in connection with the Acquisition of Pierre; and (6)the net impact of decreases in prices paid for raw material proteins andformulation mix excluding raw material protein purchases attributable to market-relatedpricing contracts with two large National Accounts customers.

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As a percentage of revenues, cost of goods solddecreased from 74.2% to 71.7%, a decrease of 2.5%.  This decrease was primarily due to (1) adecrease in costs as a result of an change in mix to lower cost, higher marginproducts (approximately 1.3%); (2) start-up costs incurred in predecessorfiscal 2005 and successor fiscal 2005 combined associated with a NationalAccounts customer that were not incurred during successor fiscal 2006 (approximately0.7%); (3) a favorable impact as a result of a purchase accounting adjustmenton beginning inventory in the prior year comparable period made in connectionwith the Acquisition of Pierre (approximately 0.5%); and (4) the net impact ofdecreases in prices paid for raw material proteins and formulation mix; offsetby (5) an increase in costs as a result of manufacturing efficiencies relatedto changes in sales mix.

The primary materials used in the Company’s foodprocessing operations include boneless beef, pork, chicken, flour, yeast,seasonings, cheese, breading, soy proteins, and packaging supplies.  Meat proteins are generally purchased under7-day payment terms.  Historically, theCompany has not hedged in the futures markets, and over time, the Company’s rawmaterial costs have fluctuated with movement in the relevant commoditymarkets.  Additionally, the Company has market-relatedcontracts that require the Company to immediately pass along commodity pricevariances.  During successor fiscal 2006,net raw material protein prices increased approximately $2.7 million includinga $4.7 million increase related to market-relating pricing contracts offset byraw material protein price decreases of approximately $2.0 million related toother non-contracted sales.

Approximately 42.0% of total sales for successorfiscal 2006 were protected from commodity exposure, of which 35.8% wereattributable to market-related pricing contracts, while the other 6.2% wererelated to the USDA Commodity Reprocessing Program, which also insulates theCompany from raw material price fluctuations. For predecessor fiscal 2005 and successor fiscal 2005 combined,approximately 44.9% of total sales were protected from commodity exposure, ofwhich 38.7% were attributable to market-related pricing contracts, while theother 6.2% were related to the USDA Commodity Reprocessing Program.

The following table represents the (increase)/decreasein the weighted average prices the Company paid for beef, chicken, pork, andcheese excluding unfavorable formulation mix and market-relating pricingcontracts during successor fiscal 2006 compared to predecessor fiscal 2005 andsuccessor fiscal 2005 combined:

|            | ** ** | **(Increase)/Decrease**                                     | ** ** |
|------------|------------|-------------------------------------------------------------|------------|
| ** ** | ** ** | **Successor Fiscal 2006   Compared to** | ** ** |
| ** ** | ** ** | **Predecessor Fiscal 2005 and**              | ** ** |
| ** ** | ** ** | **Successor Fiscal 2005   Combined**         | ** ** |
| Beef       |       | (7.7%)                                                      |       |
| Chicken    |       | 39.0%                                                       |       |
| Pork       |       | 14.2%                                                       |       |
| Cheese     |       |  6.1%                                                  |       |
| Aggregate  |       | 7.8%                                                        |       |

 

***Selling, general, and administrative*.  **Selling, general andadministrative expenses increased by $1.6 million, or 2.4%.  This increase was primarily due to (1) anincrease in sales volume and an increase in sales mix to lower cost, highermargin end-markets with greater selling burden rates; (2) an increase instorage expense ($1.8 million) as a result of increased inventories builtto maintain customer service levels for customer requirements and product lineexpansion, in addition to increased storage rates paid by the Company; (3) anincrease in freight ($2.1 million) due to higher fuel prices and higherfuel surcharges; (4) an increase in selling expenses ($1.6 million)primarily due to selling expenses incurred to establish the Company’s newMilitary selling channel, product line expansion; and an increase indemonstration expense related to growth in the Warehouse Club selling channel;and (5) an increase in administrative costs; offset by (6) theelimination of expenses related to the selling shareholders and non-recurringtransaction fees as a result of the Acquisition of Pierre ($8.8 million). Asa percentage of revenues, selling, general, and administrative expensesdecreased from 16.1% to 15.7%.

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Expensesassociated with the selling shareholders in the Acquisition of Pierre duringpredecessor fiscal 2005 and successor fiscal 2005 combined that are not presentin successor fiscal 2006 and are not expected to be incurred in the futureinclude the following:

|                                                 | ** ** | **Predecessor Fiscal 2005   and Successor  Fiscal 2005   Combined** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                                      | ** ** | **(in millions)**                                                             | ** ** |
| Compensation expense(a)                         |       | $                                                                                  | 1.2        |   |
| Travel and  entertainment(b)                    |       | 1.0                                                                                |       |
| Office expense(c)                               |       | 0.2                                                                                |       |
| Aircraft expense(d)                             |       | 0.8                                                                                |       |
| Compass Outfitters(e)                           |       | 0.1                                                                                |       |
| Professional fees(f)                            |       | 2.6                                                                                |       |
| Selling shareholders’  other expenses(g)   |       | 0.7                                                                                |       |
| Selling shareholders’  transaction fees(h) |       | 1.0                                                                                |       |
| Consulting services(i)                          |       | 0.8                                                                                |       |
| Endorsement termination(j)                      |       | 0.3                                                                                |       |
| Other(k)                                        |       | 0.1                                                                                |       |
| Total                                           |       | $                                                                                  | 8.8        |   |

 

Compensation expense (a) relates to personnel whowere terminated in connection with the Acquisition of Pierre and will not bereplaced. Travel and entertainment (b) relates to expenses incurred bypersonnel who were terminated and will not be replaced as a result of theAcquisition of Pierre. Office expense (c) relates to rent expense,maintenance and other occupancy costs associated with the lease of an officebuilding from a related party that was terminated in connection with theAcquisition of Pierre. Aircraft expense (d) relates to the leasing of anaircraft owned by CHA, which was formerly a subsidiary of PFMI, which wasretained by the selling shareholders. Compass Outfitters (e) relates toexpenses incurred in connection with an asset that was retained by the sellingshareholders. The professional fees (f) primarily relate to the Restructuringand to the Acquisition of Pierre. The selling shareholders’ other expenses(g) relate to outside board of director fees, community relations, andcontributions made to the former owners alma mater. The selling shareholders’transaction fees (h) include legal, accounting, and tax consulting feesrelated to the Acquisition of Pierre. The consulting services (i) consistof the fee paid to the selling shareholders’ adviser for his role in theAcquisition of Pierre. The endorsement termination (j) relates to thetermination of the contract between the Company and Crawford RaceCars, LLC. Other (k) includes employee travel and other expensesincurred as a result of the debt placement for the Acquisition of Pierre.

***Depreciation and amortization.  ***Depreciation and amortizationexpense increased by $5.9 million. This is due to an increase in amortization of $5.7 million, primarilyrelated to the allocation of the Acquisition of Pierre purchase price to otherintangible assets that was present for the entire successor fiscal 2006 period. For the prior year comparable period,such amortization of intangible assets only occurred subsequent to theAcquisition of Pierre during successor fiscal 2005.  In addition, depreciation expense increasedby $0.2 million, primarily as a result of the allocation of the Acquisition ofPierre purchase price and valuations of property, plant, and equipment as aresult of purchase accounting due to the Acquisition of Pierre.

***Loss on disposal of assets.  ***The loss on disposal of assetsdecreased by $0.3 million. The decrease is due to the recording of lossesin the prior year related to affiliated companies as a consequence of theRestructuring.

***Interest expense and other income, net*.  **Interest expense and other income,net consists primarily of interest on fixed and variable-rate long-term debtand interest on the revolving loan, both of which were entered into inconnection with the Acquisition of Pierre. Interest expense and other income, net decreased by $3.8 million,or 14.7%.  This decrease is primarily dueto expenses incurred during predecessor fiscal 2005 and successor fiscal 2005combined as a result of the Acquisition of Pierre, including: (1) $4.3 millionfor the write-off of deferred loan origination fees; (2) $0.6 million for therepayment of the Old Notes; and (3) $0.5 million for the repayment of theCompany’s former revolving credit facility. This decrease was offset by increased debt and related interest expenseas a result of the Acquisition of Pierre, in addition to an increase infloating interest rates related to the Company’s term loan.

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***Income taxes.  ***The effective tax rate for successor fiscal 2006 was27.4% compared to 23.8% for predecessor fiscal 2005 and successor fiscal 2005combined.  The change in the effectivetax rate was primarily due to the impact of new Ohio tax laws enacted in H.B.66 on June 30, 2005.  H.B. 66 includesthe phase-out of Ohio franchise tax and Ohio personal property tax and thephase-in of a gross receipts tax referred to as the Commercial Activity Tax (“CAT”).  As a result of the enactment, the Companyreduced its deferred tax liability based on the phase-out of franchise tax andrecorded an additional valuation allowance based on Ohio investment tax creditsthat are expected to expire prior to utilization.  Excluding the one-time impact of thisenactment, the effective tax rate for successor fiscal 2006 would have been38.3%.

**Liquidity andCapital Resources**

***Net cash provided by operating activities.  ***Net cash provided by operatingactivities was $13.8 million, $28.5 million, $12.9 million, and $0.4million, for successor fiscal 2007, successor fiscal 2006, successor fiscal2005, and predecessor fiscal 2005, respectively.  The decrease in net cash provided byoperating activities for successor fiscal 2007 compared to net cash provided byoperating activities for successor fiscal 2006 was primarily due to (1) anincrease in refundable income taxes, prepaid expense, and other current assetsduring successor fiscal 2007 compared to the decrease in the prior yearcomparable period; (2) an increase in inventories during successor fiscal 2007that was substantially greater than the increase in the prior year comparableperiod; (3) a change in deferred income taxes in successor fiscal 2007 comparedto less of a change in the prior year comparable period; and (4) an increase inaccounts receivable during successor fiscal 2007 that was substantially greaterthan the increase during the prior year comparable period; offset by (5) anincrease in accounts payable and other accrued liabilities during successorfiscal 2007 compared to less of an increase in the prior year comparable period;and (6) a decrease in other non-current assets during successor fiscal 2007compared to an increase in the prior year comparable period.

The primary components of the net cash provided byoperating activities for successor fiscal 2007 were (1) depreciation andamortization of intangible assets (approximately $30.4 million), of which $8.9million relates to depreciation of fixed assets and $21.4 million relates toamortization of intangible assets; (2) an increase in trade accounts payableand other accrued liabilities (approximately $3.7 million); (3) amortization ofdeferred loan fees (approximately $1.7 million); and (4) a decrease in other non-currentassets (approximately $0.4 million); offset by (5) an increase in inventories(approximately $7.4 million) due to an inventory build to satisfy existingcustomer needs, new customers needs, and new product lines; (6) a decrease inother long-term liabilities (approximately $4.1 million) primarily as a resultof the payment to the selling shareholders, as required by the tax sharing andindemnification agreement, in conjunction with the filing of the federal taxreturn on November 15, 2006, partially offset by an increase related to thedeferred compensation plan and an increase due to a change in the estimatedobligation under the tax sharing and indemnification agreement; (7) a change indeferred income taxes (approximately $5.6 million); (8) an increase inreceivables (approximately $2.7 million), primarily the result of increasedsales; and (9) an increase in refundable income taxes, prepaid expenses, andother current assets (approximately $4.4 million).

The primary components of the net cash provided byoperating activities for successor fiscal 2006 were (1) depreciation andamortization of intangible assets (approximately $30.6 million), of which $7.2million relates to depreciation of fixed assets and $23.4 million relates toamortization of intangible assets; (2) a decrease in refundable income taxes,prepaid expenses, and other current assets (approximately $2.2 million),primarily due to the tax provision recorded as a result of the income insuccessor fiscal 2006, reducing previously recorded tax benefits; (3) anincrease in trade accounts payable and other accrued liabilities (approximately$0.8 million); and (4) amortization of deferred loan fees (approximately $1.7million); offset by (5) a decrease in other long-term liabilities (approximately$4.3 million) primarily as a result of the payment to the selling shareholdersas required by the tax sharing agreement, partially offset by an increase inliability for deferred compensation; (6) a decrease in deferred income taxes (approximately$2.3 million); and (7) an increase in inventories (approximately $1.9 million)due to an inventory build to satisfy existing customer needs, new customersneeds, and new product lines.

The primary components of net cash provided byoperating activities for successor fiscal 2005 were: (1) depreciation andamortization, including amortization of deferred loan origination fees (approximately$24.2 million); (2) an increase in deferred income taxes (approximately $0.4million); (3) the write-off of deferred loan origination fees (approximately $4.3million); (4) an increase in trade accounts payable and other accruedliabilities (approximately $0.9 million); and (5) a decrease in inventory (approximately$0.5 million); offset by (6) an increase in accounts receivable (approximately $9.6million); and (7) an increase in refundable income taxes, prepaid expenses andother current assets (approximately $3.6 million).

The primary components of net cash provided byoperating activities for predecessor fiscal 2005 were: (1) a decrease inaccounts receivable (approximately $5.7 million); (2) depreciation andamortization, including amortization of deferred loan origination fees (approximately$2.3 million); (3) an increase in trade accounts payable and other accruedliabilities (approximately $2.2 million); offset by (4) an increasein inventory (approximately $4.9 million); (5) an increase in refundable incometaxes, prepaid expenses and other current assets (approximately $0.2 million);and (6) an decrease in deferred income taxes (approximately $2.1 million).

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***Net cash used in investing activities.  ***Net cash used in investingactivities for successor fiscal 2007, successor fiscal 2006, successor fiscal2005, and predecessor fiscal 2005 was $122.1 million, $7.2 million, $3.7million, and $2.1 million, respectively. The primary components forsuccessor fiscal 2007 were the Acquisition of Clovervale (approximately $21.8 million),the Acquisition of Zartic (approximately $91.6 million), plant improvements,which included required upgrades on existing control equipment, and routinecapital expenditures (approximately $8.7 million). The primary componentsfor successor fiscal 2006, successor fiscal 2005, and predecessor fiscal 2005were plant improvements and routine capital expenditures.

***Net cash provided by (used in) financing activities.  ***Net cash provided by financingactivities was $105.8 million for successor fiscal 2007. The primarycomponents were: (1) increase term loan borrowings provided by AmendmentNo. 3 ($100.0 million) for the Acquisition of Zartic; (2) increased termloan borrowings provided by Amendment No. 2 ($24.0 million) for theAcquisition of Clovervale; and (3) net borrowings under the Company’s revolvingcredit facility (approximately $0.8 million); offset by (4) principalpayments on long-term debt (approximately $14.7 million); (5) repaymentof debt (approximately $1.6 million) acquired in conjunction with theAcquisition of Clovervale; and (6) loan origination fees (approximately$2.6 million) as a result of Amendment No. 1, Amendment No. 2, and AmendmentNo. 3 to the Credit Agreement.

Net cash used in financing activities was $18.8million for successor fiscal 2006. The primary components were: (1) principalpre-payments on long-term debt (approximately $17.8 million); (2) netrepayments under the revolving credit agreement (approximately $0.8 million);(3) a return of capital to parent (approximately $0.1 million); and(4) loan origination fees (approximately $0.1 million).

Net cash used in financing activities was $11.3million for successor fiscal 2005. The primary components were: (1) the payoffof the Old Notes (approximately $115.0 million); (2) a return ofcapital to parent (approximately $100.1 million); (3) the repaymentof debt in conjunction with the Acquisition of Pierre (approximately $29.0 million);(4) net repayment of the revolving credit agreement (approximately $17.7 million);(5) principal payments on long-term debt (approximately $16.2 million);and (6) loan origination fees (approximately $10.0 million); offsetby (7) borrowings under the new term loan (approximately $150.0 million);(8) issuance of New Notes ($125.0 million); (9) the terminationof a certificate of deposit (approximately $1.3 million); and (10) acontribution from parent (approximately $0.4 million).

Net cash provided by financing activities was $3.7million for predecessor fiscal 2005. The primary components were: (1) netborrowings under the revolving credit agreement with former lender (approximately$7.7 million); offset by (2) loan origination fees incurred in the amount (approximately$3.4 million); and (3) principal payments on long-term debt in the amount (approximately$0.7 million).

***Restructuring.  ***As previously discussed in Item 1of this report, on March 8, 2004, following a consent solicitation in which consentsof holders of $112.4 million in aggregate principal amount of the Company’sthen outstanding Old Notes, representing 97.74% of the outstanding Old Notes,consented to a Fourth Supplemental Indenture between the Company and U.S. BankNational Association, as trustee (the “Trustee”). The Company entered into theFourth Supplemental Indenture with the Trustee. Among other things, the FourthSupplemental Indenture increased the annual interest rate on the Old Notes from10.75% to 12.25% through March 31, 2005 and 13.25% thereafter, andrequired the payment of a cash consent fee of $3.5 million (3% of theprincipal amount of Old Notes held by each consenting noteholder); required thetermination of all related party transactions, except for certain specifically-permittedtransactions as described in Note 16 – “Transactions With Related Parties” tothe Company’s Consolidated Financial Statements; provided for the assumption bythe Company of approximately $15.3 million of subordinated debt of PFMIand waived any and all defaults of the Indenture existing as of March 8,2004.

Concurrently with the execution of the FourthSupplemental Indenture, the Company took title to an aircraft transferred froma related party subject to $5.6 million of existing debt; assumed $15.3 millionof debt from PFMI; cancelled the $1.0 million related party notereceivable against the debt assumed from PFMI; cancelled the balances owed bythe Company to certain related parties, as follows: $0.5 million owed toCHA; $3.5 million owed to PF Purchasing, a former affiliate of theCompany; $0.5 million owed to PF Distribution, a former affiliate of theCompany; and assumed the operating leases of PF Distribution, in connectionwith the Fourth Supplemental Indenture.

***Acquisition of Pierre.  ***As previously discussed in Item 1of this report, on June 30, 2004, the shareholders of PFMI closed the saleof their shares of stock of PFMI to Holding (see Note 1 – “Basis ofPresentation and Acquisition,” to the Company’s Consolidated Financial Statements).Effective June 30, 2004, the Company terminated its three-yearvariable-rate $40 million revolving credit facility. Existing debtissuance costs related to the Company’s former $40 million facility in theamount of $0.5 million and a prepayment penalty paid to the former lenderin the amount of $0.4 million were charged to interest expense.

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Also effective June 30, 2004, the Companyobtained a $190 million credit facility from a new lender which includes asix-year variable-rate $150 million term loan, a five-year variable-rate$40 million revolving credit facility and a $10 million letter of creditsubfacility. Funds available under this facility are available for workingcapital requirements, permitted investments, and general corporate purposes.Borrowings under the new facility bear interest at floating rates based uponthe interest rate option selected from time to time by the Company and aresecured by a first-priority security interest in substantially all of theCompany’s assets. The interest rates for base rate borrowings under the newrevolving credit facility and the new term loan at March 3, 2007 were 9.75%(prime of 8.25% plus 1.50%) and 7.61%, respectively. Base interest rates arelowered by the use of LIBOR tranches as appropriate. Repayment of borrowingsunder the term loan was initially $375,000 per quarter, which began onSeptember 4, 2004, with a balloon payment of $141.4 million due onJune 30, 2010. However, in addition to paying all scheduled quarterlypayments totaling $8.6 million for the term of the loan, the Company madeprepayments on the term loan totaling $4.9 million during successor fiscal2005. Prepayments totaling $17.4 million were made during successor fiscal2006. The remaining outstanding balance of $229.0 million as ofMarch 3, 2007 is due on June 30, 2010.

In conjunction with the Acquisition of Pierre, theCompany issued the New Notes. The proceeds of the New Notes, together with theequity contributions from MDP and certain members of management and borrowingsunder the Company’s new senior credit facility, were used to finance theAcquisition of Pierre and to repay outstanding indebtedness, including payingoff debt of PFMI assumed by the Company under the Fourth Supplemental Indenture(except capital leases), paying for the Old Notes tendered in connection withthe tender offer described in Note 1 – “Basis of Presentation and Acquisitions”to the Company’s Consolidated Financial Statements and redeeming the Old Notesnot tendered.

***Acquisition of Clovervale.  ***In conjunction with theAcquisition of Clovervale, on August 21, 2006, the Company entered intoAmendment No. 2 to its credit facility. Amendment No. 2 provided for,among other things, an increase in borrowings with respect to the Company’sterm loan totaling $24.0 million. A copy of Amendment No. 2 isincluded as Exhibit 10.1 to the Company’s Current Report on Form 8-Kfiled with the SEC on August 22, 2006.

***Acquisition of Zartic.  ***In conjunction with theAcquisition of Zartic, on December 11, 2006, the Company entered into AmendmentNo. 3 to its credit facility. Amendment No. 3 provided for, among otherthings, an increase in borrowings with respect to the Company’s term loantotaling $100.0 million. A copy of Amendment No. 3 is included asExhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filedwith the SEC on January 16, 2007.

***Cash and Cash Equivalents; Borrowing Availability.  ***As of March 3, 2007, the Companyhad cash and cash equivalents on hand of $0.1 million, outstanding borrowingsunder its revolving credit facility of $0.8 million and borrowing availabilityof approximately $35.7 million. Also as of March 3, 2007, the Company hadborrowings under its term loan of $229.0 million and $125.0 million of the NewNotes outstanding. As of March 4, 2006, the Company had cash and cashequivalents on hand of $2.5 million, no outstanding borrowings under itsrevolving credit facility and borrowing availability of approximately$34.4 million. Also as of March 4, 2006, the Company had borrowingsunder its term loan of $119.1 million and $125.0 million of the NewNotes outstanding. The maturity date of the $40 million revolving creditfacility is June 30, 2009. In addition, the Company is required to satisfycertain financial covenants regarding cash flow and capital expenditures. As ofMarch 3, 2007, the Company is in compliance with all financial covenants.

***Tax Sharing Agreement with Selling Shareholders.  ***In conjunction with theAcquisition of Pierre, the Company and the selling shareholders entered into atax sharing and indemnification agreement containing certain representationsand warranties of the selling shareholders with respect to taxes. The agreementprovides that any net operating loss carryforwards attributable to expensesrelating to the sale of the Company (“Deal Related NOLs”) and certain otherdeal related expenses, will be for the benefit of the selling shareholders. Asof the date of the Acquisition of Pierre, these Deal Related NOLs and otherdeal related expenses totaled approximately $24.2 million and $6.6 million,respectively. Accordingly, the Company is required to pay and has paid theselling shareholders the amount of any tax benefit attributable to such DealRelated NOLs and other deal related expenses, except that the first $4.0million of such tax benefits were paid into an escrow account that will securethe selling shareholders indemnification obligations under the tax sharing andindemnification agreement. The Company is required to make payments to theselling shareholders or the escrow account for tax benefits derived from suchutilization 20 days after the filing of the tax return that utilizes such DealRelated NOLs or other deal related expenses.

Initially, the Company recorded a net long-termliability to the selling shareholders totaling $10.3 million for the estimatedobligations under the tax sharing and indemnification agreement. Duringsuccessor fiscal 2007, the Company increased the estimated obligation under thetax sharing and indemnification agreement by approximately $1.3 millionbased on the differences in the tax rate initially used to estimate theliability, the actual payments to the selling shareholders, and the estimatedremaining obligation to the selling shareholders. The adjustment to theliability to the selling shareholders resulted in a corresponding increase ingoodwill related to the Acquisition of Pierre.

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As of March 3, 2007, based on all federal and stateincome tax returns filed subsequent to the Acquisition of Pierre (including thereturn filed recently on November 15, 2006 for the tax year ended February 24,2006), the Company has utilized $24.2 million of the Deal Related NOLs and $1.7million in other deal related expenses. Also as of March 3, 2007, the Companyhas submitted payments based on the tax benefits received, net of other taxassessments due to the Company from the selling shareholders, to an escrowaccount (approximately $4.0 million) and directly to the selling shareholders(approximately $5.4 million). As of the end of successor fiscal 2007, theCompany has a remaining liability to the selling shareholders totaling $2.2million (which reflects the aforementioned $1.3 million adjustment to increasethe future liabilities to the selling shareholders during successor fiscal 2007and the $3.9 million payment made to the selling shareholders in conjunctionwith the filing of its tax return on November 15, 2006). The remaining portionof the liability is classified as long-term based on the expected timing of theremaining payments to the selling shareholders. While the Company expects tofully utilize the Deal Related NOLs and other deal related expenses, theobligations to the selling shareholders under the tax sharing andindemnification agreement and the timing of future payments are unknown.

***Capital Expenditures.  ***The Company has budgetedapproximately $15.9 million for capital expenditures for successor fiscal 2008.These expenditures include a provision for capacity expansion, system upgrades,and routine food processing capital improvement projects and othermiscellaneous expenditures within the Company’s existing facilities. TheCompany believes that funds from operations and funds from its $40 millionrevolving credit facility, as well as the Company’s ability to enter intocapital leases, will be adequate to finance these capital expenditures.

If the Company continues its historical annual revenuegrowth trend as expected, then the Company will be required to raise and investadditional capital for additional plant expansion projects to provide operatingcapacity to satisfy increased demand and specific customer requirements. Inaddition, management believes that futurecash requirements for these plant expansion projects would need to be metthrough other long-term financing sources. The incurrence of additionallong-term debt is governed and restricted by the Company’s existing debtinstruments. Furthermore, there can be no assurance that additional long-termfinancing will be available on advantageous terms (or any terms) when needed bythe Company.

***General.  ***Significant assumptions underliethe belief that the Company anticipates that its successor fiscal 2008 cashrequirements for working capital and debt service will be met through acombination of funds provided by operations and borrowings under its $40million revolving credit facility, including, among other things, that therewill be no material adverse developments in the business, liquidity orsignificant unbudgeted capital requirements of the Company.

**CommercialCommitments, Contingencies, and Contractual Obligations**

The Company provided a letter of credit in the amountof $2.8 million, $5.5 million, and $4.5 million in successor fiscal 2007,successor fiscal 2006, and predecessor fiscal 2005 and successor fiscal 2005combined, respectively, to its insurance carrier for the underwriting ofcertain performance bonds. The current letter of credit expires in successorfiscal 2008. The Company also provides secured letters of credit to itsinsurance carriers for outstanding and potential workers’ compensation andgeneral liability claims. Letters of credit for these claims totaled $675,000in successor fiscal 2007 and $110,000 in both successor fiscal 2006 and inpredecessor fiscal 2005 and successor fiscal 2005 combined. In addition, theCompany provides secured letters of credit to a limited number of suppliers.

The Company is involved in various legal proceedings. Managementbelieves, based on the advice of legal counsel, that the outcome of suchproceedings will not have a materially adverse effect on the Company’sfinancial position or future results of operations and cash flows. See Item 3 – “Legal Proceedings” of this report andNote 17 – “Legal Proceedings,” to the Company’s Consolidated FinancialStatements for further discussion of proceedings as of March 3, 2007.

The followingtables summarize our contractual obligations and commitments as of March 3,2007:
| ** **                                 | ** ** | **Commitments by Fiscal Year** | ** ** |
|--------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                 | ** ** | **Total**                                     | ** ** | **Less than   1 Year** | ** ** | **1 – 3  Years** | ** ** | **3 – 5  Years** | ** ** | **More than  5 Years** | ** ** |
| ** **                                 | ** ** | ** **                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Letters of  credit                         |       | $                                             | 3,482,550  |   | $ | 3,482,550 |   | $ | — |   | $ | — |   | $ | — |   |
| Purchase  commitments for capital projects |       | 1,215,912                                     |       | 1,215,912 |   | — |   | — |   | — |   |
| Purchase commitments  for raw materials    |       | 5,759,632                                     | ** ** | 5,759,632 |   | — |   | — | ** ** | — |   |
| Purchase  commitments for natural gas      |       | 516,987                                       |       | 484,012 |   | 32,975 |   | — |   | — |   |
| Other  miscellaneous services              |       | 75,588                                        |       | 72,837 |   | 2,751 |   | — |   | — |   |
| Total                                      |       | $                                             | 11,050,669 |   | $ | 11,014,943 |   | $ | 35,726 |   | $ | — |   | $ | — |   |

 

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| ** **                        | ** ** | **Contractual Obligations by Fiscal Year** | ** **  |
|-----------------------------------|------------|----------------------------------------------------------------|-------------|
| ** **                        | ** ** | **Total**                                                      | ** **  | **Less than  1 Year** | ** ** | **1 – 3  Years** | ** ** | **3 – 5  Years** | ** ** | **More than  5 Years** | ** ** |
| Long-term debt                    |       | $                                                              | 354,800,000 |   | $ | — |   | $ | 229,800,000 |   | $ | — |   | $ | 125,000,000 |   |
| Capital lease  obligations*       |       | 4,479,171                                                      |        | 1,799,869 |   | 2,470,530 |   | 208,772 |   | — |   |
| Operating lease  obligations      |       | 4,517,660                                                      |        | 3,806,215 |   | 646,610 |   | 64,835 |   | — |   |
| Interest on  fixed-rate debt**    |       | 55,956,880                                                     |        | 12,617,252 |   | 24,824,003 |   | 18,515,625 |   | — |   |
| Interest on  variable-rate debt** |       | 44,248,497                                                     |        | 17,699,399 |   | 26,549,098 |   | — |   | — |   |
| Total                             |       | $                                                              | 464,002,208 |   | $ | 35,922,735 |   | $ | 284,290,241 |   | $ | 19,789,232 |   | $ | 125,000,000 |   |

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*         Capital lease obligations include interest component relatedto leases.

**                   Estimatedpayments for interest are based on actual interest rates for fixed andvariable-rate debt outstanding as of March 3, 2007 assuming that theoutstanding balances remain unchanged until maturity.

**In conjunction with the Acquisitionof Pierre, the Company and the selling shareholders entered into a tax sharingand indemnification agreement containing certain representations and warrantiesof the selling shareholders with respect to taxes. As of the end of successorfiscal 2007, the Company has recorded the remaining liability, which isclassified as long-term based on the expected timing of the remaining paymentsto the selling shareholders. While the Company expects to fully utilize theDeal Related NOLs and other deal related expenses, the obligations to theselling shareholders under the tax sharing and indemnification agreement andthe timing of future payments are unknown, and therefore, excluded from thetable above.**See “Tax Sharing Agreement with Selling Shareholders” and Note 14 – “Commitments, Contingencies, andContractual Obligations,” to the Company’s Consolidated Financial Statementsfor further discussion.

**Inflation**

The Company believes that inflation has not had amaterial impact on its results of operations for successor fiscal 2007 andsuccessor fiscal 2006, or predecessor fiscal 2005 and successor fiscal 2005combined. In addition, the Company does not expect inflation to have a materialimpact on its results of operations for successor fiscal 2008. However, theCompany experienced significant increases in fuel prices in both successorfiscal 2007 and successor fiscal 2006, in addition to raw material priceincreases in predecessor fiscal 2005 and successor fiscal 2005. See Item 7A – “Quantitativeand Qualitative Disclosures About Market Risk.”

**CriticalAccounting Policies and Estimates**

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of America (“GAAP”)requires the appropriate application of certain accounting policies, many ofwhich require the Company to make estimates and assumptions about future eventsand their impact on amounts reported in the financial statements and relatednotes. Since future events and the impact of those events cannot be determinedwith certainty, the actual results will inevitably differ from the Company’sestimates. Such differences could be material to the financial statements.

The Company believes its application of accountingpolicies, and the estimates inherently required therein, are reasonable. Theseaccounting policies and estimates are constantly re-evaluated, and adjustmentsare made when facts and circumstances dictate a change. Historically, theCompany’s application of accounting policies has been appropriate, and actualresults have not differed materially from those determined using necessaryestimates.

The following critical accounting policies affect theCompany’s more significant judgments and estimates used in the preparation ofits financial statements.

***Revenue Recognition.  ***The Company records revenues fromits sales of food products at the time title transfers. Standard shipping termsare FOB destination. Based on these terms, title passes at the time the productis delivered to the customer. Revenue is recognized as the net amount to bereceived by the Company after deductions for estimated discounts, productreturns, and other allowances. These estimates are based on historical trendsand expected future payments (see also “Promotions” below).

***Goodwill and Other Intangible Assets.  ***In conjunction with theAcquisition of Pierre, the Acquisition of Clovervale, and the Acquisition ofZartic, the Company engaged an independent party to perform valuations of theCompany’s other intangible assets for financial reporting purposes. Assets identifiedthrough each of these valuation processes included formulas, customerrelationships, licensing agreements, non-compete agreements, and certain tradenames and trademarks.

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In accordance with Financial Accounting Standard No.142 (“SFAS 142”) —“Goodwill and Other Intangible Assets,” the Company testsrecorded goodwill and intangibles with indefinite lives for impairment at leastannually. Intangible assets with finite lives are amortized over theirestimated economic or estimated useful lives. In addition, all other intangibleassets are reviewed for impairment in accordance with SFAS 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets.” Included inthe review for impairment are certain assumptions and estimates which includefinancial forecasts of income and cash flow that are attributable to theCompany’s reporting units and indefinite-lived intangible assets (which arediscounted to present value at rates reflective of the Company’s cost ofcapital). As of March 3, 2007, the Company performed the annualimpairment review of goodwill and indefinite-lived intangible assets and alsoassessed whether the indefinite-lived intangible assets continue to haveindefinite lives. The Company engaged an independent party to performvaluations to assist in the impairment review. There were no impairment chargesas a result of this review.

As noted above, the impairment analyses relied on financial forecasts ofincome and cash flow that are attributable to our reporting units andindefinite-lived intangible assets and then discounted to present value atrates reflective of our cost of capital. Future changes in our financialforecasts or cost of capital might adversely affect the value of our reportingunits or indefinite-lived intangible assets. The Company will continue toperform impairment tests on an annual basis and on an interim basis, if certainconditions exist.

The Company’s amortizable intangible assets areamortized using primarily accelerated amortization methods, in addition to thestraight-line amortization method, in order to allocate expected benefitderived from the assets over the estimated useful life of such assets.

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

***Stock-Based Compensation.  ***The Company treats the options topurchase shares of common stock of Holding issued to employees of the Company (“Options”)as stock-based compensation for employees of the Company. Prior to successorfiscal 2007, as permitted under GAAP, the Company accounted for the Optionsunder the recognition and measurement principles of Accounting Principles BoardOpinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), andrelated Interpretations using the intrinsic value method. Accordingly, no compensationexpense was recognized for the stock option plan in the Company’s ConsolidatedStatements of Operations.

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

***New Accounting Pronouncement.  ***In June 2006, the FinancialAccounting Standards Board (“FASB”) issued Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN48”). FIN 48 addresses uncertainty in tax positions recognized in a company’sfinancial statements and stipulates a recognition threshold and measurement ofa tax position taken or expected to be taken in a tax return. FIN 48 iseffective for the Company’s fiscal year beginning March 4, 2007, with earlieradoption permitted. The Company is currently evaluating the impact of thisinterpretation on the Company’s consolidated financial statements.

In September 2006, the FASB issued SFAS 157, “FairValue Measurements”.  The objective of SFAS 157is to define fair value, establish a framework for measuring fair value andexpand disclosures about fair value measurement. SFAS 157 is effective forinterim and annual reporting periods beginning after November 15, 2007. TheCompany has not yet assessed the impact of SFAS 157 on the Company’sconsolidated financial statements.

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In February 2007, the FASB issued SFAS No. 159, “TheFair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”).SFAS 159 permits entities to choose to measure many financial instruments andcertain other items at fair value that are not currently required to bemeasured at fair value. The objective of SFAS 159 is to improve financialreporting by providing entities with the opportunity to mitigate volatility inreported earnings caused by measuring related assets and liabilitiesdifferently without having to apply complex hedge accounting provisions. SFAS 159is effective for the first fiscal year that begins after November 15, 2007. TheCompany has not yet assessed the impact of SFAS 159 on the Company’sconsolidated financial statements.

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

The Company is exposed to market risk stemming fromchanges in interest rates, foreign exchange rates and commodity prices. Changesin these factors could cause fluctuations in the Company’s financial condition,results of operations and cash flows. The Company owned no derivative financialinstruments or nonderivative financial instruments held for trading purposes atMarch 3, 2007, March 4, 2006 (the last day of successor fiscal 2006), or March5, 2005 (the last day of successor fiscal 2005). Certain of the Company’soutstanding nonderivative financial instruments at March 3, 2007 are subject tointerest rate risk, but not subject to foreign currency or commodity pricerisk. There was no significant change in market risk from successor fiscal 2006compared to successor fiscal 2007.

***InterestRate Risk.  ***TheCompany’s major market risk exposure is potential loss arising from changinginterest rates and its impact on long-term debt. The Company’s policy is tomanage interest rate risk by maintaining a combination of fixed andvariable-rate financial instruments in amounts and with maturities that managementconsiders appropriate. The risks associated with long-term debt at March 3, 2007have increased since March 4, 2006 as a result of the additional long-termdebt incurred to finance the Acquisition of Clovervale and the Acquisition ofZartic. Of the long-term debt outstanding at March 3, 2007, the $125.0 millionof New Notes and the $4.0 million of capital leases accrue interest at fixedinterest rates, while the $229.0 million outstanding borrowings under theTerm B Loan facility and the revolving credit facility accrue interest at avariable interest rate. At March 3, 2007, the Company had outstandingborrowings totaling $0.8 million under the revolving credit facility. Arise in prevailing interest rates could have adverse effects on the Company’sfinancial condition and results of operations. A 25 basis point increase in thereference rates for the Company’s average variable-rate debt outstanding duringsuccessor fiscal 2007 would have decreased net income for that period byapproximately $273,000.

The followingtable summarizes the Company’s market risks associated with long-term debtoutstanding at March 3, 2007. The table presents principal cash outflowsand related interest rates by maturity date.

|                  | ** ** | **March 3, 2007  Expected Maturities in Fiscal Years  Long-Term Debt** | ** **  |
|------------------|------------|-----------------------------------------------------------------------------------------------------------|-------------|
| ** **       | ** ** | **Variable-Rate  Long-Term   Debt**                                                                  | ** **  | **Fixed-Rate  Long-Term   Debt** | ** ** | **Weighted  Average  Interest  Rate** | ** ** |
| **Fiscal  Year** |       |                                                                                                      |        |   |   |   |   |
| 2008             |       | —                                                                                                    |        | 1,557,594 |   | 7.09 | % |
| 2009             |       | 800,000                                                                                                   |        | 1,514,794 |   | 8.22 | % |
| 2010             |       | 229,000,000                                                                                               |        | 775,586 |   | 7.61 | % |
| 2011             |       | —                                                                                                    |        | 173,888 |   | 10.31 | % |
| 2012             |       | —                                                                                                    |        | 22,193 |   | 9.06 | % |
| Thereafter       |       | —                                                                                                    |        | 125,000,000 |   | 9.88 | % |
| Total            |       | $                                                                                                         | 229,800,000 |   | $ | 129,044,055 |   | 8.40 | % |
|             |       |                                                                                                      |        |   |   |   |   |
| Fair Value       |       | $                                                                                                         | 229,800,000 |   | $ | 134,669,055 |   |   |   |

 

***Foreign Exchange Rate Risk.  ***The Company bills customers inforeign countries in US dollars, with the exception of sales to Canada. TheCompany does not believe the foreign exchange rate risk on Canadian sales ismaterial. However, a significant decline in the value of currencies used incertain regions of the world as compared to the US dollar could adverselyaffect product sales in those regions because the Company’s products may bemore expensive for those customers to pay for in their local currency. At March3, 2007 and March 4, 2006, all trade receivables were denominated in USdollars.

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***CommodityPrice Risk*.  **Certainraw materials used in food processing operations are susceptible to commodityprice changes. Increases in the prices of certain commodity products couldresult in higher overall production costs. The primary raw materials used inthe Company’s food processing operations are boneless beef, chicken and pork,flour, yeast, seasonings, cheese, breading, soy proteins, and packagingsupplies. Prices for beef, chicken, and pork, the Company’s principal proteinraw materials, reached historical highs during predecessor fiscal 2005 andsuccessor fiscal 2005 combined. However, during successor fiscal 2006, theweighted average prices paid for raw materials (excluding market-relatedpricing contracts) decreased from the historical highs experienced during predecessorfiscal 2005 and successor fiscal 2005 combined, with the exception of beef,which increased by approximately 7.7% compared to the weighted averageprices the Company paid during predecessor fiscal 2005 and successor fiscal2005 combined. During successor fiscal 2007, the weighted average prices paidfor raw material (excluding market-related pricing contracts) decreasedcompared to the weighted average prices paid during successor fiscal 2006. Duringsuccessor fiscal 2007, the weighted average prices the Company paid for beef,chicken, pork, and cheese (increased) decreased by approximately 1.2%, (8.3%),(6.6%), and 7.3%, respectively, over the weighted average prices the Companypaid for these raw materials during the fourth quarter of successor fiscal2006. The Company manages such fluctuations through purchase orders,market-related pricing contracts and by passing on such cost increases tocustomers. At March 3, 2007, the Company evaluated commodity pricing risks anddetermined it was not currently beneficial to use derivative financialinstruments to hedge the Company’s current positions with respect to suchpricing exposures.

***FairValue of Financial Instruments*.  **The Company’s nonderivative financial instrumentsconsist primarily of cash and cash equivalents, trade receivables, tradepayables and long-term debt. The estimated fair values of the financial instruments have beendetermined by the Company using available market information and appropriatevaluation techniques. Considerable judgment is required, however, to interpretmarket data to develop the estimates of fair value. Accordingly, the estimatespresented are not necessarily indicative of the amounts that the Company couldrealize in a current market exchange. The use of different market assumptionsand/or estimation methodologies may have a material effect on the estimatedfair value amounts. See further discussion in Note 12 – “Disclosures About FairValues of Financial Instruments,” to the Company’s Consolidated FinancialStatements.

**Item 8.   *Financial Statements and Supplementary Data***

The Company’s Consolidated Financial Statementsrequired by this Item are on pages F-1 through F-35 of this report.

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

None.

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

Not applicable.

**Item 9A(T).   *Controls and Procedures***

***Evaluation of Disclosure Controls and Procedures.  ***As of the end of the periodcovered by this report, the Company performed an evaluation, under thesupervision and with the participation of its management including thePresident and Chief Executive Officer and Chief Financial Officer of theeffectiveness of the Company’s disclosure controls and procedures (as such termis defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon thisevaluation, the Company’s President and Chief Executive Officer and ChiefFinancial Officer have concluded that as of March 3, 2007, the Company’sdisclosure controls and procedures were effective for the purposes of ensuringthat information required to be disclosed in reports that the Company files orsubmits under the Securities Exchange Act of 1934 (“Exchange Act”) has beenrecorded, processed, summarized and reported in accordance with the rules andforms of the Securities and Exchange Commission (the “SEC”).

***Changes in Internal Controls.  ***There have been no changes in theCompany’s internal controls over financial reporting during the quarter endedMarch 3, 2007 that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

****Section 404 of Sarbanes-Oxley Act of 2002******.****  ****On December 15, 2006, the SEC issued a rule(Release No. 33-8760; 34-54942) to grant relief to non-accelerated filers byfurther extending the date of compliance with Section 404 of the Sarbanes-OxleyAct of 2002 (the “Act”). Pursuant to the rule, the Company is required tocomply with the Act in two phases. The first phase is effective for the Company’sfiscal year ending March 1, 2008 and requires the Company to issue a managementreport on internal control over financial reporting. The second phase requiresthe Company to provide an auditor’s attestation report on internal control overfinancial reporting beginning with the Company’s fiscal year ending February28, 2009****.**

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The Company iscurrently undergoing an effort to comply with the Act. This effort includesdocumenting, evaluating the design and testing the effectiveness of the Company’sinternal controls. During this process, Pierre may make improvements to thedesign and operation of its internal controls, including but not limited to,further formalization of policies and procedures. Although the Company believesthat its efforts will enable the Company to provide the required managementreport on internal controls and its independent auditors to provide therequired attestation based on the required dates above, Pierre can give noassurance that these efforts will be successfully completed in a timely manner.

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

None.

**PART III**

**Item 10.   *Directors, Executive Officers, and Corporate Governance***

**Directors andExecutive Officers**

ROBIN P. SELATI, DIRECTOR, age 41, has served as adirector since June 2004. Mr. Selati is a Managing Director of MDP and joinedthe firm in 1993. Prior to joining MDP in 1993, Mr. Selati was associated withAlex Brown & Sons Incorporated in the consumer/retail investment bankinggroup. Mr. Selati also serves on the Board of Directors of Carrols RestaurantGroup Inc., Tuesday Morning Corporation, Cinemark, Inc., Ruth’s Chris SteakHouse, Inc. and Yankee Candle.

NICHOLAS W.ALEXOS, DIRECTOR, age 43, has served as a director since June 2004. Prior toco-founding MDP in 1993, Mr. Alexos was with First Chicago Venture Capital forfour years. Mr. Alexos also serves on the Board of Directors of NationalMentor, Inc. and Sirona Holdings Luxco S.C.A.

GEORGE A. PEINADO, DIRECTOR, age 37, has served as adirector since June 2004. Mr. Peinado is a director of MDP and joined the firmin 2004. Prior to joining MDP in 2004, Mr. Peinado was with DLJ MerchantBanking Partners and Morgan Stanley & Co. Mr. Peinado also serves on theBoard of Directors of Yankee Candle.

SCOTT W. MEADER, DIRECTOR, age 45, became a directorin October 2004. Mr. Meader was formerly the President and Chief ExecutiveOfficer of Milnot Holding Corp., having served in that position from 1997 until2006. Prior to Milnot Holding Corp., Mr. Meader held various positions withBurns Philps Foods PLC, Pet Incorporated, A.T. Kearney and Quaker Oats Co.

NORBERT E. WOODHAMS, PRESIDENT, CHIEF EXECUTIVEOFFICER, DIRECTOR AND CHAIRMAN OF THE BOARD, age 61, became the Company’sPresident and Chief Executive Officer in December 1999 and became a director inJune 2004 upon completion of the Acquisition of Pierre. He was elected asChairman of the Board of the Company effective January 11, 2005. Immediatelyprior to his election to those offices, Mr. Woodhams was President of PierreFoods, LLC, the Company’s former operating subsidiary, having served in thatposition since the Company’s acquisition of Pierre Cincinnati in June 1998. 

ROBERT C. NAYLOR, SENIOR VICE PRESIDENT OF SALES ANDMARKETING, age 55, became the Company’s Senior Vice President of Sales andMarketing in December 1999. Immediately prior, he was Senior Vice President ofSales of Pierre Foods, LLC, the Company’s former operating subsidiary, havingserved in that position since the Company’s acquisition of Pierre Cincinnati inJune 1998. From 1978 to 1998, he served in various sales positions for PierreCincinnati, including Vice President of Sales.

JOSEPH W. MEYERS, CHIEF FINANCIAL OFFICER, age 40, hasserved as the Company’s Chief Financial Officer since January 2007. Immediatelyprior, he was the Vice President, Finance, having served in that position sinceFebruary 2003. He also held various accounting and finance positions with theCompany since 1996. Prior to this, Mr. Meyers held the position of GeneralAccounting Manager at OhSe Foods, Lunch Meat Division of Hudson Foods inTopeka, Kansas from 1991 through 1996. In 1996, OhSe Foods divested into HudsonFoods.

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**Audit CommitteeFinancial Expert**

The Board of Directors of the Company has determinedthat Nicholas W. Alexos is an “audit committee financial expert” as defined inItem 407(d)(5) of Regulation S-K promulgated by the SEC.  Although the Company does not currently havesecurities listed on a national exchange or on an inter-dealer quotationsystem, it has selected the definition of “independent” promulgated by the NewYork Stock Exchange (“NYSE”) to determine whether its directors areindependent.  Mr. Alexos is a ManagingPartner of Madison Dearborn Partners, LLC, the general partner of MadisonDearborn Partners IV, L.P., which is the general partner of Madison DearbornCapital Partners IV, L.P., which holds approximately 96% of the issued andoutstanding capital stock of Holding, and therefore, the Board of Directors hasdetermined that Mr. Alexos is not independent.

**Code of Ethics**

The Board of Directors adopted a Code of Ethicseffective January 10, 2006, which is applicable to all officers, directors, andemployees of the Company.  The portion ofsuch Code of Ethics that constitutes a “Code of Ethics” as defined in Item 406of Regulation S-K under the Exchange Act is filed as Exhibit 14 to the Company’sQuarterly Report on Form 10-Q filed with the SEC on January 17, 2006.

**Item11.   *Executive Compensation***

**CompensationDiscussion and Analysis**

***General Overview.  ***As part of the Acquisition ofPierre, MDP, Norbert E. Woodhams, the Company’s President and Chief ExecutiveOfficer, and Robert C. Naylor, the Company’s Senior Vice President of Sales andMarketing, became the owners of Holding. Following the closing of the Acquisition of Pierre, Nicholas Alexos,George Peinado, and Robin Selati, each an employee of an affiliate of MDP, andMr. Woodhams became directors of the Company. In January 2005, Scott Meader, who is not affiliated with MDP or theCompany, was added as a director of the Company.  At present, the Company’s CompensationCommittee is comprised of Messrs. Alexos, Peinado and Selati.

Also, in connection with the Acquisition of Pierre,MDP negotiated compensation arrangements with Messrs. Woodhams and Naylor, eachof whom entered into an employment agreement with Holding. The compensationpaid to Messrs. Woodhams and Naylor since the closing of the Acquisition ofPierre reflect such negotiations.  Inaddition, as part of the Acquisition of Pierre, each of Messrs. Woodhams andNaylor were awarded stock options to purchase shares of common stock ofHolding. They also invested approximately $4.9 million in a deferredcompensation plan, which is funded through a rabbi trust that owns preferredstock of Holding.

Following the Acquisition of Pierre, effectiveSeptember 5, 2004, certain members of the Company’s management, includingJoseph W. Meyers who was then the Vice President, Finance of the Company, wereawarded options to purchase shares of common stock of Holding.  Effective January 9, 2007, Mr. Meyers waspromoted to the Company’s Chief Financial Officer.  MDP and the Company believe that the equityownership in Holding further aligns the interests of the Company’s executiveofficers and other management with those of MDP and other equity investors andencourages the Company’s executive officers and other management to operate thebusiness in a manner that enhances the Company’s equity value.

Throughout this analysis, Norbert E. Woodhams, theCompany’s President and Chief Executive Officer, Joseph W. Meyers, the Company’sChief Financial Officer, and Robert C. Naylor, the Company’s Senior VicePresident of Sales and Marketing, are referred to as the “named executiveofficers.”

***ExecutiveCompensation Philosophy.  ***The Company’s executive compensation program isadministered by the Compensation Committee of the Company’s Board ofDirectors.  The role of the Committee isto review and approve salaries and other compensation of the named executiveofficers of the Company, to administer the stock option plan of Holding, toreview and approve stock option grants under such plan to all employees of theCompany including the named executive officers of the Company, and to reviewand approve the annual cash incentive plans for all employees, including thenamed executive officers.  The Company’scompensation philosophy is that total cash compensation should vary withperformance and long-term incentive should be closely aligned with theinterests of the Company’s stockholder and the stockholders of Holding.  The objectives of the Company’s compensationpolicies are to:

·                  Provide a level of compensation that willallow the Company to attract, motivate, retain and reward talented executiveswho have the ability to contribute to the Company’s success;

·                  Link executive compensation to the Company’ssuccess through the use of bonus payments based in whole or in part on theCompany’s performance;

·                  Align the interests of the executives withthose of the Company’s stockholder and the stockholders of Holding;

·                  Provide total compensation that is competitivewith other food processing companies of comparable sales volume and financialperformance; and

·                  Motivate and reward high levels of performanceor achievement.

*** ***

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***Components ofExecutive Compensation Program.  ***The primary elements of theCompany’s executive compensation programs are:

·                  Base salary;

·                  Annual incentive compensation;

·                  Stock-based awards;

·                  Benefits and perquisites;

·                  Severance and change-in-control payments; and

·                  Deferred compensation.

 

***Base Salary.***   As part of the Acquisition ofPierre, MDP negotiated employment agreements with each of Messrs. Woodhams andNaylor.  The base salaries of each arespecified in their respective employment agreement and are increased annuallyfor cost-of-living increases.  Uponrecommendation of management to the Compensation Committee, Mr. Meyers receivedan increase in his base salary when he was promoted to Chief Financial Officerof the Company.  Such recommendation wasbased upon competitive benchmark data obtained from public sources, includingproxy statements and public surveys.  Inaddition, the Company increased the annual base salary of Mr. Naylor effectiveMarch 1, 2007 from $265,738 to $292,312, or 10%.  This increase was based primarily on Mr.Naylor’s increased responsibility for sales and management associated with theAcquisition of Clovervale and the Acquisition of Zartic.  In general, if a named executive officer’srole and performance level have not changed significantly, and his salary isconsistent with market levels of pay, he can typically expect a modest increasein base salary that year.

***Annual Incentive Compensation.  ***In addition to base salary, eachnamed executive officer participates in an annual cash incentive plan, whichconstitutes the variable, performance-based component of an executive’s cashcompensation.  The annual cash incentiveplan is designed to reward members of management and other key individuals forperformance in the applicable fiscal year. The plan provides for a target incentive opportunity for eachparticipant consistent with market practice for such participant’s position orjob function.  The annual incentive planis structured to provide a “pool” of dollars based upon the Company’sattainment of certain EBITDA targets for the applicable fiscal year, which areapproved by the Compensation Committee. For purposes of the incentive plan, EBITDA is calculated by adding to,or to the extent a benefit, subtracting from, net income (loss) the following:(i) interest expense, (ii) income tax (provision) benefit, and (iii)amortization and depreciation, each as shown on the Company’s ConsolidatedFinancial Statements.  The achievement ofthe maximum payout targets is challenging for the Company unless the Companyexperiences significant sales growth or significantly reduces expenses duringthe fiscal year.  Under the successorFiscal 2007 Executive Incentive Compensation Plan, the named executive officersreceived less than 50% of the pay-out that was achievable had the EBITDAtargets been met.

***Stock-Based Awards.  ***The long-term incentive portion ofthe Company’s compensation program includes stock options to purchase shares ofcommon stock of Holding.  The purposes ofproviding long-term equity incentives are to promote the Company’s long-termgrowth and profitability by aligning the interests of the Company’s executiveswith the interests of the stockholder of the Company and the stockholders ofHolding.  The options granted to thenamed executive officers were made as part of the Acquisition of Pierre and noadditional options have been granted to any of the named executive officerssince that time.  The options are for aten year term.  For each option, 40%vests daily over a five year period and 60% vests based upon the Company’sachievement of certain performance goals. The performance goals were set by MDP in conjunction with theAcquisition of Pierre and are tied to the enterprise value of the Company,which is calculated by multiplying a fixed EBITDA target by a pre-determinedmultiple and then deducting (i) the net debt (long-term debt, less currentinstallments plus the current installments of long-term debt, less cash on hand,each as shown in the Company’s Consolidated Financial Statements and footnotesthereto) and (ii) preferred equity of Holding, ($133.0 million) and unpaidaccumulated dividends on such equity, which accrue at 10% per annum on theoriginal principal amount and on all accrued, but unpaid dividends fromJune 30, 2004. For purposes of the stock option plan, EBITDA is calculatedin the same manner as for the annual cash incentive plan, described immediatelyabove.  To date, the performance targetshave not been met and therefore, none of the performance-based options havevested.  The exercise price of alloutstanding options to purchase shares of common stock of Holding is $10.00 pershare.

***Severance and Change in Control Benefits.  ***As part of the Acquisition ofPierre, the Company entered into employment agreements with each of Messrs.Woodhams and Naylor.  Each employmentagreement provides for certain severance benefits to be paid to the namedexecutive officer if the Company terminates the named executive officer’semployment without “cause,” the named executive officer resigns at any time for“good reason”, each as defined in the employment agreement, or the Companyelects not to renew the term of the agreement. In addition, each employment agreement provides for severance paymentsif the named executive officer elects not to renew the term of his agreement orif he resigns without good reason; provided, however, the Company may elect notto make the severance payments in such circumstances in which case, the namedexecutive officer would not be bound by the non-competition provisions in hisagreement.  The Company believes that inthese situations, the Company should provide reasonable severance benefits toassist the named executive officer with this transition, recognizing that itmay take time for a named executive officer to find comparable employmentelsewhere.

Any unvested stock options held by a named executiveofficer immediately vest upon a change-in-control of the Company orHolding.  The Company believes that suchaccelerated vesting could align the interests of the named executive officerwith the interests of the the stockholder of the Company and the other stockholdersof Holding in the event of a sale of the Company when the named executiveofficer’s interests might otherwise be opposed to the sale of the Company.

***Benefits and Perquisites.  ***The Company’s named executiveofficers participate in a retirement savings plan, which includes contributoryand non-contributory provisions, as well as various health and welfare benefitplans on the same basis as other salaried employees.  The Company’s objective is to offer allsalaried employees, including the named executive officers, a benefits packagethat is competitive within the food processing industry.  In addition, the Company provides certainathletic and social club memberships for Messrs. Woodhams and Naylor, which areconsidered to be commensurate with their respective positions in the Companyand beneficial for sales and marketing objectives.

*** ***

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***Deferred Compensation.  ***In connection with the Acquisitionof Pierre, Messrs. Woodhams and  Naylor invested approximately$4.9 million in a deferred compensation plan.  This deferred compensation plan is fundedthrough a rabbi trust that owns preferred stock of Holding with an aggregateliquidation value of approximately $6.3 million at March 3, 2007.  As with stock options, the deferredcompensation promotes the Company’s long-term growth and profitability byaligning the interests of the executives with those of the Company’s stockholderand the stockholders of Holding.

**SummaryCompensation Table**

The following information presents compensationinformation for services to the Company, for successor fiscal 2007, for each ofthe named executive officers.

**SUMMARYCOMPENSATION TABLE**
| **Name and Principal Position**                    | ** ** | **Fiscal   Year** | ** ** | **Salary ($)** | ** ** | **Option  Awards ($)** | ** ** | **Non-Equity  Incentive    Plan  Compensation ($)** | ** ** | **Change in  Pension   Value and  Non-qualified  Deferred   Compensation  Earnings  ($)** | ** ** | **All Other   Compensation  ($)** | ** ** | **Total ($)** | ** ** |
|-------------------------------------------------------------------|------------|------------------------|------------|---------------------|------------|-----------------------------|------------|--------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|--------------------|------------|
| Norbert E.  Woodhams,   President and Chief   Executive Officer   |       | 2007                   |       | $                   | 394,574    |                        | $          | 9,538                                                              |       | $                                                                                                        | 139,887(1) |                                        | $     | 337,500(2)         |       | $  | 160,552(3) |   | $ | 1,042,141 |   |
| Joseph W. Meyers,    Chief Financial Officer                      |       | 2007                   |       | $                   | 136,408    |                        | $          | 661                                                                |       | $                                                                                                        | 22,516(1)  |                                        | —     |               | $     | 20,209(4) |   | $ | 179,794 |   |
| Robert C. Naylor,   Senior Vice President  of Sales and Marketing |       | 2007                   |       | $                   | 263,050    |                        | $          | 5,869                                                              |       | $                                                                                                        | 93,258(1)  |                                        | $     | 250,470(5)         |       | $  | 151,660(6) |   | $ | 764,307 |   |

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(1)             Paid pursuant to the Company’s Fiscal 2007 ExecutiveIncentive Compensation Plan.  See Grantsof Plan-Based Awards table for additional information.

(2)             Represents dividends on the deferred stock bonus heldin Mr. Woodham’s account under the Pierre Foods, Inc. Deferred CompensationPlan, including 10% per annum on the initial value of $2,790,000 ($279,000) and10% per annum on all unpaid dividends through the end of successor fiscal 2007($58,500).  See Nonqualified DeferredCompensation table for additional information.

(3)             Represents $109,091 in life insurance premiums, $13,042in disability insurance premiums, $20,448 in automobile lease payments, $7,737in matching contributions made by the Company to the Company’s 401(k) plan, and$10,234 in club memberships.

(4)             Represents $12,166 in automobile lease payments, $3,692in matching contributions made by the Company to the Company’s 401(k) plan, and$4,351 in a prize won at an employee holiday party.

(5)             Represents dividends on the deferred stock bonus heldin Mr. Naylor’s account under the Pierre Foods, Inc. Deferred CompensationPlan, including 10% per annum on the initial value of $2,070,000 ($207,000) and10% per annum on all unpaid dividends through the end of successor fiscal 2007($43,470).  See Nonqualified DeferredCompensation table for additional information.

(6)             Represents $109,091 in life insurance premiums, $9,971in disability insurance premiums, $18,996 in automobile lease payments, $7,575in matching contributions made by the Company to the Company’s 401(k) plan, and$6,027 in club memberships and payment for opting out of the Company’s healthinsurance.

**EmploymentContracts**

In connection with the Acquisition of Pierre, each ofMessrs. Woodhams and Naylor entered into an employment agreement with Holding,which provided for employment through June 29, 2005.  The term of each employment agreement automaticallyrenewed after a one-year term, and will continue to renew for successiveone-year terms unless either party gives the other party written notice of itsintent not to renew at least 60 days prior to the expiration of thethen-current term.  Pursuant to suchagreements, Mr. Woodham’s base salary was set at $375,000 per year and Mr.Naylor’s was set at $250,000 per year, in each case subject to annualadjustments for inflation.  In addition,both are entitled to (i) participate in the annual bonus plan for seniorexecutives of Pierre, (ii) participate in employee benefit programs in whichsenior executives of Pierre are generally eligible to participate, (iii) use acompany car, and (iv) obtain reimbursement of all reasonable out-of-pocketexpenses.  If the named executive officeris terminated without cause, dies or becomes disabled, or he resigns for goodreason (each as defined in the employment agreement), he will be entitled toreceive his base salary for one year and to continue to participate in employeewelfare benefit plans during the one-year period.  Each employment agreement contains customarynondisclosure of confidential information provisions and noncompetitioncovenant with Pierre for a period of one year after termination of employment.

** **

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**Grants ofPlan-Based Awards in Successor Fiscal 2007**

Under the Company’s successor Fiscal 2007 ExecutiveIncentive Compensation Plan, upon the achievement of applicable EBITDA(earnings before interest, tax, depreciation, and amortization) measures, thepayout to the named executive officers could have ranged from a minimum of 0%to a maximum of 200% of his annual base salary for each of Messrs. Woodhams andNorbert and 100% of his annual base salary for Mr. Meyers.  If the measures were exceeded, the namedexecutive officers could have earned an unlimited amount based upon the extentto which the EBITDA performance exceeded the targeted amounts, as determined bythe Compensation Committee (with input of Mr. Woodhams with respect to payoutsfor Messrs. Meyers and Naylor).  TheCompany’s EBITDA for successor fiscal 2007 was not at the maximum target levelsand therefore, each named executive officer received less than the maximumpayout amount.  The amount received byeach named executive officer under the Company’s Fiscal 2007 ExecutiveIncentive Compensation Plan is reflected in the Summary CompensationTable.  There were no equity incentiveplan awards made to any named executive officer in successor fiscal 2007.

**GRANTS OFPLAN-BASED AWARDS**
| ** **                                                       | ** ** | ** **      | ** ** | **Estimated Future Payouts Under   Non-Equity Incentive Plan  Awards (1)** | ** ** |
|------------------------------------------------------------------|------------|-----------------|------------|---------------------------------------------------------------------------------------------------------------|------------|
| **Name**                                                         | ** ** | **Grant  Date** | ** ** | **Threshold   ($)**                                                                                      | ** ** | **Target  ($)** | ** ** | **Maximum  ($)** | ** ** |
| Norbert E.  Woodhams, President and   Chief Executive Officer    |       | 4/4/06          |       | -0-                                                                                                           |       | $ | 789,148 |   | $  | 789,148 | (2) |
| Joseph W.  Meyers, Chief Financial  Officer                      |       | 4/4/06          |       | -0-                                                                                                           |       | $ | 136,408 |   | $  | 136,408 | (2) |
| Robert C. Naylor,  Senior Vice President  of Sales and Marketing |       | 4/4/06          |       | -0-                                                                                                           |       | $ | 526,100 |   | $  | 136,408 | (2) |

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(1)                   The actualamounts paid out to each named executive officer under the Company’s 2007Executive Incentive Compensation Plan is included in the Summary CompensationTable.

(2)                   Assumes thatthe target EBITDA performance measure is met but not exceeded.  If the target EBITDA performance measure isexceeded, the named executive officer can earn an unlimited amount based uponthe extent to which the target is exceeded, as determined by the CompensationCommittee (with input from Mr. Woodhams with respect to awards for Messrs.Meyers and Naylor).

**Outstanding EquityAwards at Successor Fiscal 2007 Year-End**

The following table summarizes the outstanding equityawards held by each named executive officer at March 3, 2007.  The table reflects options to purchase commonstock of Holding.  No stock awards areoutstanding that have not vested.

**OUTSTANDING EQUITYAWARDS AT FISCAL YEAR-END**
| ** **                                                           | ** ** | **Option Awards**                                                                 | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| **Name**                                                             | ** ** | **Number of  Securities  Underlying  Unexercised  Options (#)  Exercisable** | ** ** | **Number of  Securities  Underlying  Unexercised  Options (#)  Un-  exercisable** | ** ** | **Equity  Incentive  Plan  Awards:  Number of  Securities  Underlying  Unexercised  Unearned  Options (#)** | ** ** | **Option  Exercise  Price ($)** | ** ** | **Option  Expiration  Date** | ** ** |
| Norbert E.  Woodhams, President and   Chief Executive Officer(1)     |       | 11,374                                                                                 |       | -0- |   | 41,854(1) |   | $ | 10.00 |   | 6/30/2014 |   |
| Joseph W. Meyers,  Chief Financial Officer(2)                        |       | 734                                                                                    |       | -0- |   | 2,955(2) |   | $ | 10.00 |   | 10/20/2014 |   |
| Robert C. Naylor,  Senior Vice President of   Sales and Marketing(3) |       | 6,999                                                                                  |       | -0- |   | 25,757(3) |   | $ | 10.00 |   | 6/30/2014 |   |

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(1)                   Option for atotal of 53,228 shares of common stock of Holding was granted to Mr. Woodhamseffective June 30, 2004, of which 60% vest daily over a 5-year period, and 40%vest over 7 years if certain EBITDA targets are met.

(2)                   Option for atotal of 3,869 shares of common stock of Holding was granted to Mr. Meyerseffective September 5, 2004, of which 60% vest daily over a 5-year period, and40% vest over 7 years if certain EBITDA targets are met.

(3)                   Option for atotal of 32,756 shares of common stock of Holding was granted to Mr. Nayloreffective June 30, 2004, of which 60% vest daily over a 5-year period, and 40%vest over 7 years if certain EBITDA targets are met.

** **

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**Option Exercises**

No named executive officer exercised any stock optionsof Holding during successor fiscal 2007.

**NonqualifiedDeferred Compensation**

In connection with the Acquisition of Pierre, the Companyestablished the Pierre Foods, Inc. Deferred Compensation Plan pursuant to whichMessrs. Woodhams and Naylor hold deferred stock bonus awards.  The awards are held in an account for suchnamed executive officer and are to be paid out upon the earliest to occur ofthe dissolution and liquidation of the Company or Holding, determination by theCompany of a change in applicable tax laws, the termination of employment ofthe named executive officer due to his death or disability, the redemption ofsecurities issued by the Company or any affiliate of the Company (which areheld in the rabbi trust established for the plan), or June 30, 2016.  In addition, the Compensation Committee maydistribute the account to the named executive officer upon termination of hisemployment for any reason.  The DeferredCompensation Plan holds 4,860 shares of preferred stock of Holding and eachparticipant’s account is deemed to receive all dividends, interest, earningsand other property which would have been received with respect to the preferredstock of Holding if such account were actually invested in the preferred stock.

The following table summarizes the nonqualifieddeferred compensation held by each of Messrs. Woodhams and Naylor as of March3, 2007.  Mr. Meyers did not have anynonqualified deferred compensation at any time during successor fiscal 2007.

**NONQUALIFIEDDEFERRED COMPENSATION**
| **Name**                                                          | ** ** | **Executive  Contributions  in Last FY ($)** | ** ** | **Registrant  Contributions  in Last FY ($)** | ** ** | **Aggregate  Earnings in  Last FY ($)** | ** ** | **Aggregate  Withdrawals/  Distributions   ($)** | ** ** | **Aggregate  Balance at  Last FYE ($)** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Norbert E.  Woodhams, President   and Chief Executive Officer     |       | -0-                                                         |       | -0-                                                          |       | $                                                 | 337,590    | (1)                                                   | -0-        |                                                   | $     | 3,622,278 | (2) |
| Robert C. Naylor,  Senior Vice   President of Sales and Marketing |       | -0-                                                         |       | -0-                                                          |       | $                                                 | 250,470    | (1)                                                   | -0-        |                                                   | $     | 2,687,497 | (2) |

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(1)                   Included in theSummary Compensation Table.

(2)                   Includes theinitial deferred stock bonus account of $2,790,000 for Mr. Woodhams and$2,070,000 for Mr. Naylor, and accrued, but unpaid dividends on such amounts asof March 3, 2007.

**Potential PaymentsUpon Termination or Change-in Control**

***Severance Benefits***

Each of Messrs. Woodhams and Naylor are entitled tocertain severance benefits under their respective employment agreements if (i)the Company terminates the named executive officer’s employment without “cause”(as defined in the employment agreement), (ii) the named executive officerresigns for “good reason” (as defined in employment agreement), (iii) theCompany elects not to renew the term of the employment agreement, or (iv) thenamed executive officer resigns without good reason or he elects not to renewthe term of the employment agreement and the Company elects to pay theseverance amount in which case the named executive officer is bound by thenon-competition provisions in such agreement. In any such event, the named executive officer will continue to receivehis base salary and benefits to the date of termination and will receive thefollowing additional benefits after executing, and not revoking, a generalrelease:

·                  Base salary for one yearfollowing termination of employment.

·                  Continuation of health andwelfare benefits for one year after the date of termination of employment.

In addition, except in the case of termination of thenamed executive officer for cause or his resignation without good reason, eachof Messrs. Woodhams and Naylor are entitled to receive upon termination ofemployment, a pro rata portion of his annual incentive award for the year oftermination.

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If termination of the named executive officer isinitiated by the Company for cause or by the named executive officer withoutgood reason or the named executive officer does not renew the term of hisagreement (and in either of the last two cases, the Company elects not to payseverance in which case the named executive officer is not bound by thenon-competition provision in his employment agreement), the named executiveofficer will not be entitled to any severance payments other than salary andbenefits accrued through the termination date.

***Non-Competition Provisions***

Each of Messrs. Woodhams and Naylor is subject tonon-competition restrictions in his employment agreement for a one-year periodfollowing termination of employment for any reason; however, if the namedexecutive officer does not renew the term of his employment agreement or if heresigns without good cause (as defined in the agreement) and in either case,the Company elects not to pay severance benefits to the named executiveofficer, he is not bound by the non-competition restrictions.

***Equity Ownership Implications upon Termination orChange-in-Control***

Upon the termination of employment of any namedexecutive officer, all options to purchase shares of common stock of Holdingheld by such named executive officer, which have not vested prior to the dateof termination of employment, expire and are forfeited. All vested options heldby the named executive officer also expire and are forfeited upon thetermination of his employment unless such termination of employment was (i) dueto the named executive officer’s death or disability, in which case, the vestedoptions expire 180 days following termination of employment, or (ii) by theCompany without cause (as defined in the named executive officer’s employmentagreement or if there is no such agreement, the stock option plan) or is due tothe resignation or retirement of the named executive officer, in which cases,the vested options expire 60 days following the date of termination.

Upon termination of employment of a named executiveofficer, the Company or MDP may purchase any shares of common stock of Holdingheld by such executive officer. The purchase price for such shares is the fairmarket value as determined in good faith by the Compensation Committee (or ifno such Committee, the full Board of Directors) of Holding, taking into accountall relevant factors determinative of value (including lack of liquidity, butwithout regard to any discounts for minority interests).

If there is a change-in-control of Holding, whichincludes (i) the sale of the Company to an independent third party pursuant towhich such party acquires capital stock of Holding possessing the voting powerunder normal circumstances to elect a majority of the Board of Directors ofHolding or (ii) the sale of all or substantially all of the assets of theCompany (on a consolidated basis), any options to purchase shares of commonstock of Holding held by any of the named executive officers that have notvested prior to such change-in-control, automatically vest, subject tolimitations relating to the number that vest pursuant to theperformance-vesting provisions.

Below is a summary of the estimatedtermination/severance benefits that would be paid in various circumstances asof March 3, 2007:
| **Name**                    | ** ** | **Termi-  nation  With  Cause (1)** | ** ** | **Termi-  nation  Without  Cause (2)** | ** ** | **Death or   Disability** | ** ** | **Change-In-  Control** | ** ** |
|-----------------------------|------------|------------------------------------------|------------|---------------------------------------------|------------|--------------------------------|------------|-------------------------|------------|
| Norbert E.  Woodhams        |       |                                     |       |                                        |       |                           |       |                    |       |
| Cash severance(4)           |       | $                                        | —     |                                        | $          | 1,183,722                      |       | $                       | 1,183,722  |   | $  | — |   |
| Health and welfare benefits |       | $                                        | —     |                                        | $          | 122,133                        |       | $                       | 122,133    |   | $ | — |   |
| Purchase of Common Stock(3) |       | $                                        | 325,865    |                                        | $          | 325,865                        |       | $                       | 325,865    |   | $ | 1,524,982 |   |
| Deferred Compensation       |       | $                                   | 3,622,278  | (5)                                         | $     | 3,622,278                      | (5)        | $                  | 3,622,278  | (5) | $ | — |   |
|                        |       |                                     |       |                                        |       |                           |       |                    |       |
| Joseph W. Meyers            |       |                                     |       |                                        |       |                           |       |                    |       |
| Purchase of Common Stock(3) |       | $                                        | 21,029     |                                        | $          | 21,029                         |       | $                       | 21,029     |   | $ | 105,690 |   |
|                        |       |                                     |       |                                        |       |                           |       |                    |       |
| Robert C. Naylor            |       |                                     |       |                                        |       |                           |       |                    |       |
| Cash severance(4)           |       | $                                        | —     |                                        | $          | 789,150                        |       | $                       | 1,183,722  |   | $ | — |   |
| Health and welfare benefits |       | $                                        | —     |                                        | $          | 119,062                        |       | $                       | 119,062    |   | $ | — |   |
| Purchase of Common Stock(3) |       | $                                        | 200,521    |                                        | $          | 200,521                        |       | $                       | 200,521    |   | $ | 938,459 |   |
| Deferred  Compensation      |       | $                                   | 2,687,497  | (5)                                         | $     | 2,687,497                      | (5)        | $                  | 2,687,487  | (5) | $ | — |   |

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(1)                   Includestermination by the Company for cause, resignation by the named executiveofficer without good reason, or election by the Company not to renew the termof the named executive officer’s employment agreement.

 

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(2)                   Includes (a)termination of the named executive officer’s employment by the Company withoutcause, (b) termination of employment due to the death or disability of thenamed executive officer, (c) resignation by the named executive officer withgood reason, (d) election by the Company not to renew the term of the namedexecutive officer’s employment agreement, or (e) election by the namedexecutive officer not to renew the term of his employment agreement orresignation by the named executive officer with good reason, in each case ifthe Company elects to pay the severance (in which case, the named executiveofficer is bound by the non-competition provisions in his employmentagreement).

(3)                   Assumes thatthe named executive officer exercises his vested options within the time limitsset forth in his stock option agreement and that the Company or MDP elects topurchase the named executive officer’s shares upon exercise of the option bythe named executive officer. The amounts shown include the repurchase of theoptions by the Company at the estimated fair market value of the underlyingshares of common stock of Holding as of March 3, 2007. Upon achange-in-control, it also assumes that the performance vested options werefully vested at the end of the fiscal year immediately preceding thechange-in-control.

(4)                   Cash severanceincludes payment for base salary and the annual incentive award for the year oftermination. The named executive officer is entitled to a pro rata portion ofhis annual incentive award. The table includes the amount that the namedexecutive officer would receive if he receives a full year of his annualincentive award, assuming the Company met (but did not exceed) the performancetargets.

(5)                   Assumesthat the Compensation Committee elects to distribute the named executiveofficer’s deferred stock bonus account to the named executive officer upontermination of employment, including by reason of death or disability.

**Compensation ofDirectors**

During successor fiscal 2007, directors of the Companywho are employees or affiliates of MDP did not receive fees for services asdirectors. Scott W. Meader, a director who is not an employee of the Company orany affiliate of MDP, receives $35,000 annually. In addition, upon his electionas a director of the Company, Holding entered into a restricted stock agreementwith Mr. Meader pursuant to which Mr. Meader purchased 2,000 shares of commonstock of Holding for $10.00 per share. The shares vest as follows:  187 shares vested upon execution of therestricted stock agreement and the remaining 1,813 vest over 41⁄2 years providedthat Mr. Meader continues to be a director of the Company and Holding. In theevent that he ceases to be a director of the Company or Holding, Holding has anoption to repurchase the vested shares at the greater of the fair market valueor $10.00 per share and the unvested shares at $10.00 per share. If Holdingdoes not exercise such option, MDP then has the option to purchase the shareson the same terms. The shares are also subject to restrictions, includingrestrictions on transfer, set forth in the Stockholder’s Agreement dated June30, 2004 among certain stockholders of Holding. All of the Company’s directorsare reimbursed for out-of-pocket expenses incurred in connection with attendingall Board and Board committee meetings.

**DIRECTORCOMPENSATION**

| Name            | ** ** | **Fees Earned or  Paid in   Cash($)** | ** ** | **Stock  Awards  ($)** | ** ** | **Total ($)** | ** ** |
|-----------------|------------|-----------------------------------------------------------|------------|------------------------|------------|--------------------|------------|
| Scott W. Meader |       | $35,000                                                   |       | $894                   | (1)        | $35,894            |       |

----

(1)                   Representsrestricted stock vested in successor fiscal 2007. 

**CompensationCommittee Interlocks and Insider Participation**

None of the Company’s executive officers has arelationship that would constitute an interlocking relationship with executiveofficers or directors of another entity or insider participation incompensation decisions.

**CompensationCommittee Report**

The Compensation Committee has reviewed and discussedthe Compensation Discussion and Analysis with management. Based on that reviewand discussion, the Compensation Committee recommended to the Board ofDirectors that the Compensation Discussion and Analysis be included in thisAnnual Report on Form 10-K.

Respectfully submitted,

NicholasW. AlexosGeorge A. PeinadoRobin P. Selati

 

37

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**Item12.**   *Security Ownership ofCertain Beneficial Owners and Management and Related Stockholder Matters*

**Security Ownershipof Certain Beneficial Owners and Management**

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

The followingtable sets forth certain information with respect to the beneficial ownershipof the common stock of Holding as of March 3, 2007, by (1) each person known bythe Company to own beneficially more than five percent of the outstanding sharesof common stock of Holding; (2) each of the directors and executive officers ofHolding; and (3) all of the directors and executive officers of Holding as agroup. Unless otherwise stated, each of the persons in the table has solevoting and investment power with respect to the securities beneficially owned. Percentageownership is based on 1,479,500 shares of common stock of Holding outstandingas of March 3, 2007.
| **Name of Beneficial Owner**                  | ** ** | **Number of   Shares  of Common   Stock  Beneficially   Owned** | ** **   | **Percent of  Outstanding  Common Stock** | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------------------------------------------------|--------------|-----------------------------------------------------|------------|
| Madison Dearborn  Capital Partners IV, L.P.                  |       | 1,420,000                                                                                | (1)          | 96.0                                                | %          |
| Norbert E.  Woodhams                                         |       | 38,072                                                                                   | (2)          | 2.6                                                 | %          |
| Joseph W. Meyers                                             |       | 837                                                                                      | (3)          | *(4)                                                |       |
| Robert C. Naylor                                             |       | 30,429                                                                                   | (5)          | 2.0                                                 | %          |
| Nicholas W.  Alexos                                          |       | 1,420,000                                                                                | (6)          | 96.0                                                | %          |
| Scott W. Meader                                              |       | 843                                                                                      | (7)          | *(6)                                                |       |
| Robin P. Selati                                              |       | 1,420,000                                                                                | (6)          | 96.0                                                | %          |
| George A.  Peinado                                           |       | —                                                                                   |         | —                                              |       |
| All directors and  executive officers as a group (8 persons) |       | 1,490,181                                                                                | (2)(3)(5)(6) | 99.3                                                | %          |

----

| (1) | The listed shares are directly owned by Madison  Dearborn Capital Partners IV, L.P. (“MDCP IV”). Madison Dearborn Partners IV,  L.P. (“MDP IV”) is the general partner of MDCP IV and Madison Dearborn  Partners, LLC (“MDP LLC”) is the general partner of MDP IV. MDP IV  and MDP LLC may therefore be deemed to have shared voting and dispositive  power with respect to all of the shares owned by MDCP IV. The address for  MDCP IV, MDP IV, and MDP LLC is Three First National Plaza, Suite 3800,  Chicago, Illinois 60602. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Includes 7,835 shares subject to options exercisable  within 60 days by Mr. Woodhams.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (3) | Includes 837 shares subject to options exercisable  within 60 days by Mr. Meyers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| (4) | Less than one percent (1%).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (5) | Includes 4,821 shares subject to options exercisable  within 60 days by Mr. Naylor.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (6) | Messrs. Selati and Alexos are Managing Directors of  MDP LLC, the general partner of MDP IV, which in turn is the general partner  of MDCP IV. Messrs. Selati and Alexos disclaim beneficial ownership of those  shares, except to the extent of any pecuniary interest therein.                                                                                                                                                                                                                                                                                                 |
| (7) | Represents vested shares of Restricted Stock sold to  Mr. Meader on July 12, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 

**Item 13.**   *Certain Relationships, Related Transactions, and Director Independence*

***Transactions with RelatedPersons.  ***NorbertJ. Woodhams, one of the Company’s Vice Presidents, is the son of Norbert E.Woodhams, the Company’s President and Chief Executive Officer, and a directorand Chairman of the Board. In successor fiscal 2007, Norbert J. Woodhamsreceived a base salary of one hundred and seventeen thousand dollars and earneda bonus of forty thousand dollars under the Company’s annual cash incentiveplan. The base salary and cash incentive earned by Norbert J. Woodhams isconsistent with the earnings of other Company employees with similarresponsibilities.

 

38

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***Review, Approval,or Ratification of Transactions with Related Persons***.   The Company and its AuditCommittee have adopted written procedures, which regarding related partytransactions. Pursuant to those procedures, any related party transaction thatwould be required to be reported in this report, must first be presented to andapproved by the Company’s Chief Executive Officer and Chief Financial Officer,and if the transaction is material, also by the Audit Committee before theCompany makes a binding commitment to the related party. The Company expectsall of its employees to comply with such procedures. For each related partytransaction presented for approval, the Company will consider all relevantfactors including whether the proposed transaction would be entered into in theordinary course of our business on customary business terms, whether anyrelated party has been or will be involved in the negotiation of the proposedtransaction on the Company’s behalf, and whether the proposed transactionappears to have been negotiated on an arms-length basis without interference orinfluence on the Company by any related party. The Company may condition itsapproval on any restrictions it deems appropriate, including receivingassurances from any related party that he or she will refrain fromparticipating in the negotiation of the proposed transaction on the Company’sbehalf and in the ongoing management of the business relationship on theCompany’s behalf should the proposed transaction be approved. If after atransaction has been completed, the Company discovers that it is a relatedparty transaction, the Company will promptly advise management and if thetransaction was material, it will also advise the Audit Committee. In thatcase, the Company may honor the contractual commitment if entered into in goodfaith by an authorized representative of the Company, but the Company mayimpose appropriate restrictions on the continued maintenance of the businessrelationship similar to those described above. If the Company’s President andChief Executive Officer, Chief Financial Officer, or any member of the Company’sAudit Committee has a direct or indirect interest in a proposed transaction,that individual must disclose his or her interest in the proposed transactionand refrain from participating in the approval process. Following the Acquisitionof Zartic, three suppliers of Zartic were determined to have relationships withcertain employees of Zartic. Because these suppliers were in place prior to theAcquisition of Zartic, the Company’s policies and procedures with respect torelated party transactions were not followed when such relationships wereestablished. After review, the Company determined to discontinue such supplierrelationships.

***Director Independence.  ***Although the Company does notcurrently have securities listed on a national securities exchange or on aninter-dealer quotation system, it has selected the definition promulgated bythe New York Stock Exchange, or NYSE, to determine which of its directorsqualifies as independent. Using the independence tests promulgated by the NYSE,the Company’s Board of Directors has determined that Scott W. Meader is anindependent director. In making this determination, the Board of Directorsconsidered that Mr. Meader holds 2,000 shares of restricted stock of Holding,but that such shares were issued to him in connection with his agreement toserve as a director of the Company. Mr. Meader has no other materialrelationship with the Company.

***Under the NYSE rules, the Company isconsidered a “controlled company” because more than 50% of the Company’s votingpower is held by a single person. Accordingly, even if the Company was a listedcompany under NYSE, it would not be required by NYSE rules to maintain amajority of independent directors on its Board of Directors, nor would it berequired to maintain a compensation committee or a nominating committeecomprised entirely of independent directors. The Company does not maintain anominating committee and the Company’s Compensation Committee does not includeany independent directors.***

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

The following table presents fees billed forprofessional audit services rendered by Deloitte & Touche LLP for the auditof the Company’s annual financial statements for successor fiscal 2007,successor fiscal 2006, and for other services rendered by Deloitte & Touche LLPduring those periods:

|                        | ** ** | **Successor Fiscal   2007** | ** ** | **Successor Fiscal   2006** | ** ** |
|------------------------|------------|---------------------------------------|------------|---------------------------------------|------------|
| Audit fees(1)          |       | $                                     | 712,000    |                                  | $          | 254,000 |   |
| Audit-related  fees(2) |       | —                                |       | 24,925                                |       |
| Tax Fees               |       | —                                |       | —                                |       |
| All other Fees         |       | —                                |       | —                                |       |
| ** **             | ** ** | ** **                            | ** ** | ** **                            | ** ** |
| Total                  |       | $                                     | 712,000    |                                  | $          | 278,925 |   |

----

** **(1)                Audit fees duringboth successor fiscal 2007 and successor fiscal 2006 consisted of fees forservices performed in the audits of the consolidated financial statements ofthe Company, as well as the audit of stand-alone financial statements inconjunction with the Acquisition of Clovervale and assistance with review ofother documents filed with the SEC.

 

39

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(2)                   Audit-relatedfees during successor fiscal 2006 include payment for services in connectionwith a comment letter issued to the Company by the SEC dated September 15,2005 related to the Company’s Annual Report on Form 10-K forsuccessor fiscal 2006. The Audit Committee of the Company’s Board of Directorspre-approved such services.

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

**Policy on Board ofDirectors Pre-Approval of Audit and Permissible Non-audit Services ofIndependent Accountants**

The Audit Committee of the Board of Directors of theCompany has responsibility for appointing, setting compensation and overseeingthe work of the public accountant. In recognition of this responsibility, theAudit Committee of the Board of Directors has established a policy topre-approve all audit and permissible non-audit services provided by the publicaccountant**.**

**PART IV**

**Item 15.   *Exhibits and Financial Statement Schedules***

(a)                                   1.           Financial Statements

The Financial Statements listed in the accompanying Indexon page F-1 are filed as a part of this report.

2.                                  Financial StatementSchedules

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

3.                                    Exhibits

See Index to Exhibits below.

40

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**SIGNATURES**

Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, Pierre Foods, Inc. has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.
|                       | PIERRE FOODS, INC. |
|-----------------------|--------------------|
|                  |               |   |
|                  |               |   |
|                  | By:                | /s/  JOSEPH  W. MEYERS |
|                  |               | Joseph W. Meyers |
|                  |               | Chief Financial Officer |
|                  |               |   |
| Dated:  June 15, 2007 |               |   |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of Pierre Foods, Inc., in thecapacities and on the dates indicated.
|                              | **Signature** | ** **                               | ** ** | ** **         | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|------------------------------|---------------|------------------------------------------|------------|--------------------|-----------|------------|------------|------------|----------|------------|
|                         |          |                                     |       |               |
| /s/ NORBERT E. WOODHAMS |          | Chief Executive Officer  and             |       | June  15, 2007     |
| Norbert  E. Woodhams         |          | President (Principal Executive Officer), |       |               |
|                         |          | Director and  Chairman of the Board      |       |               |
|                         |          |                                     |       |               |
|                         |          |                                     |       |               |
| /s/ JOSEPH W. MEYERS    |          | Chief Financial Officer                  |       | June 15, 2007      |
| Joseph W. Meyers             |          | (Principal Financial Officer and         |       |               |
|                         |          | Principal Accounting Officer)            |       |               |
|                         |          |                                     |       |               |
|                         |          |                                     |       |               |
| /s/ NICHOLAS W. ALEXOS  |          |                                     |       |               |
| Nicholas W. Alexos           |          | Director                                 |       | June 15, 2007 |
|                         |          |                                     |       |               |
|                         |          |                                     |       |               |
| /s/ SCOTT W. MEADER     |          | Director                                 |       | June 15, 2007 |
| Scott W. Meader              |          |                                     |       |               |
|                         |          |                                     |       |               |
|                         |          |                                     |       |               |
| /s/ GEORGE A. PEINADO   |          | Director                                 |       | June 15, 2007 |
| George A. Peinado            |          |                                     |       |               |
|                         |          |                                     |       |               |
|                         |          |                                     |       |               |
| /s/ ROBIN P. SELATI     |          | Director                                 |       | June 15, 2007 |
| Robin P. Selati              |          |                                     |       |               |
|                         |          |                                     |       |               |

 

 

41

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**INDEX TO EXHIBITS**
|         | **Description**                                                                    | **Location**                                                                                                                                                                                                                                                                                                                                                                                                                    |
|---------|------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)     | PLAN OF ACQUISITION,  REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION       |                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | 2.1                                                                                | Stock Purchase Agreement,  dated May 11, 2004, among PF Management, Inc., the PF Management, Inc.  Shareholders, David R. Clark, as Shareholders Agent, and Pierre Holding Corp.  (filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K, filed  with the Securities and Exchange Commission On May 17, 2004)                                                                                                 |  

** |
|    |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | 2.2                                                                                | Share and Asset Purchase  Agreement dated August 18, 2006, among Pierre Foods, Inc., Clovervale Farms,  Inc., Cawrse Properties, LLC, Clovervale Realty, Inc. and Richard S. Cawrse,  Jr. (filed as Exhibit 2.1 to the Company’s Current Report of Form 8-K, filed  with the Securities and Exchange Commission on August 22, 2006)                                                                                        |  

** |
|    |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | 2.3                                                                                | Asset Purchase Agreement  dated November 3, 2006, among Pierre Newco I, LLC, Pierre Newco II, LLC,  Zartic, Inc., Zar Tran, Inc., JEM Sales, Inc., MNM Leasing Company, LLC, James  E. Mauer, Jeffrey J. Mauer, Christopher W. Mauer, and Tamara L. Mauer (filed  as Exhibit 2.1 to the Company’s Current Report of Form 8-K, filed with the  Securities and Exchange Commission on December 15, 2006)                     |  

** |
|    |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|    | 2.4                                                                                | First Amendment to Asset  Purchase Agreement dated December 11, 2006, among Pierre Newco I, LLC, Pierre  Newco II, LLC, Zartic, Inc., Zar Tran, Inc., JEM Sales, Inc., MNM Leasing  Company, LLC, James E. Mauer, Jeffrey J. Mauer, Christopher W. Mauer, and  Tamara L. Mauer (filed as Exhibit 2.2 to the Company’s Current Report of Form  8-K, filed with the Securities and Exchange Commission on December 15, 2006) |  

** |
|    |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (3)(i)  | ARTICLES OF INCORPORATION                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | 3(i).1                                                              | Articles of Restatement of  Pierre Foods, Inc., dated July 30, 2002 incorporating Restated Articles of  Incorporation (filed as Exhibit 3.3 to the Company’s Quarterly Report on Form  10-Q, filed with the Securities and Exchange Commission on October 15, 2002)                                                                                                                                                        |  

** |
|    |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|    | 3(i).2                                                              | Articles of Merger of  Pierre Foods, Inc. and Pierre Merger Corp., dated June 30, 2004 (filed as  Exhibit 3.2 to the Company’s Registration Statement on Form S-4, filed with  the Securities and Exchange Commission on September 27, 2004)                                                                                                                                                                               |  

** |
|    |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|    | 3(i).3                                                                             | Articles of Organization of  Fresh Foods Properties, LLC, dated December 10, 1997 (filed as Exhibit 3.4 to  the Company’s Registration Statement on Form S-4, filed with the Securities  and Exchange Commission on September 27, 2004)                                                                                                                                                                                    |  

** |
|    |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
| (3)(ii) | BYLAWS                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | 3(ii).1                                                                            | Amended and Restated Bylaws  of Pierre Foods, Inc., dated September 18, 2002 (filed as Exhibit 3.3 to the  Amendment No. 2 to the Company’s Registration Statement on Form S-4, filed  with the Securities and Exchange Commission on February 3, 2005)                                                                                                                                                                    |  

** |
|    |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|    | 3(ii).2                                                                            | Operating Agreement of  Fresh Foods Properties, LLC (filed as Exhibit 3.5 to the Company’s  Registration Statement on Form S-4, filed with the Securities and Exchange  Commission on September 27, 2004)                                                                                                                                                                                                                  |  

** |
|    |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
| (4)     | INSTRUMENTS DEFINING THE  RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES

  |                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    |                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

42

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|        |                                                                 |                                                                                                                                                                                                                                                                                                                    |
|--------|----------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 4.1                                                                  | Indenture, dated as of June  30, 2004, between Pierre Merger Corp. and U.S. Bank National Association,  Trustee (filed as Exhibit 4.1 to the Company’s Registration Statement on Form  S-4, filed with the Securities and Exchange Commission on September 27, 2004)                                               |  

** |
|   |                                                                 |                                                                                                                                                                                                                                                                                                                    |   |
|   | 4.2                               | First Supplemental  Indenture, dated as of June 30, 2004, among Pierre Foods, Inc., Fresh Foods  Properties, LLC and U.S. Bank National Association, Trustee (filed as Exhibit  4.2 to the Company’s Registration Statement on Form S-4, filed with the  Securities and Exchange Commission on September 27, 2004) |  

** |
|   |                                                                 |                                                                                                                                                                                                                                                                                                                    |   |
|   | 4.3                                                                  | Second Supplemental  Indenture, dated as of September 13, 2006, among Clovervale Farms, Inc.,  Chefs Pantry, Inc., Clovervale Transportation, Inc., Pierre Real Property,  LLC, Pierre Foods, Inc., the other Guarantors listed therein, and U.S. Bank  National Association, Trustee                                   | * |
|   |                                                                 |                                                                                                                                                                                                                                                                                                                    |   |
|   | 4.4                                                                  | Third Supplemental  Indenture, dated as of January 5, 2007, among Zartic, LLC, Zar Tran, LLC,  Zartic Real Property, LLC, Zar Tran Real Property, LLC, Warfighter Foods,  LLC, Pierre Foods, Inc., the other Guarantors listed therein, and U.S. Bank  National Association, Trustee                                    | * |
|   |                                                                 |                                                                                                                                                                                                                                                                                                                    |   |
|   | 4.5                                                                  | Registration Rights  Agreement, dated June 30, 2004, among Pierre Foods, Inc. and Banc of America  LLC and Wachovia Capital Markets, LLC (filed as Exhibit 4.3 to the Company’s  Registration Statement on Form S-4, filed with the Securities and Exchange  Commission on September 27, 2004)                     |  

** |
|   |                                                                 |                                                                                                                                                                                                                                                                                                                    |   |
| (10)   | MATERIAL  CONTRACTS                                                  |                                                                                                                                                                                                                                                                                                                    |
|   |                                                                 |                                                                                                                                                                                                                                                                                                                    |
|   | Management Contracts and  Compensatory Plans or Arrangements

  |                                                                                                                                                                                                                                                                                                                    |
|   | 10.1                                        | Third Amendment to  Incentive Agreement, dated as of May 11, 2004, between Pierre Foods, Inc. and  Norbert E. Woodhams (filed as Exhibit 10.13 to the Company’s Annual Report on  Form 10-K, filed with the Securities and Exchange Commission on May 17, 2004)                                                    |  

** |
|   |                                                                 |                                                                                                                                                                                                                                                                                                                    |   |
|   | 10.2                                                                 | Amendment to Employment  Agreement, dated as of May 11, 2004, between Pierre Foods, Inc. and Robert C.  Naylor (filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K,  filed with the Securities and Exchange Commission on May 17, 2004)                                                            |  

** |
|   |                                                                 |                                                                                                                                                                                                                                                                                                                    |   |
|   | 10.3                                                                 | Pierre Foods, Inc. Fiscal  2008 Executive Incentive Compensation Plan (filed as Exhibit 10.1 to the  Company Current Report on Form 8-K, filed with the Securities and Exchange Commission  on May 16, 2007)                                                                                                            |  

**

  |
|   |                                                                 |                                                                                                                                                                                                                                                                                                                    |   |
|   | 10.4                                                                 | Employment Agreement dated  as of May 11, 2004 between Pierre Holding Corp. and Norbert E. Woodhams  (filed as Exhibit 10.15 to the Company’s Registration Statement on Form S-4,  filed with the Securities and Exchange Commission on September 27, 2004)                                                        |  

** |
|   |                                                                 |                                                                                                                                                                                                                                                                                                                    |   |
|   | 10.5                                                                 | Employment Agreement dated  as of May 11, 2004 between Pierre Holding Corp. and Robert C. Naylor (filed  as Exhibit 10.16 to the Company’s Registration Statement on Form S-4, filed  with the Securities and Exchange Commission on September 27, 2004)                                                           |  

** |
|   |                                                                 |                                                                                                                                                                                                                                                                                                                    |   |
|   | 10.6                                                                 | Pierre Foods, Inc. Deferred  Compensation Plan (filed as Exhibit 10.17 to the Company’s Registration  Statement on Form S-4, filed with the Securities and Exchange Commission on  September 27, 2004)                                                                                                             |  

** |
|   |                                                                 |                                                                                                                                                                                                                                                                                                                    |   |
|   | 10.7                                                                 | Pierre Holding Corp. 2004  Stock Option Plan (filed as Exhibit 10.1 to the Company’s Quarterly Report on  Form 10-Q, filed with the Securities and Exchange Commission on January 18,  2005)                                                                                                                       |  

** |
|   |                                                                 |                                                                                                                                                                                                                                                                                                                    |   |
|   | 10.8                                                                 | Form of Option Agreement  (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed  with the Securities and Exchange Commission on January 18, 2005)                                                                                                                                           |  

** |

 

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|        |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|---------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 10.9                      | Restricted Stock Agreement  dated July 12, 2005 between Pierre Holding Corp. and Scott W. Meader  (filed as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with  the Securities and Exchange Commission on July 15, 2005)                                                                                                                                                                                                                                                                         |  

** |
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
|   | Other  Material Contracts |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 10.10                     | Assignment and Assumption  and Subordination Agreement dated as of March 8, 2004, between Pierre Foods,  Inc. and PF Management, Inc. (filed as Exhibit 10.20 to the Company’s Annual  Report on Form 10-K, filed with the Securities and Exchange Commission on  March  9, 2004)                                                                                                                                                                                                                                 |  

** |
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
|   | 10.11                     | Termination Agreement,  dated as of March 8, 2004, between Columbia Hill Aviation, LLC and Pierre  Foods, Inc. (filed as Exhibit 10.21 to the Company’s Annual Report on Form  10-K, filed with the Securities and Exchange Commission March 9, 2004)                                                                                                                                                                                                                                                                  |  

** |
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
|   | 10.12                     | Termination Agreement,  dated as of March 8, 2004, between PF Purchasing, LLC and Pierre Foods, Inc.  (filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K, filed  with the Securities and Exchange Commission March 9, 2004)                                                                                                                                                                                                                                                                           |  

** |
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
|   | 10.13                     | Termination Agreement,  dated as of March 8, 2004, between PF Distribution, LLC and Pierre Foods,  Inc. (filed as Exhibit 10.23 to the Company’s Annual Report on Form 10-K,  filed with the Securities and Exchange Commission March 9, 2004)                                                                                                                                                                                                                                                                         |  

** |
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
|   | 10.14                     | Credit Agreement, dated as  of June 30, 2004, among Pierre Merger Corp., Wachovia Bank, National  Association, as administrative and collateral agent, Wachovia Capital  Markets, LLC and Banc of America Securities LLC, as joint lead arrangers and  book-running managers, and a syndicate of banks, financial institutions and  other institutional lenders party thereto (filed as Exhibit 10.14 to the  Registration Statement on Form S-4, filed with the Securities and Exchange  Commission on September 27, 2004) |  

** |
|   |                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
|   | 10.15                     | Amendment No. 1 to Credit  Agreement, dated as of April 3, 2006, among Pierre Foods, Inc., the Lenders,  and Wachovia Bank, National Association, as Administrative Agent (filed as  Exhibit 10.1 to the Company Current Report on Form 8-K, filed with the  Securities and Exchange Commission on April 7, 2006)                                                                                                                                                                                                           |  

** |

 

44

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|        | 10.16                                                                                                                                                           | Amendment No. 2 dated  August 21, 2006 to the Credit Agreement dated June 30, 2004, among Pierre  Foods, Inc., the Lenders, and Wachovia Bank, National Association, as  Administrative and Collateral Agent, Wachovia Capital Markets, LLC and Banc  of America Securities LLC, as joint lead arrangers and book-running managers,  as amended by Amendment No. 1 dated April 3, 2006 (filed as Exhibit 10.1 to  the Company Current Report on Form 8-K, filed with the Securities and  Exchange Commission on August 22, 2006)                                                                                                                                           |  

** |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|   |                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |
|   | 10.17                                                                                                                                                           | Amendment  No. 3 dated December 11, 2006 to the Credit Agreement dated June 30, 2006  among Pierre Merger Corp., Wachovia Bank, National Association, as  administrative and collateral agent, Wachovia Capital Markets, LLC, and Bank  of America Securities, LLC, as joint lead arrangers and book-running  managers, and a syndicate of banks, financial institutions and other  institutional lenders party thereto, as amended by Amendment No. 1 dated  April 3, 2006 and Amendment No. 2 dated August 21, 2006 (filed as Exhibit  10.1 to the Company’s Quarterly Report on Form 10-Q, filed with the  Securities and Exchange Commission on January 16, 2007) |  

** |
|   |                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |
|   | 10.18                                                                                                                                                           | Amended and Restated Tax Sharing and Indemnification Agreement, dated  as of May 11, 2004, among PF Management, Inc., the PF Management, Inc.  Shareholders, David R. Clark as Shareholders Agent and Pierre Holding Corp.  (filed as Exhibit 10.18 to the Registration Statement on Form S-4, filed with  the Securities and Exchange Commission on September 27, 2004)                                                                                                                                                                                                                                                                                                   |  

** |
|   |                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |
| (12)   | CALCULATION  OF RATIO OF EARNINGS TO FIXED CHARGES                                                                                                              | *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| (14)   | CODE  OF ETHICS (filed as Exhibit 14 to the Company’s Quarterly Report on Form 10-Qfiled with the Securities and  Exchange Commission on January 17, 2006) |  

**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (21)   | SUBSIDIARIES  OF THE REGISTRANT                                                                                                                                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | 21                                                                                                                                                              | Subsidiaries  of Pierre Foods, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | *          |
|   |                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |
| (31)   | RULE  13a-14(a)/15(d)-14(a) CERTIFICATIONS                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | 31.1                                                                                                                                                            | Rule  13a-14(a) Certification of Chief Executive Officer of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | *          |
|   |                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |
|   | 31.2                                                                                                                                                            | Rule  13a-14(a) Certification of Chief Financial Officer of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | *          |
|   |                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (32)   | SECTION  1350 CERTIFICATIONS                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | 32                                                                                                                                                              | Section 1350 Certification  of Chief Executive Officer and Chief Financial Officer of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | *          |

----

*       Filed herewith.

**     Indicates that Exhibit is incorporated byreference in this report from a previous filing with the Commission.

** **

45

----

**INDEX TOCONSOLIDATED FINANCIAL STATEMENTS**

# **PIERRE FOODS, INC.**

** **
| REPORT OF INDEPENDENT  REGISTERED PUBLIC ACCOUNTING FIRM                                                                                                                                                                                  | F-2    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| ** **                                                                                                                                                                                                                                |   |
| CONSOLIDATED FINANCIAL STATEMENTS:                                                                                                                                                                                                        |   |
| Consolidated Balance Sheets—March 3, 2007 and March 4,  2006                                                                                                                                                                         | F-3    |
|                                                                                                                                                                                                                                      |   |
| Consolidated Statements of Operations—for the year  ended March 3, 2007, for the year ended March 4, 2006, and for the periods  from March 7, 2004 through June 30, 2004 and July 1, 2004 through March 5,  2005                     | F-4    |
|                                                                                                                                                                                                                                      |   |
| Consolidated Statements of Shareholder’s Equity—for  the year ended March 3, 2007, for the year ended March 4, 2006, and for  the periods from March 7, 2004 through June 30, 2004 and July 1, 2004 through  March 5, 2005 | F-5    |
| ** **                                                                                                                                                                                                                                |   |
| Consolidated Statements of Cash Flows—for the year  ended March 3, 2007, for the year ended March 4, 2006, and for the periods  from March 7, 2004 through June 30, 2004 and July 1, 2004 through March 5,  2005                     | F-6    |
| ** **                                                                                                                                                                                                                                |   |
| Notes to Consolidated Financial Statements                                                                                                                                                                                                | F-7    |

 

F-1

----

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

Tothe Board of Directors and Shareholder of

Pierre Foods, Inc.

Cincinnati,Ohio

We have audited the accompanying consolidatedbalance sheets of Pierre Foods, Inc. and subsidiaries (the “Company”) as ofMarch 3, 2007 and March 4, 2006, and the related consolidated statementsof operations, shareholder’s equity, and cash flows for the years ended March3, 2007 and March 4, 2006 and  for theperiods from July 1, 2004 through March 5, 2005 and March 7, 2004through June 30, 2004. These financial statements are the responsibility of theCompany’s management.  Our responsibilityis to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting.  Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting.  Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financialstatements present fairly, in all material respects, the financial position ofPierre Foods, Inc. and subsidiaries at March 3, 2007 and March 4, 2006, and theresults of its operations and its cash flows for the years ended March 3, 2007and March 4, 2006 and the periods from July 1, 2004 through March 5, 2005 andMarch 7, 2004 through June 30, 2004 in conformity with accounting principlesgenerally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Cincinnati, Ohio

June 15, 2007

F-2

----

**PIERRE FOODS, INC.CONSOLIDATED BALANCE SHEETS**
| ** **                                                                                                      | ** ** | **Successor**      | ** **  | ** **         |
|-----------------------------------------------------------------------------------------------------------------|------------|--------------------|-------------|--------------------|
| ** **                                                                                                      | ** ** | **March 3,  2007** | ** **  | **March 4,  2006** | ** ** | ** ** |
| **ASSETS**                                                                                                      |       |               |        |               |   |   |
| CURRENT ASSETS:                                                                                                 |       |               |        |               |   |   |
| Cash and cash  equivalents                                                                                      |       | $                  | 88,631      |               | $ | 2,540,722 |   |   |
| Accounts  receivable, net                                                                                       |       | 46,138,649         |        | 29,590,488         |   |   |
| Inventories                                                                                                     |       | 68,496,266         |        | 45,686,342         |   |   |
| Refundable  income taxes                                                                                        |       | 4,612,613          |        | 1,650,812          |   |   |
| Deferred income  taxes                                                                                          |       | 5,159,359          |        | 3,976,012          |   |   |
| Prepaid expenses  and other current assets                                                                      |       | 5,553,263          |        | 3,165,310          |   |   |
| Total current  assets                                                                                           |       | 130,048,781        |        | 86,609,686         |   |   |
|                                                                                                            |       |               |        |               |   |   |
| PROPERTY, PLANT, AND  EQUIPMENT, NET                                                                            |       | 98,559,861         |        | 56,206,497         |   |   |
| OTHER ASSETS:                                                                                                   |       |               |        |               |   |   |
| Other  intangibles, net                                                                                         |       | 139,550,756        |        | 134,844,032        |   |   |
| Goodwill                                                                                                        |       | 218,221,866        |        | 186,535,050        |   |   |
| Deferred loan  origination fees                                                                                 |       | 8,266,710          |        | 7,331,561          |   |   |
| Other                                                                                                           |       | 5,181,501          |        | 897,845            |   |   |
| Total other assets                                                                                              |       | 371,220,833        |        | 329,608,488        |   |   |
| Total Assets                                                                                                    |       | $                  | 599,829,475 |               | $ | 472,424,671 |   |   |
|                                                                                                            |       |               |        |               |   |   |
| **LIABILITIES AND SHAREHOLDER’S  EQUITY**                                                                  |       |               |        |               |   |   |
| CURRENT LIABILITIES:                                                                                            |       |               |        |               |   |   |
| Current  installments of long-term debt                                                                         |       | $                  | 1,557,594   |               | $ | 229,172 |   |   |
| Trade accounts  payable                                                                                         |       | 20,567,325         |        | 11,897,576         |   |   |
| Accrued payroll  and payroll taxes                                                                              |       | 7,116,045          |        | 5,014,821          |   |   |
| Accrued interest                                                                                                |       | 5,568,643          |        | 1,780,618          |   |   |
| Accrued  promotions                                                                                             |       | 3,278,430          |        | 3,258,650          |   |   |
| Accrued taxes  (other than income and payroll)                                                                  |       | 1,095,511          |        | 796,531            |   |   |
| Other accrued  liabilities                                                                                      |       | 3,110,606          |        | 1,635,052          |   |   |
| Total current  liabilities                                                                                      |       | 42,294,154         |        | 24,612,420         |   |   |
| LONG-TERM DEBT, less  current installments                                                                      |       | 357,286,462        |        | 244,764,487        |   |   |
| DEFERRED INCOME TAXES                                                                                           |       | 45,662,017         |        | 48,821,259         |   |   |
| OTHER LONG-TERM  LIABILITIES                                                                                    |       | 4,766,732          |        | 6,168,649          |   |   |
| COMMITMENTS AND  CONTINGENCIES                                                                                  |       | —             |        | —             |   |   |
| Total  Liabilities                                                                                              |       | 450,009,365        |        | 324,366,815        |   |   |
|                                                                                                            |       |               |        |               |   |   |
| SHAREHOLDER’S EQUITY:                                                                                      |       |               |        |               |   |   |
| Common stock -  Class A, 100,000 shares authorized, issued, and outstanding at March 3, 2007  and March 4, 2006 |       | 150,187,941        |        | 150,225,541        |   |   |
| Accumulated  deficit                                                                                            |       | (367,831           | )           | (2,167,685         | ) |   |
| Total  Shareholder’s Equity                                                                                |       | 149,820,110        |        | 148,057,856        |   |   |
| Total  Liabilities and Shareholder’s Equity                                                                |       | $                  | 599,829,475 |               | $ | 472,424,671 |   |   |

 

See accompanying notes toconsolidated financial statements.

F-3

----

**PIERRE FOODS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS**
| ** **                                                 | ** ** | **Successor**     | ** **  | ** **        | ** ** | **Predecessor**    | ** ** |
|------------------------------------------------------------|------------|-------------------|-------------|-------------------|------------|--------------------|------------|
| ** **                                                 | ** ** | ** **        | ** **  | ** **        | ** ** | **Fiscal 2005**    | ** ** | ** ** | ** ** | **Fiscal 2005** | ** ** |
| ** **                                                 | ** ** | **Fiscal 2007**   | ** **  | **Fiscal 2006**   | ** ** | **For the Period** | ** ** | ** ** | ** ** | **For the Period** | ** ** |
| ** **                                                 | ** ** | **For the Year**  | ** **  | **For the Year**  | ** ** | **July 1, 2004**   | ** ** | ** ** | ** ** | **March 7, 2004** | ** ** |
| ** **                                                 | ** ** | **Ended**         | ** **  | **Ended**         | ** ** | **Through**        | ** ** | ** ** | ** ** | **Through** | ** ** |
| ** **                                                 | ** ** | **March 3, 2007** | ** **  | **March 4, 2006** | ** ** | **March 5, 2005**  | ** ** | ** ** | ** ** | **June 30, 2004** | ** ** |
| REVENUES, NET:                                             |       | $                 | 487,842,986 |              | $          | 431,632,864        |       | $ | 294,867,222 |   |   |   | $ | 115,548,564 |   |
|                                                       |       |              |        |              |       |               |       |   |   |   |   |
| COSTS AND  EXPENSES:                                       |       |              |        |              |       |               |       |   |   |   |   |
| Cost of goods sold                                         |       | 344,164,566       |        | 309,272,849       |       | 217,322,673        |       |   |   | 87,025,521 |   |
| Selling, general and administrative expenses               |       | 85,403,876        |        | 67,838,965        |       | 39,827,160         |       |   |   | 26,446,857 |   |
| Loss on disposition of property, plant and  equipment, net |       | (2,025            | )           | 6,388             |       | 5,372              |       |   |   | 339,921 |   |
| Depreciation and amortization                              |       | 30,367,805        |        | 30,638,357        |       | 23,169,814         |       |   |   | 1,544,903 |   |
| Total costs and expenses                                   |       | 459,934,222       |        | 407,756,559       |       | 280,325,019        |       |   |   | 115,357,202 |   |
|                                                       |       |              |        |              |       |               |       |   |   |   |   |
| OPERATING INCOME                                           |       | 27,908,764        |        | 23,876,305        |       | 14,542,203         |       |   |   | 191,362 |   |
|                                                       |       |              |        |              |       |               |       |   |   |   |   |
| INTEREST EXPENSE  AND OTHER INCOME:                        |       |              |        |              |       |               |       |   |   |   |   |
| Interest expense                                           |       | (25,377,115       | )           | (22,331,204       | )          | (19,493,148        | )          |   |   | (6,537,519 | ) |
| Other income                                               |       | 115,026           |        | 151,739           |       | 24,334             |       |   |   | 1,784 |   |
| Interest expense and other income, net                     |       | (25,262,089       | )           | (22,179,465       | )          | (19,468,814        | )          |   |   | (6,535,735 | ) |
|                                                       |       |              |        |              |       |               |       |   |   |   |   |
| INCOME (LOSS)  BEFORE INCOME TAX                           |       | 2,646,675         |        | 1,696,840         |       | (4,926,611         | )          |   |   | (6,344,373 | ) |
|                                                       |       |              |        |              |       |               |       |   |   |   |   |
| INCOME TAX  (PROVISION) BENEFIT                            |       | (846,821          | )           | 464,862           |       | 597,224            |       |   |   | 2,080,338 |   |
|                                                       |       |              |        |              |       |               |       |   |   |   |   |
| NET INCOME  (LOSS)                                         |       | $                 | 1,799,854   |              | $          | 2,161,702          |       | $ | (4,329,387 | ) |   |   | $ | (4,264,035 | ) |
|                                                       |       |              |        |              |       |               |       |   |   |   |   |
| NET INCOME  (LOSS) PER COMMON SHARE - BASIC AND DILUTED    |       |              |        |              |       |               |       |   |   |   |   |
|                                                       |       |              |        |              |       |               |       |   |   |   |   |
| Net income (loss) per common share - basic and  diluted    |       | $                 | 18.00       |              | $          | 21.62              |       | $ | (43.29 | ) |   |   | $ | (42.64 | ) |
|                                                       |       |              |        |              |       |               |       |   |   |   |   |
| WEIGHTED AVERAGE  SHARES OUTSTANDING - BASIC AND DILUTED   |       | 100,000           |        | 100,000           |       | 100,000            |       |   |   | 100,000 |   |

 

See accompanying notes to consolidated financialstatements.

** **

F-4

----

**PIERRE FOODS, INC.**

 

**CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY**
| ** **                                   | ** ** | **Common**       | ** ** | **Retained**  | ** ** | **Receivable**  | ** ** | **Total**              | ** ** |
|----------------------------------------------|------------|------------------|------------|---------------|------------|-----------------|------------|------------------------|------------|
| ** **                                   | ** ** | **Stock**        | ** ** | **Earnings**  | ** ** | **From**        | ** ** | **Shareholder’s** | ** ** |
| ** **                                   | ** ** | **Class A** | ** ** | **(Deficit)** | ** ** | **Shareholder** | ** ** | **Equity**             | ** ** |
|                                         |       |             |       |          |       |            |       |                   |       |
| PREDECESSOR PIERRE  BALANCE AT MARCH 6, 2004 |       | 29,438,172       |       | (17,817,637   | )          | (5,000,000      | )          | 6,620,535              |       |
| Net loss                                     |       | —           |       | (4,264,035    | )          | —          |       | (4,264,035             | )          |
| Transaction with common  shareholder         |       | (339,639         | )          | (11,900,276   | )          | —          |       | (12,239,915            | )          |
|                                         |       |             |       |          |       |            |       |                   |       |
| PREDECESSOR PIERRE  BALANCE AT JUNE 30, 2004 |       | 29,098,533       |       | (33,981,948   | )          | (5,000,000      | )          | (9,883,415             | )          |
| Purchase accounting  adjustment              |       | (29,098,533      | )          | 33,981,948    |       | 5,000,000       |       | 9,883,415              |       |
| Successor Pierre  purchase allocation        |       | 150,023,000      |       | —        |       | —          |       | 150,023,000            |       |
| Net loss                                     |       | —           |       | (4,329,387    | )          | —          |       | (4,329,387             | )          |
| Contribution from  parent                    |       | 350,000          |       | —        |       | —          |       | 350,000                |       |
| Expenses paid on behalf  of parent           |       | (21,028          | )          | —        |       | —          |       | (21,028                | )          |
|                                         |       |             |       |          |       |            |       |                   |       |
| SUCCESSOR PIERRE  BALANCE AT MARCH 5, 2005   |       | 150,351,972      |       | (4,329,387    | )          | —          |       | 146,022,585            |       |
| Net income                                   |       | —           |       | 2,161,702     |       | —          |       | 2,161,702              |       |
| Expenses paid on behalf  of parent           |       | (126,431         | )          | —        |       | —          |       | (126,431               | )          |
|                                         |       |             |       |          |       |            |       |                   |       |
| SUCCESSOR PIERRE  BALANCE AT MARCH 4, 2006   |       | 150,225,541      |       | (2,167,685    | )          | —          |       | 148,057,856            |       |
| Net income                                   |       | —           |       | 1,799,854     |       | —          |       | 1,799,854              |       |
| Expenses paid on behalf  of parent           |       | (37,600          | )          | —        |       | —          |       | (37,600                | )          |
|                                         |       |             |       |          |       |            |       |                   |       |
| SUCCESSOR PIERRE BALANCE AT MARCH 3, 2007    |       | 150,187,941      |       | (367,831      | )          | —          |       | 149,820,110            |       |

 

See accompanying notes to consolidated financial statements.

F-5

----

**PIERRE FOODS, INC.**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**
| ** **                                                                                                 | ** ** | **Successor**               | ** **    | ** **                  | ** ** | **Predecessor**              | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|-----------------------------|---------------|-----------------------------|------------|------------------------------|------------|
| ** **                                                                                                 | ** ** | ** **                  | ** **    | ** **                  | ** ** | **Fiscal 2005**         | ** ** | ** ** | ** ** | **Fiscal 2005** | ** ** |
| ** **                                                                                                 | ** ** | **Fiscal 2007**        | ** **    | **Fiscal 2006**        | ** ** | **For the Period** | ** ** | ** ** | ** ** | **For the Period** | ** ** |
| ** **                                                                                                 | ** ** | **For the Year**  | ** **    | **For the Year**  | ** ** | **July 1, 2004**   | ** ** | ** ** | ** ** | **March 7, 2004** | ** ** |
| ** **                                                                                                 | ** ** | **Ended**                   | ** **    | **Ended**                   | ** ** | **Through**                  | ** ** | ** ** | ** ** | **Through** | ** ** |
| ** **                                                                                                 | ** ** | **March 3, 2007** | ** **    | **March 4, 2006** | ** ** | **March 5, 2005**  | ** ** | ** ** | ** ** | **June 30, 2004** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                                                      |       |                        |          |                        |       |                         |       |   |   |   |   |
| Net income  (loss)                                                                                         |       | **$**                       | **1,799,854** |                        | $          | 2,161,702                    |       | $ | (4,329,387 | ) |   |   | $ | (4,264,035 | ) |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities:                  |       |                        |          |                        |       |                         |       |   |   |   |   |
| Depreciation and  amortization                                                                             |       | 30,367,805                  |          | 30,638,357                  |       | 23,169,814                   |       |   |   | 1,544,903 |   |
| Amortization of  deferred loan origination fees                                                            |       | 1,691,456                   |          | 1,651,969                   |       | 1,029,109                    |       |   |   | 716,478 |   |
| Change in  deferred income taxes                                                                           |       | (5,576,677                  | )             | (2,320,054                  | )          | 370,083                      |       |   |   | (2,080,338 | ) |
| Write-off of  deferred loan origination fees                                                               |       | —                      |          | —                      |       | 4,283,122                    |       |   |   | — |   |
| (Gain) loss on  disposition of property, plant, and equipment, net                                         |       | (2,025                      | )             | 6,388                       |       | 5,372                        |       |   |   | 339,921 |   |
| (Increase)  decrease in other non-current assets                                                           |       | 354,660                     |          | (381,278                    | )          | (7,100                       | )          |   |   | (212,772 | ) |
| Increase (decrease) in other long-term liabilities                                                         |       | (4,113,396                  | )             | (4,348,517                  | )          | 199,565                      |       |   |   | (94,477 | ) |
| Changes in  operating assets and liabilities providing (using) cash excluding the effect  of acquisitions: |       |                        |          |                        |       |                         |       |   |   |   |   |
| Receivables                                                                                                |       | (2,650,242                  | )             | (43,148                     | )          | (9,566,451                   | )          |   |   | 5,660,719 |   |
| Inventories                                                                                                |       | (7,406,780                  | )             | (1,922,407                  | )          | 436,083                      |       |   |   | (3,205,051 | ) |
| Refundable  income taxes, prepaid expenses, and other current assets                                       |       | (4,373,429                  | )             | 2,213,045                   |       | (3,607,572                   | )          |   |   | (247,428 | ) |
| Trade accounts  payable and other accrued liabilities                                                      |       | 3,705,227                   |          | 807,868                     |       | 867,918                      |       |   |   | 2,227,855 |   |
| Total adjustments                                                                                          |       | 11,996,599                  |          | 26,302,223                  |       | 17,179,943                   |       |   |   | 4,649,810 |   |
| Net cash  provided by operating activities                                                                 |       | 13,796,453                  |          | 28,463,925                  |       | 12,850,556                   |       |   |   | 385,775 |   |
|                                                                                                       |       |                        |          |                        |       |                         |       |   |   |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                                                      |       |                        |          |                        |       |                         |       |   |   |   |   |
| Net cash used in  the Acquisition of Zartic                                                                |       | (91,602,574                 | )             | —                      |       | —                       |       |   |   | — |   |
| Net cash used in  the Acquisition of Clovervale                                                            |       | (21,845,428                 | )             | —                      |       | —                       |       |   |   | — |   |
| Capital  expenditures                                                                                      |       | (8,658,313                  | )             | (7,150,218                  | )          | (3,677,259                   | )          |   |   | (2,084,160 | ) |
| Proceeds from  disposition of property, plant, and equipment                                               |       | 22,866                      |          | —                      |       | —                       |       |   |   | — |   |
| Net cash used in  investing activities                                                                     |       | (122,083,449                | )             | (7,150,218                  | )          | (3,677,259                   | )          |   |   | (2,084,160 | ) |
|                                                                                                       |       |                        |          |                        |       |                         |       |   |   |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                                                      |       |                        |          |                        |       |                         |       |   |   |   |   |
| Borrowings  (repayments) of revolving credit agreement                                                     |       | 800,000                     |          | (790,000                    | )          | (17,702,886                  | )          |   |   | 7,712,901 |   |
| Principal  payments on long-term debt                                                                      |       | (14,688,512                 | )             | (17,796,711                 | )          | (16,169,945                  | )          |   |   | (673,526 | ) |
| Loan origination  fees                                                                                     |       | (2,626,605                  | )             | (59,843                     | )          | (9,952,798                   | )          |   |   | (3,371,999 | ) |
| Payoff of Old  Notes                                                                                       |       | —                      |          | —                      |       | (115,000,000                 | )          |   |   | — |   |
| Issuance of New  Notes                                                                                     |       | —                      |          | —                      |       | 125,000,000                  |       |   |   | — |   |
| Borrowings under  new term loan                                                                            |       | 124,000,000                 |          | —                      |       | 150,000,000                  |       |   |   | — |   |
| Repayment of  debt in conjunction with the Acquisition of Pierre                                           |       | —                      |          | —                      |       | (29,048,031                  | )          |   |   | — |   |
| Repayment of  debt in conjunction with the Acquisition of Clovervale                                       |       | (1,612,378                  | )             | —                      |       | —                       |       |   |   | — |   |
| Termination of  certificate of deposit                                                                     |       | —                      |          | —                      |       | 1,262,245                    |       |   |   | — |   |
| Return of  capital to parent                                                                               |       | (37,600                     | )             | (126,431                    | )          | (100,085,738                 | )          |   |   | — |   |
| Contribution  from parent                                                                                  |       | —                      |          | —                      |       | 350,000                      |       |   |   | — |   |
| Net cash  provided by (used in) financing activities                                                       |       | 105,834,905                 |          | (18,772,985                 | )          | (11,347,153                  | )          |   |   | 3,667,376 |   |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                                      |       | (2,452,091                  | )             | 2,540,722                   | )          | (2,173,856                   |       |   |   | 1,968,991 |   |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF YEAR                                                              |       | 2,540,722                   |          | —                      |       | 2,173,856                    |       |   |   | 204,865 |   |
| CASH AND CASH  EQUIVALENTS, END OF YEAR                                                                    |       | $                           | 88,631        |                        | $          | 2,540,722                    |       | $ | — |   |   |   | $ | 2,173,856 |   |

 

See accompanying notes to consolidatedfinancial statements.

F-6

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**PIERRE FOODS, INC.**

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

**1.****             ****BASIS OF PRESENTATION ANDACQUISITIONS**

***Description of Business. ***Pierre Foods, Inc. and its subsidiaries (the “Company”or “Pierre”) manufactures, markets, and distributes high-quality, differentiatedprocessed food solutions, focusing on formed, pre-cooked and ready-to-cookprotein products, hand-held convenience sandwiches, and compartmentalizedmeals.  The Company’s products includebeef, pork, poultry, and bakery items. Pierre offers comprehensive food solutions to its customers, includingproprietary product development, special ingredients and recipes, as well ascustom packaging and marketing programs. Pierre’s pre-cooked and ready-to-cook proteins include flamebroiledburger patties, homestyle meatloaf, chicken strips, and boneless, barbecuedpork rib products.  Pierre markets itspre-cooked and ready-to-cook protein products to a broad array of customersthat includes restaurant chains, schools, and other foodservice providers undera variety of brand names, including PierreTM, Zartic®, Z-Bird®, Circle Z®, Jim’s Country Mill Sausage®,Clovervale Farms®, Chef’s Pantry®, Fast Choice®, Rib-B-Q®, Blue Stone GrillTM,Hot ‘n’ Ready®, Big AZ®, Chicken FryZ®, Smokie Grill ®, and Chop House®.P, andhas licenses to sell sandwiches using well-known brands, such as Checkers®,Rally’s®, Krystal®, Tony Roma’s®, and Nathan’s Famous®.

***Restructuring.***  OnMarch 8, 2004, following a consent solicitation in which consents of holders of$112.4 million in aggregate principal amount of the Company’s outstanding Notes(“Old Notes”), representing 97.74% of the outstanding Notes, consented to aFourth Supplemental Indenture between the Company and the Trustee thereunder,the Company entered into the Fourth Supplemental Indenture with theTrustee.  Among other things, the FourthSupplemental Indenture increased the annual interest rate on the Old Notes from10.75% to 12.25% through March 31, 2005 and 13.25% thereafter; required thepayment of a cash consent fee of $3.5 million (3% of the principal amount ofOld Notes held by each consenting noteholder); granted to the noteholders’liens on the assets of the Company and its subsidiaries, such liens beingjunior to the senior liens securing the Company’s credit facility, granted tonoteholders a repurchase right allowing all of the noteholders to require theCompany to repurchase their Old Notes at par plus accrued interest on March 31,2005; provided for the payment of a portion of certain cash flow of the Company(referred to as “excess cash”) to reduce the principal amount of Old Notesoutstanding at the end of the Company’s fiscal years; added restrictivecovenants limiting the compensation payable to certain senior executives of theCompany and limiting future related party transactions; required thetermination of all related party transactions, except for certainspecifically-permitted transactions; provided for the assumption by the Companyof approximately $15.3 million of subordinated debt of PFMI, the soleshareholder of the Company, required the Company to comply with certaincorporate governance standards, including appointing an independent directoracceptable to the Company and the noteholders to its board and hiring anindependent auditor to monitor the Company’s compliance with the Indenture; andwaived any and all defaults of the Indenture existing as of March 8, 2004.  The restrictive covenants limitingcompensation payable to certain senior executives of the Company permitted forbonus payments to those executives above the compensation limitations.  The bonus payments were based on theprofitability of the Company and cash payments made on the Old Notes.

Concurrently with the execution of the Fourth Supplemental Indenture,the Company took title to an aircraft transferred from a related party subjectto $5.6 million of existing debt; assumed $15.3 million of debt from PFManagement, Inc., the sole shareholder of the Company (“PFMI”); cancelled the$1.0 million related party note receivable against the debt assumed from PFMI;cancelled the balances owed by the Company to certain related parties, asfollows: $0.5 million owed to Columbia Hill Aviation (“CHA”); $3.5 million owedto PF Purchasing; a former affiliate of the Company (“PFP”), $0.5 million owedto PF Distribution; a former affiliate of the Company (“PFD”), and assumed theoperating leases of PFD in connection with the Fourth Supplemental Indenture.

In this document, unlessthe context otherwise requires, the term “Company” or “Pierre” refers to PierreFoods, Inc. and its current and former subsidiaries.  The Company’s fiscal year ended March 3, 2007is referred to as “successor fiscal 2007”. The Company’s fiscal year ended March 4, 2006 is referred to as “successorfiscal 2006.”  As a result of theAcquisition of Pierre on June 30, 2004, as discussed below, the Company’sfiscal year ended March 5, 2005 is comprised of two short periods.  The periods as of March 7, 2004 through June30, 2004 and July 1, 2004 through March 5, 2005 are referred to as “predecessorfiscal 2005” and “successor fiscal 2005,” respectively.  These two short periods collectively arereferred to as “predecessor fiscal 2005” and successor fiscal 2005 combined.”

F-7

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***Acquisition of Pierre.**** *On June 30, 2004, the shareholders of PFMI sold theirshares of stock in PFMI (the “Acquisition of Pierre”) to Pierre Holding Corp. (“Holding”),an affiliate of Madison Dearborn Partners, LLC (“MDP”).  The fair value adjustments related to theAcquisition of Pierre, were pushed down to the Company from Holding, whichprimarily included adjustments in property, plant, and equipment, inventories,goodwill, other intangible assets and related deferred taxes.  The following occurred in conjunction withthe Acquisition of Pierre:

·                  The Company merged with Pierre Merger Corp.,an affiliate of MDP, with the Company being the surviving corporation followingthe merger.

·                  The Company terminated its three-yearvariable-rate $40 million revolving credit facility and obtained a $190 millioncredit facility from a new lender which includes a six-year variable-rate $150million term loan and a five-year variable- rate $40 million revolving creditfacility with a $10 million letter of credit subfacility.  See Note 7–“Financing Arrangements”.

·                  The Company terminated its few remainingrelated party transactions as described in Note 1 –“Transactions with RelatedParties,” transferred miscellaneous assets to Messrs. James C. Richardson andDavid R. Clark, the Company’s former Chairman and Vice Chairman, respectively,including the Company’s airplane, which was distributed to Mr. Richardson.

·                  Pierre Merger Corp. closed a cash tender offerand consent solicitation for the Company’s Old Notes.  Holders of approximately $106.3 million, orapproximately 92%, of aggregate principal amount of the Company’s outstandingOld Notes tendered their Old Notes.  TheCompany, as the surviving corporation of the merger with Pierre Merger Corp.,accepted and paid for all Old Notes tendered pursuant to the tender offer.  A redemption notice for the Old Notes nottendered (approximately $8.7 million) was issued on June 30, 2004 and these OldNotes were redeemed on July 20, 2004.

·                  The Company issued $125.0 million of 9-7/8%Senior Subordinated Notes due 2012 (the “New Notes”).  The proceeds of the New Notes, together withthe equity contributions from MDP and certain members of management (asdescribed below) and borrowings under the Company’s new senior credit facility,were used to finance the Acquisition of Pierre and to repay outstandingindebtedness.

·                  The Company’s President and Chief ExecutiveOfficer, Norbert E. Woodhams, and its Senior Vice President of Sales andMarketing, Robert C. Naylor, signed employment agreements committing them tocontinue working for the Company after the Acquisition of Pierre.  The stated term of employment for eachexecutive is one year, but each agreement renews year-to-year unlessterminated.

·                  The management investors, Norbert E. Woodhamsand Robert C. Naylor, invested approximately $4.9 million in a deferredcompensation plan.  This deferredcompensation plan is funded through a rabbi trust that owns preferred stock ofHolding with an aggregate liquidation value of approximately $6.3 million as ofMarch 3, 2007.

·                  In addition to the base purchase price, thestock purchase agreement entitled the selling shareholders to earn-out cashpayments, which included an additional aggregate amount of $13.0 million in theevent that, at the end of any fiscal quarter during the fiscal year ended March5, 2005, the Company achieved EBITDA (as defined in the stock purchaseagreement) for the prior four fiscal quarters then ended of $56.0 million ormore.  No portion of the additionalamount was payable as the EBITDA target was not met.

·                  The Company and the selling shareholders****entered into a tax sharing and indemnification agreementcontaining certain representations and warranties of the selling shareholderswith respect to taxes.  The agreementprovides that any net operating loss carryforwards attributable to expensesrelating to the sale of the Company (“Deal Related NOLs”) and certain otherdeal related expenses, will be for the benefit of the sellingshareholders.  As of the date of theAcquisition of Pierre, these Deal Related NOLs and other deal related expensestotaled approximately $24.2 million and $6.6 million, respectively.  Accordingly, the Company is required to payand has paid to the selling shareholders the amount of any tax benefitattributable to such Deal Related NOLs and other deal related expenses, exceptthat the first $4.0 million of such tax benefits was paid into an escrowaccount that will secure the selling shareholders indemnification obligationsunder the tax sharing and indemnification agreement.  The Company is required to make payments tothe selling shareholders or the escrow account for tax benefits derived fromsuch utilization 20 days after the filing of the tax return that utilizes suchDeal Related NOLs or other deal related expenses.

F-8

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The Acquisition of Pierre was recorded under thepurchase method of accounting.  Thepurchase price was allocated to assets acquired and liabilities assumed basedon the estimated fair market value at the date of Acquisition of Pierre.  The allocation of the purchase price was asfollows:

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

The Company obtained outsideappraisals of acquired assets and liabilities in successor fiscal 2005.  Deferred tax liabilities were finalized basedon the final allocation of the purchase price and the determination of the taxbasis of the assets and liabilities acquired.

***Acquisition of Clovervale.***** **On August 21, 2006,the Company acquired all of the outstanding shares of stock of ClovervaleFarms, Inc., two of its subsidiaries, and certain of the real property used inits business (“Clovervale”). The acquisition of Clovervale is referred toherein as the “Acquisition of Clovervale”. The preliminary aggregate purchase price was $22.8 million, which waspaid in cash at the closing.  Afterrepayment of indebtedness and other post-closing adjustments, the net purchaseprice was $21.8 million and is subject to a post-closing working capitaladjustment. Pierre funded the Acquisition of Clovervale through an amendment toits Credit Agreement (“Amendment No. 2”). See Note 7, “Financing Arrangements” for further discussion.** **Pierre’s investmentin Clovervale was based on the expectation that such an investment wouldincrease Pierre’s presence with targeted customer channels and add capacity andproduction capabilities in order to increase product offerings.

Clovervale was aprivately held company and currently employs approximately 96 employees.  Clovervale has operations in Amherst, Ohioand Easley, South Carolina and manufactures and sells a variety of food itemsincluding individually proportioned entrees, vegetables, sandwiches, fruits,cobblers, peanut butter and jelly bars, sandwiches and cups, sherbets, applesauce, and other similar products through various customer channels includingschools, military, hospitals, and senior citizen meal programs.  The operating results for Clovervale areincluded in the Company’s Consolidated Statement of Operations from the date ofthe Acquisition of Clovervale.

In conjunctionwith the Acquisition of Clovervale, management of the Company, with theassistance of an independent valuation firm, performed valuations on theClovervale other intangibles for financial reporting purposes.  Assets identified through this valuationprocess included customer relationships, non-compete agreements, and certaintradenames and trademarks.  The increasesin the carrying amounts of goodwill and other intangible assets presented inNote 6, “Goodwill and Other Intangible Assets” to the Consolidated FinancialStatements are partially due to the preliminary valuations performed inconjunction with the Acquisition of Clovervale. In addition, other fair value adjustments were made in conjunction withthe Acquisition of Clovervale, which primarily include adjustments to property,plant, and equipment, inventory, and related deferred taxes.

TheAcquisition of Clovervale was recorded under the purchase method ofaccounting.  The preliminary net purchaseprice has been allocated to assets acquired and liabilities assumed based onthe estimated fair market value at the date of the Acquisition ofClovervale.  The preliminary allocationof the net purchase price is as follows:

| Current assets                      |   | $          | 5,253,602  |   |
|-------------------------------------|--------|------------|------------|--------|
| Property, plant,  and equipment     |   | 12,876,729 |       |
| Non-current  assets                 |   | 17,625     |       |
| Goodwill                            |   | 6,623,270  |       |
| Other  intangibles                  |   | 2,730,000  |       |
| Debt and other  liabilities assumed |   | (4,411,625 | )          |
| Deferred tax  liabilities           |   | (1,244,173 | )          |
| Net assets acquired                 |   | $          | 21,845,428 |   |

 

Of the $2.7 million of acquired other intangibleassets, $2.4 million was assigned to customer relationships with aweighted-average estimated useful life of 10 years.  The remaining acquired other intangibleassets include tradenames and trademarks of $280,000 with a weighted-averageuseful life of 3 years and a non-compete agreement of $50,000 with a usefullife of 2 years.  The goodwill related tothe Acquisition of Clovervale is not expected to be deductible for taxpurposes.

F-9

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The initial allocation of the preliminary net purchaseprice to specific assets and liabilities was based, in part, upon preliminaryappraisals, and was therefore subject to change. Net assets acquired totaling$21,815,976 were previously reported in the Company’s Quarterly Report on Form10-Q for the period ended December 2, 2006. The increase in net assets acquired is due to miscellaneousadjustments.  The Company expects tofurther adjust and finalize the appraisals of acquired assets and liabilitiesin its fiscal year ending March 1, 2008 (“successor fiscal 2008”).  Deferred tax liabilities will also befinalized after the final allocation of the purchase price and the final taxbasis of the assets and liabilities has been determined.

***Acquisitionof Zartic.* **OnDecember 11, 2006, the Company acquired substantially all of the assets ofZartic, Inc. and its affiliated distribution company, Zar Tran, Inc., andcertain real property and other assets used in the businesses(collectively,  “Zartic”).  The acquisition of Zartic, Inc. and itssubsidiaries is referred to herein as the “Acquisition of Zartic”.  The preliminary aggregate purchase price was$94.0 million, plus the assumption of certain liabilities, which was paid incash at the closing and is subject to certain post-closing adjustments.  After repayment of indebtedness and otherpost-closing adjustments, the net purchase price was $91.6 million and issubject to additional post-closing adjustments, including for working capital.  Pierre funded the Acquisition of Zarticthrough an amendment to its Credit Agreement (“Amendment No. 3”).  See Note 7, “Financing Arrangements” forfurther discussion.** **Pierre’s investment in Zartic wasbased on the expectation that such an investment would increase Pierre’spresence with targeted customer channels and add capacity and productioncapabilities in order to increase product offerings.

Zartic was aprivately held company and currently employs approximately 925 employees.  Zartic has operations in Rome, Georgia,Cedartown, Georgia, and Hamilton, Alabama and manufactures, sells, delivers,and distributes a variety of food items including packaged beef, poultry, pork,and veal products and other similar products through various customer channelsincluding restaurant chains, schools, military, and other foodserviceproviders.  Operating results for Zarticare included in the Company’s Consolidated Statement of Operations from thedate of the Acquisition of Zartic.

In conjunctionwith the Acquisition of Zartic, management of the Company, with the assistanceof an independent valuation firm, performed valuations on the Zartic otherintangibles for financial reporting purposes. Assets identified through this valuation process included customerrelationships, non-compete agreements, and certain tradenames andtrademarks.  The increases in thecarrying amounts of goodwill and other intangible assets presented in Note 6, “Goodwilland Other Intangible Assets” are partially due to the preliminary valuationsperformed in conjunction with the Acquisition of Zartic.  In addition, other fair value adjustmentswere made in conjunction with the Acquisition of Zartic, which primarilyinclude adjustments to property, plant, and equipment, and inventory.

The Acquisition of Zartic was recorded under the purchase method ofaccounting.  The preliminary net purchaseprice has been allocated to assets acquired and liabilities assumed based onthe estimated fair market value at the date of the Acquisition of Zartic.  The preliminary allocation of the netpurchase price is as follows:

| Current assets                      |   | $           | 25,009,255 |   |
|-------------------------------------|--------|-------------|------------|--------|
| Property, plant,  and equipment     |   | 29,809,308  |       |
| Non-current  assets                 |   | 319,691     |       |
| Goodwill                            |   | 23,734,459  |       |
| Other  intangibles                  |   | 27,700,000  |       |
| Debt and other  liabilities assumed |   | (14,970,139 | )          |
| Net assets acquired                 |   | $           | 91,602,574 |   |

 

Of the $27.7 million of acquired other intangibleassets, $15.1 million was assigned to customer relationships with aweighted-average estimated useful life of 14 years.  The remaining acquired other intangibleassets include formula and recipes of $9.9 million with a weighted-averageuseful life of 15 years, tradenames and trademarks of $2.4 million with aweighted-average useful life of 2 years, and a non-compete agreement of $0.3million with a useful life of 3 years. The goodwill related to the Acquisition of Zartic is expected to bedeductible for tax purposes.

The initial allocation of the preliminary netpurchase price to specific assets and liabilities is based, in part, uponpreliminary appraisals, and is therefore subject to change. Net assets acquiredtotaled $91.6 million.  The Companyexpects to adjust and finalize the appraisals of acquired assets andliabilities in successor fiscal 2008.

F-10

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***UnauditedPro Forma Results.*** The following tables present unaudited pro forma information forsuccessor fiscal 2007 and successor fiscal 2006, as if the Acquisition ofClovervale and the Acquisition of Zartic had been completed at the beginning ofthe respective periods.
| ** **        | ** ** | **Successor Fiscal  2007** | ** **  | **Successor Fiscal  2006** | ** ** |
|-------------------|------------|----------------------------|-------------|----------------------------|------------|
|                   | ** ** | **Actual**                 | ** **  | **Pro Forma**              | ** ** | **Actual** | ** ** | **Pro Forma** | ** ** |
|              |       |                       |        |                       |       |   |   |   |   |
| Revenues          |       | $                          | 487,842,986 |                       | $          | 615,714,811 |   | $ | 431,632,864 |   | $ | 637,049,384 |   |
|              |       |                       |        |                       |       |   |   |   |   |
| Net income (loss) |       | $                          | 1,799,854   |                       | $          | (13,162,387 | ) | $ | 2,161,702 |   | $ | (7,168,999 | ) |

 

Theseunaudited pro forma results, based on assumptions deemed appropriate by theCompany’s management, have been prepared for informational purposes only andare not necessarily indicative of the amounts that would have resulted if theCompany had acquired Clovervale and Zartic at the beginning of the respectiveperiods.  Purchase related adjustments tothe results of operations include the effects on depreciation and amortization,interest expense, cost of goods sold, and income taxes.

In addition to the purchase related adjustments, included in these proforma results are certain reclassifications of Clovervale’s and Zartic’sexpenses, which are consistent with the classifications of Pierre.  These reclassifications include thepresentation of various sales discounts previously reported by Clovervale asselling expenses, but more appropriately classified as a reduction ofrevenues.  In addition, thesereclassifications include the presentation of depreciation and amortizationpreviously reported by Zartic within operating expenses.

Also included in these pro forma results are the elimination of interestexpense related to Clovervale’s debt and Zartic’s debt, which were partiallypaid off in conjunction with the Acquisition of Clovervale and the Acquisitionof Zartic, respectively, and will no longer be present in the Company’s resultsof operations.  Included in these proforma results is the estimated interest expense for the debt incurred by theCompany to finance the Acquisition of Clovervale and the Acquisition of Zartic.

**2.             SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES**

***Principles of consolidation***.  Theaccompanying consolidated financial statements include Pierre Foods, Inc. andsubsidiaries, as well as the accounts of the special purpose leasing entity inperiods prior to the Acquisition of Pierre (“Predecessor Pierre”).  See Note 16, “Transactions With RelatedParties” for further discussion related to the Company’s special purposeleasing entity.  All intercompanytransactions have been eliminated.

***Fiscal year.*** The Company operateson a 52-week or 53-week fiscal year ending on the first Saturday in March or ifthe last day of February is a Saturday, the last day of February.  Each quarter of the fiscal year contains 13weeks except for the infrequent fiscal years with 53 weeks.  The results for successor fiscal 2007,successor fiscal 2006, and predecessor fiscal 2005 and successor fiscal 2005combined contain 52 weeks.

***Cash and cash equivalents.***  Forfinancial statement presentation purposes, the Company presents bookoverdrafts, principally outstanding checks in excess of cash on hand with thesame financial institution, as accounts payable.   As of March 3, 2007, the Company had cash onhand of $1.8 million (of which $1.7 million was held in accounts with theCompany’s bank that is primarily responsible for its cash management), whichwas offset by outstanding checks of $7.3 million, resulting in a netreclassification of $5.6 million to accounts payable and a remaining cash onhand balance of $0.1 million.  Theremaining cash balance represents cash in other financial institutions otherthan the Company’s bank primarily responsible for its cash management.  The Company considers all highly liquidinvestments purchased with an original maturity of three months or less to becash equivalents.  As of March 3, 2007,the Company had no cash equivalents.

***Revenue Recognition.**** *The Company records**revenues from sales of its food products at the time titletransfers.  Standard shipping terms areFOB destination.  Based on these terms,title passes at the time the product is delivered to the customer.  Revenue is recognized as the net amount to bereceived by the Company after deductions for estimated discounts, productreturns, and other allowances.  Theseestimates are based on historical trends and expected future payments (see also*Promotions*below).

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

***Property, plant, and equipment***.  Property,plant and equipment are stated at cost or fair value at date ofacquisition.  Expenditures formaintenance and repairs which do not significantly extend the useful lives ofassets are charged to operations whereas additions and betterments, includinginterest costs incurred during construction, which was not material for anyyear presented, are capitalized.

F-11

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Depreciation of property, plant and equipment isprovided over the estimated useful lives of the respective assets on thestraight-line basis.  Leaseholdimprovements are depreciated over the shorter of their estimated useful livesor the terms of the respective leases. Property under capital leases is amortized over the terms of therespective leases.  Depreciation expense, along with amortization ofintangible assets, is recorded as a separate line item in the consolidatedstatements of operations.  Cost of goodssold and selling, general and administrative expenses exclude depreciationexpense.  Depreciation expense excludedfrom cost of goods sold totaled approximately $7.5 million, $6.3 million, and$5.7 million during successor fiscal 2007, successor fiscal 2006, andpredecessor fiscal 2005 and successor fiscal 2005 combined, respectively.

The Company evaluates the carrying values oflong-lived assets for impairment by assessing recoverability based onforecasted operating cash flows on an undiscounted basis in accordance withSFAS 144, “Accounting for Impairment or Disposal of Long-Lived Assets,” anddetermined no impairment existed at March 3, 2007, March 4, 2006 or March 5,2005.

***Goodwill and Other IntangibleAssets*****.**  Inconjunction with the Acquisition of Pierre, the Company engaged an independentparty, with the assistance of Pierre’s management, to perform valuations forfinancial reporting purposes of the Company’s other intangible assets.  Assets identified through these valuationprocesses included goodwill, formulas, customer relationships, licensingagreements, and certain trade names and trademarks.

In conjunction with the Acquisition of Clovervale,management of the Company, with the assistance of an independent valuationfirm, performed similar valuations on the Clovervale other intangibles forfinancial reporting purposes.  Assetsidentified through this valuation process included customer relationships,non-compete agreements, and certain tradenames and trademarks.  The increases in the carrying amounts ofgoodwill, amortizable intangible assets, and indefinite-lived intangible assetsrepresent the assets recorded as a result of the preliminary valuationsperformed in conjunction with the Acquisition of Clovervale.

In conjunction with the Acquisition of Zartic,management of the Company, with the assistance of an independent valuationfirm, performed similar valuations on the Zartic other intangibles forfinancial reporting purposes.  Assetsidentified through this valuation process included customer relationships,non-compete agreements, and certain tradenames and trademarks.  The increases in the carrying amounts ofgoodwill, amortizable intangible assets, and indefinite-lived intangible assetsrepresent the assets recorded as a result of the preliminary valuationsperformed in conjunction with the Acquisition of Zartic.

In accordance with SFAS No. 142 (“SFAS 142”)–“Goodwill and OtherIntangible Assets,” the Company tests recorded goodwill and intangibles withindefinite lives for impairment at least annually.  Intangible assets with finite lives areamortized over their estimated economic or estimated useful lives.  In addition, all other intangible assets arereviewed for impairment in accordance with SFAS 144, “Accounting for theImpairment or Disposal of Long-Lived Assets.” As of March 3, 2007, the Company performed the annual impairment reviewof goodwill and indefinite-lived intangible assets and also assessed whetherthe indefinite-lived intangible assets continue to have indefinite lives.  The Company engaged an independent party toperform valuations to assist in the impairment review.  There were no impairment charges as a resultof this review.

The impairmentanalyses relied on financial forecasts of income and cash flow that areattributable to our reporting units and indefinite-lived intangible assets andthen discounted to present value at rates reflective of our cost ofcapital.  Future changes in our financialforecasts or cost of capital might adversely affect the value of our reportingunits or indefinite-lived intangible assets. The Company will continue to perform impairment tests on anannual basis and on an interim basis, if certain conditions exist.

The Company’s amortizable intangible assets areamortized using primarily accelerated amortization methods, in addition to thestraight-line amortization method, in order to match the expected benefitderived from the assets over the life of the asset.  The accelerated amortization methods allocateamortization expenses based on the expected benefit derived from the assetsover the estimated useful lives of the assets.

***Deferred Loan Origination Fees***.  Deferred loan origination fees associatedwith the Company’s revolving credit facility and long-term debt are amortizedbased on the term of the respective agreements, except for those feesassociated with the Company’s Term B loan, which are amortized based on theeffective interest rate method.  Allamortization expense related to deferred loan origination fees is included ininterest expense.  Also included ininterest expense during successor fiscal 2005, as a result of the Acquisitionof Pierre, is the write-off of approximately $4.3 million of deferred loanorigination fees associated with the old debt structure.

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

F-12

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***Concentration of Credit Risk and Significant Customers*.**  Financial instruments that potentiallysubject the Company to concentrations of credit risk consist primarily of tradereceivables.  The Company performsperiodic credit evaluations of its customers’ financial condition and generallydoes not require collateral.  The Companyencounters a certain amount of credit risk as a result of a concentration ofreceivables among a few significant customers. Sales to the Company’s largest customer were approximately 14%, 21% and25% of net revenues for successor fiscal 2007, successor fiscal 2006, andpredecessor fiscal 2005 and successor fiscal 2005 combined, respectively.  Accounts receivable at March 3, 2007 andMarch 4, 2006 included receivables from the Company’s largest customertotaling $3.8 million and $2.7 million, respectively.

***Stock-Based Compensation*****.**  OnJune 30, 2004, Holding adopted a stock option plan, pursuant to which the Boardof Directors of Holding may grant options to purchase an aggregate of 163,778shares of common stock of Holding.  Suchoptions may be granted to directors, employees and consultants of Holding andits subsidiaries, including the Company. At March 3, 2007 and March 4, 2006, options to purchase a total of126,219 shares of common stock of Holding had been issued to members ofmanagement of the Company (the “Options”) and 37,559 were reserved for futureissuance.  All outstanding Options weregranted at $10 per share and expire ten years from the date of grant.  A portion of each outstanding Option vestsdaily on a pro-rata basis over a five-year period from the date of grant andthe remaining portion of each outstanding Option vests seven years from thedate of grant, subject to accelerated vesting based on the achievement ofcertain performance measures.

TheCompany treats the options to purchase shares of common stock of Holding issuedto employees of the Company (“Options”) as stock-based compensation foremployees of the Company.  Prior tofiscal 2007, as permitted under GAAP, the Company accounted for the Optionsunder the recognition and measurement principles of Accounting Principles BoardOpinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), andrelated Interpretations using the intrinsic value method.  Accordingly, no compensation expense wasrecognized for the stock option plan in the Company’s Condensed ConsolidatedStatements of Operations.

EffectiveMarch 5, 2006, as required for the first annual reporting period beginningafter December 15, 2005 for non-public companies (as defined in SFAS 123(R)),the Company adopted SFAS 123(R) using the prospective adoption method.  The new statement requires compensationexpense associated with share-based payments to employees to be recognized inthe financial statements based on their fair values.  Upon the adoption of SFAS 123(R), because theCompany had used the minimum value method prior to the adoption, the Companywas required to apply the provisions of the statement only prospectively forany newly issued, modified or settled award after the date of initialadoption.  No new Options were issued,modified or settled subsequent to adoption, however, the fair value assigned toany newly issued, modified or settled award in the future is expected to besignificantly greater due to the differences in valuation methods.  Upon the adoption of SFAS 123(R) the proforma effect of fair value accounting for prior periods presented are no longerpresented as the Company used the minimum value method.

The Company engaged an independent third party toperform a valuation analysis of the Options. The estimated total stock-based employee compensation expense wasdetermined using the Black-Scholes-Merton option pricing model with thefollowing weighted average assumptions:

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

 

***Advertising Costs.***  TheCompany expenses advertising costs as incurred. Advertising expense for successor fiscal 2007, successor fiscal 2006,and predecessor fiscal 2005 and successor fiscal 2005 combined wasapproximately $465,000, $428,000, and $273,000, respectively.

***Research and Development.**** *The Company expenses research and development costs as incurred.  Research and development expense forsuccessor fiscal 2007, fiscal 2006, and predecessor fiscal 2005 and successorfiscal 2005 combined was approximately $1.8 million, $1.9 million, and $1.7 million, respectively.

***Income Taxes.*****The Company files a consolidated U.S. federalincome tax return. The Company files separate and/or combined state/localincome tax returns for each of its subsidiaries depending on the reportingjurisdiction.

The Company provides for income taxes on alltransactions that have been recognized in the consolidated financial statementsin accordance with FAS 109. Accordingly, the tax impact of changes in incometax laws and changes in estimates of the Company’s state effective tax rate arerecognized in earnings in the period during which such changes are enacted.

The Company regularly evaluates its ability torealize existing deferred tax assets and a valuation allowance is recorded tothe extent that it is more likely than not that all or a portion of existingdeferred tax assets will not be realized. The realization of deferred taxassets is dependent on various factors, including the Company’s ability togenerate sufficient future taxable income, the carryforward period of varioustax attributes and any potential statutory limitations on utilization of thosetax attributes. At March 3, 2007, the Company has recorded a net deferred taxasset of $41.6 million before consideration of a valuation allowance. Federaland state tax credit carryforwards of $.8 million and $.9 million,respectively, are included in this amount. The Company has recorded a valuationallowance of $1.1 million against those credit carryforwards due to concernsregarding realization of the full amounts. The net recorded deferred tax assetafter consideration of the valuation allowance is $40.5 million. The Companyhas and will continue to review the need for changes to the existing valuationallowance on a quarterly basis.

***Distribution Expense.***** TheCompany expenses distribution costs as incurred.  These costs include warehousing, fulfillmentand freight costs, and are included in selling, general and administrativeexpense.  Distribution expense includedin operations for successor fiscal 2007, successor fiscal 2006, and predecessorfiscal 2005 and successor fiscal 2005 combined was approximately $37.5 million,$27.7 million, and $22.4 million, respectively. See Note 16 –“Transactions With Related Parties” for further discussion.

F-13

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***Use of Estimates.**** *The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America (“GAAP”) requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  Significantaccounting estimates include sales discounts and promotional allowances,inventory reserves, insurance reserves, and useful lives assigned to intangibleassets.  Actual results could differ fromthose estimates.

***Self-insurance. ***The Company isself-insured for certain employee medical benefits and workers’ compensationbenefits.  The Company purchasesstop-loss coverage in order to limit its exposure to any significant level ofemployee medical and workers’ compensation claims.  Self-insurance losses are accrued based onestimates of the aggregate liability for uninsured claims incurred based onestimates using historical claims experience.

***Business Combinations Accounting***. Acquisitions entered into by the Company are accounted for using thepurchase method of accounting.  Thismethod requires management to make significant estimates.  Management must allocate the purchase priceof the acquired entity based on the fair value of the consideration paid or thefair value of the net assets acquired, whichever is more clearly evident.  The purchase price is then allocated to the assetsacquired and liabilities assumed based on their estimated fair values at theacquisition date.  In addition,management, with the assistance of an independent valuation firm, must identifyand estimate the fair values of intangible assets that should be recognized asassets apart from goodwill.  Managementutilizes third-party appraisals to assist in estimating the fair value ofproperty, plant, and equipment and intangible assets acquired.

***New Accounting Pronouncements*****.**  InJune 2006, the Financial Accounting Standards Board (“FASB”) issuedInterpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretationof FASB Statement No. 109” (“FIN 48”).  FIN 48 addresses uncertainty in tax positionsrecognized in a company’s financial statements and stipulates a recognitionthreshold and measurement of a tax position taken or expected to be taken in atax return.  FIN 48 is effective for theCompany’s fiscal year beginning March 4, 2007, with earlier adoptionpermitted.  The Company is currentlyevaluating the impact of this interpretation on the Company’s consolidatedfinancial statements.

In September 2006, the FASB issued Statement of Financial AccountingStandards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”).  The objective SFAS 157 is to define fairvalue, establish a framework for measuring fair value and expand disclosuresabout fair value measurement.  SFAS 157is effective for interim and annual reporting periods beginning after November15, 2007.  The Company has not yet assessedthe impact of SFAS 157 on the Company’s consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Optionfor Financial Assets and Financial Liabilities” (“SFAS 159”).  SFAS 159 permits entities to choose to measuremany financial instruments and certain other items at fair value that are notcurrently required to be measured at fair value.  The objective of SFAS 159 is to improvefinancial reporting by providing entities with the opportunity to mitigatevolatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions.  SFAS 159 is effective forthe first fiscal year that begins after November 15, 2007.  The Company has not yet assessed the impactof SFAS 159 on the Company’s consolidated financial statements.

F-14

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**3.      ACCOUNTSAND NOTES RECEIVABLE**

Accounts and notes receivable consist of the following:
| ** **                                                               | ** ** | **March 3,** | ** ** | **March 4,** | ** ** |
|--------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                                               | ** ** | **2007**          | ** ** | **2006**          | ** ** |
| Accounts receivable:                                                     |       |              |       |              |       |
| Trade accounts  receivable (less allowance for doubtful receivables of   |       |              |       |              |       |
| $572,969 and  $308,051 at March 3, 2007 and March 4, 2006, respectively) |       | $                 | 45,017,277 |              | $          | 28,305,893 |   |
| Other  receivables                                                       |       | 1,121,372         |       | 1,284,595         |       |
| Total accounts  receivable                                               |       | $                 | 46,138,649 |              | $          | 29,590,488 |   |

 

The following is a summary of activity in theallowance for doubtful receivables for successor fiscal 2007, successor fiscal2006, successor fiscal 2005, and predecessor fiscal 2005. 
| ** **              | ** ** | **Balance  Beginning  of Period** | ** ** | **Additions  Due To  Acquisition of  Clovervale  and  Acquisition of  Zartic** | ** ** | **Additions  Charged to  Costs and  Expenses** | ** ** | **Deduction  Amounts  Charged  Off-Net** | ** ** | **Balance  End of  Period** | ** ** |
|-------------------------|------------|----------------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|------------------------------------------|------------|----------------------------------|------------|
|                    |       |                                   |       |                                                                                          |       |                                                     |       |                                     |       |                             |       |
| Successor fiscal 2007   |       | $                                      | 308,051    |                                                                                          | $          | 324,424                                                  |       | $                                        | 245,695    |                             | $          | 305,201 |   | $ | 572,969 |   |
|                    |       |                                   |       |                                                                                          |       |                                                     |       |                                     |       |                             |       |
| Successor fiscal 2006   |       | $                                      | 279,763    |                                                                                          | $          | —                                                   |       | $                                        | 107,270    |                             | $          | 78,982 |   | $ | 308,051 |   |
|                    |       |                                   |       |                                                                                          |       |                                                     |       |                                     |       |                             |       |
| Successor fiscal 2005   |       | $                                      | —     |                                                                                          | $          | —                                                   |       | $                                        | 306,247    |                             | $          | 26,484 |   | $ | 279,763 |   |
|                    |       |                                   |       |                                                                                          |       |                                                     |       |                                     |       |                             |       |
| Predecessor fiscal 2005 |       | $                                      | 353,543    |                                                                                          | $          | —                                                   |       | $                                        | 15,630     |                             | $          | 86,228 |   | $ | 282,945 |   |

 

**4.      INVENTORIES**

A summary of inventories, by major classification, follows:
| ** **      | ** ** | **March 3,** | ** ** | **March 4,** | ** ** |
|-----------------|------------|-------------------|------------|-------------------|------------|
| ** **      | ** ** | **2007**          | ** ** | **2006**          | ** ** |
|            |       |              |       |              |       |
| Raw materials   |       | $                 | 14,122,205 |              | $          | 7,589,997 |   |
| Work in process |       | 283,827           |       | 5,636             |       |
| Finished goods  |       | 54,090,234        |       | 38,090,709        |       |
| Total           |       | $                 | 68,496,266 |              | $          | 45,686,342 |   |

 

F-15

----

**5.     PROPERTY,PLANT, AND EQUIPMENT**

 

        The major components of property, plant, and equipment are asfollows:
| ** **                                      | ** ** | **Estimated**        | ** ** | **March 3,** | ** ** | **March 4,** | ** ** |
|-------------------------------------------------|------------|----------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                      | ** ** | **Useful Life** | ** ** | **2007**          | ** ** | **2006**          | ** ** |
|                                            |       |                 |       |              |       |              |       |
| Land                                            |       |                 |       | $                 | 3,782,000  |              | $          | 1,620,000 |   |
| Land improvements                               |       | 5-20 years           |       | 42,970            |       | 37,840            |       |
| Buildings                                       |       | 20-40 years          |       | 34,135,478        |       | 16,584,587        |       |
| Machinery and equipment                         |       | 5-15 years           |       | 66,959,494        |       | 42,186,277        |       |
| Machinery and equipment  under capital leases   |       | 5-15 years           |       | 2,113,906         |       | 1,520,144         |       |
| Furniture and fixtures                          |       | 3-15 years           |       | 5,449,201         |       | 4,345,445         |       |
| Furniture and fixtures  under capital leases    |       | 3-15 years           |       | 49,553            |       | 49,553            |       |
| Automotive equipment                            |       | 2-5 years            |       | 1,616,298         |       | 293,222           |       |
| Automotive equipment  under capital leases      |       | 2-5 years            |       | 3,294,566         |       | —            |       |
| Construction in  progress                       |       |                 |       | 2,322,095         |       | 2,179,838         |       |
| Total                                           |       |                 |       | 119,765,561       |       | 68,816,906        |       |
| Less accumulated  depreciation and amortization |       |                 |       | 21,205,700        |       | 12,610,409        |       |
| Property, plant, and  equipment, net            |       |                 |       | $                 | 98,559,861 |              | $          | 56,206,497 |   |

 

F-16

----

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

The gross carrying amount of goodwill and the gross carrying amount andaccumulated amortization of other intangible assets as of March 3, 2007 are asfollows:
| ** **                               | ** ** | **As of March 3, 2007** | ** ** |
|------------------------------------------|------------|---------------------------------------------|------------|
| ** **                               | ** ** | **Useful**                                  | ** ** | **Gross Carrying** | ** ** | **Accumulated** | ** ** | **Net Carrying** | ** ** |
| ** **                               | ** ** | **Life (yrs)**                         | ** ** | **Amount** | ** ** | **Amortization** | ** ** | **Amount** | ** ** |
| **Amortizable  intangible assets:**      | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Formulas                                 |       | 5-15                                        |       | $ | 100,599,000 |   | $ | 37,603,680 |   | $ | 62,995,320 |   |
| Tradename and trademarks                 |       | 2-20                                        |       | 22,780,000 |   | 5,656,800 |   | 17,123,200 |   |
| Customer relationships                   |       | 10-14                                       |       | 46,000,000 |   | 14,900,116 |   | 31,099,884 |   |
| Licensing agreements                     |       | 10                                          |       | 12,100,000 |   | 4,283,032 |   | 7,816,968 |   |
| Non-Compete agreement                    |       | 2-3                                         |       | 350,000 |   | 34,616 |   | 315,384 |   |
| **Total  amortizable intangible assets** |       |                                        |       | 181,829,000 |   | 62,478,244 |   | 119,350,756 |   |
|                                     |       |                                        |       |   |   |   |   |   |   |
| **Indefinite-lived  intangible assets:** | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Tradename                                |       | Indefinite                                  |       | 20,200,000 |   | — |   | 20,200,000 |   |
| **Total  other intangible assets**       |       |                                        |       | 202,029,000 |   | 62,478,244 |   | 139,550,756 |   |
|                                     |       |                                        |       |   |   |   |   |   |   |
| Goodwill                                 |       | N/A                                         |       | 218,221,866 |   | — |   | 218,221,866 |   |
| **Total intangible assets**              |       |                                        |       | $ | 420,250,866 |   | $ | 62,478,244 |   | $ | 357,772,622 |   |

 

The following table represents activity related to goodwill andamortizable intangible assets during fiscal 2007:

| **Goodwill:**                                     | ** ** | ** **  | ** **  |
|---------------------------------------------------|------------|-------------|-------------|
| Balance as of March 4,  2006                      |       | $           | 186,535,050 |   |
| Adjustment for  contingent consideration (1)      |       | 1,329,087   |        |
| Acquisition of  Clovervale                        |       | 6,623,270   |        |
| Acquisition of Zartic                             |       | 23,734,459  |        |
| Balance as of March 3,  2007                      |       | $           | 218,221,866 |   |
| ** **                                        | ** ** | ** **  | ** **  |
| **Amortizable intangible assets:**                | ** ** | ** **  | ** **  |
| ** **                                        | ** ** | ** **  | ** **  |
| Balance as of March 4,  2006                      |       | $           | 114,644,032 |   |
| Acquisition of  Clovervale                        |       | 2,730,000   |        |
| Acquisition of Zartic                             |       | 27,700,000  |        |
| Reclassification to  other non-current assets (2) |       | (4,301,000  | )           |
| Amortization                                      |       | (21,422,276 | )           |
| Balance as of March 3, 2007                       |       | $           | 119,350,756 |   |

----

 

| (1) |   | Represents a change in estimate related to the  liability to the selling shareholders of Pierre; see Note 14, “Commitments  and Contingencies”, for further discussion. |
|-----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Represents a reclassification of intangible assets  associated with formulas developed for a National Accounts restaurant chain  customer.                                        |

 

F-17

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

 

The future amortization of other intangible assets for the next fivefiscal years is estimated to be as follows:
| ** **                | ** ** | **(in thousands)** | ** ** |
|---------------------------|------------|--------------------|------------|
|                           | ** ** | **2008**           | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** |
|                      |       |               |       |   |   |   |   |   |   |   |   |
| Formulas                  |       | $                  | 11,228     |   | $ | 9,745 |   | $ | 8,523 |   | $ | 7,172 |   | $ | 5,946 |   |
| Tradename and  trademarks |       | $                  | 3,114      |   | $ | 2,771 |   | $ | 1,689 |   | $ | 1,539 |   | $ | 1,412 |   |
| Customer relationships    |       | $                  | 5,754      |   | $ | 5,083 |   | $ | 4,412 |   | $ | 3,703 |   | $ | 3,058 |   |
| Licensing agreements      |       | $                  | 1,495      |   | $ | 1,426 |   | $ | 1,361 |   | $ | 1,239 |   | $ | 1,097 |   |
| Non-compete agreement     |       | $                  | 125        |   | $ | 112 |   | $ | 78 |   | $ | — |   | $ | — |   |

 

F-18

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**7.****                                     ****FINANCING ARRANGEMENTS**

Long-term debt is comprised of the following:
| ** **                                                                                                | ** ** | **March 3, 2007** | ** **  | **March 4, 2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-----------------------------|-------------|-----------------------------|------------|
| 9.875% senior notes,  interest payable on January 15 and July 15 of each year, maturing on July 15,  2012 |       | $                           | 125,000,000 |                        | $          | 125,000,000 |   |
| $150 million term loan,  with floating interest rates maturing 2010                                       |       | 229,000,000                 |        | 119,125,000                 |       |
| Revolving line of  credit, maximum Borrowings of $40 million with floating interest rates,  maturing 2009 |       | 800,000                     |        | —                      |       |
| 4.6% to 7.5%  capitalized lease obligations maturing through 2011                                         |       | 4,044,056                   |        | 868,659                     |       |
| Total long-term debt                                                                                      |       | 358,844,056                 |        | 244,993,659                 |       |
| Less current  installments                                                                                |       | 1,557,594                   |        | 229,172                     |       |
| Long-term debt less current installments                                                                  |       | $                           | 357,286,462 |                        | $          | 244,764,487 |   |

 

Effective June 30, 2004, the Company obtained a $190 million creditfacility, which included a six-year variable-rate $150 million term loan, afive-year variable-rate $40 million revolving credit facility and a $10 millionletter of credit subfacility.  Fundsavailable under this facility are available for working capital requirements,permitted investments and general corporate purposes.  Borrowings under the facility bear interestat floating rates based upon the interest rate option selected from time totime by the Company and are secured by a first-priority security interest insubstantially all of the Company’s assets. The interest rates for base rate borrowings under the revolving creditfacility and the term loan at March 3, 2007 were 9.75% (prime of 8.25% plus1.50%) and 7.61%, respectively. Repayment of borrowings under the term loan was initially $375,000 perquarter, which began on September 4, 2004, with a balloon payment of$141.4 million due on June 30, 2010. The Company has made all scheduled quarterly payments totaling $8.6million for the term of the loan and prepayments on the term loan totaling$34.4 million.  As previously discussedin Note 1, “Basis of Presentation and Acquisitions”, in conjunction with theAcquisition of Clovervale, the Company increased borrowings with respect to itsterm loan by $24.0 million in order to finance the Acquisition ofClovervale.  In addition, also discussedin Note 1, “Basis of Presentation and Acquisitions”, in conjunction with theAcquisition of Zartic, the Company increased borrowings with respect to itsterm loan by $100.0 million in order to finance the Acquisition of Zartic.  The outstanding balance of $229.0 million asof March 3, 2007 is due on June 30, 2010.

Base interest rates for the term loan and the revolving line of creditare lowered by the use of LIBOR tranches as appropriate. The following tablesummarizes the Company’s outstanding LIBOR tranches as of March 3, 2007,including the amount, the respective rate of interest, and the date ofexpiration.
| ** **               | ** ** | **Amount** | ** **  | **Interest Rate** | ** ** | **Expiration Date** | ** **    |
|--------------------------|------------|------------|-------------|------------------------|------------|--------------------------|---------------|
|                     |       |       |        |                   |       |                     |          |
| Term loan LIBOR  tranch: |       | $          | 229,000,000 |                   | 7.61       | %                        | June 14, 2007 |   |
|                          |            |            |             |                        |            |                          |               |  |

 

On April 3, 2006, the Company entered into Amendment No. 1 to its creditfacility (“Amendment No. 1”).  AmendmentNo. 1 provided for, among other things, a reduction of 0.5% in the per annuminterest rate with respect to borrowings under the Company’s term loan.  The applicable interest rate for base rateborrowings under the term loan was decreased from the base rate (which is thegreater of the applicable Prime Rate and 1⁄2 of 1% above the Federal Funds Rate)plus 1.50% to such base rate plus 1.00%. On August 21, 2006, the Company entered into Amendment No. 2 to itscredit facility (“Amendment No. 2”). Amendment No. 2 provided for, among other things, an increase inborrowings with respect to the Company’s term loan totaling $24.0 million.  On December 11, 2006 the Company entered intoAmendment No. 3 to its credit facility (“Amendment No. 3”).  Amendment No. 3 provided for, among otherthings, an increase in borrowings with respect to the Company’s term loantotaling $100.0 million.

Effective June 30, 2004, in conjunction with the Acquisition of Pierre,the Company issued the New Notes, which are 9.875% senior notes, with interestpayable on January 15 and July 15 of each year. The proceeds of the New Notes, together with the equity contributionsfrom MDP and certain members of management and borrowings under the Company’ssenior credit facility, were used to finance the Acquisition of Pierre and torepay outstanding indebtedness.

F-19

----

As of March 3, 2007, the Company had cash and cash equivalents on handof $0.1 million, outstanding borrowings under its revolving credit facility of$0.8 million, outstanding letters of credit of approximately $3.5 million, andborrowing availability of approximately $35.7 million.  Also as of March 3, 2007, the Company hadborrowings under its term loan of $229.0 million and $125.0 million of NewNotes outstanding.  As of March 4, 2006,the Company had cash and cash equivalents on hand of $2.5 million, nooutstanding borrowings under its revolving credit facility, outstanding lettersof credit of approximately $5.6 million, and borrowing availability ofapproximately $34.4 million under its revolving credit facility.  Also as of March 4, 2006, the Companyhad borrowings under its term loan of $119.1 million and $125.0 million of NewNotes outstanding.  The maturity date ofthe $40 million revolving credit facility is June 30, 2009.  In addition, the Company is required to satisfycertain financial covenants regarding cash flow and capital expenditures.  As of March 3, 2007, the Company is incompliance with all financial covenants.

Under its term loan and revolving credit facility, the Company isrequired to deliver audited financial statements to the lenders within 90 daysafter the end of the Company’s fiscal year, which would have required suchdelivery to occur on or before June 1, 2007. The Company obtained a waiver of such requirement effective June 1,2007, which provides the Company an additional 30 days to deliver the Company’saudited financial statements to the lenders.
| **Long-Term Debt Maturities, Including Capital Leases** |
|---------------------------------------------------------|
| **2008**                                                | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Thereafter** | ** ** | **Total** |
|                                                    |   |   |   |   |   |   |   |   |   |   |   |   |
| $                                                       | 1,557,594 |   | $ | 2,314,794 |   | 229,775,586 |   | 173,888 |   | 22,194 |   | $ | 125,000,000 |   | $ | 358,844,056 |
|                                                         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-20

----

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

The income tax provision (benefit) is summarized asfollows:
| ** **                 | ** ** | **Successor**               | ** ** | ** **                  | ** ** | **Predecessor**              | ** ** |
|----------------------------|------------|-----------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                 | ** ** | ** **                  | ** ** | ** **                  | ** ** | **Fiscal 2005**         | ** ** | ** ** | ** ** | **Fiscal 2005** | ** ** |
| ** **                 | ** ** | **Fiscal 2007**        | ** ** | **Fiscal 2006**        | ** ** | **For the Period** | ** ** | ** ** | ** ** | **For the Period** | ** ** |
| ** **                 | ** ** | **For the Year**  | ** ** | **For the Year**  | ** ** | **July 1, 2004**   | ** ** | ** ** | ** ** | **March 7, 2004** | ** ** |
| ** **                 | ** ** | **Ended**                   | ** ** | **Ended**                   | ** ** | **Through**                  | ** ** | ** ** | ** ** | **Through** | ** ** |
| ** **                 | ** ** | **March 3, 2007** | ** ** | **March 4, 2006** | ** ** | **March 5, 2005**  | ** ** | ** ** | ** ** | **June 30, 2004** | ** ** |
|                       |       |                        |       |                        |       |                         |       |   |   |   |   |
| Current:                   |       |                        |       |                        |       |                         |       |   |   |   |   |
| Federal                    |       | $                           | 6,165,848  |                        | $          | 1,605,414                    |       | $ | (968,107 | ) |   |   | $ | — |   |
| State                      |       | 257,650                     |       | 249,778                     |       | 800                          |       |   |   | — |   |
| Total current              |       | 6,423,498                   |       | 1,855,192                   |       | (967,307                     | )          |   |   | — |   |
|                       |       |                        |       |                        |       |                         |       |   |   |   |   |
| Deferred:                  |       |                        |       |                        |       |                         |       |   |   |   |   |
| Federal                    |       | (5,460,103                  | )          | (946,930                    | )          | (508,731                     | )          |   |   | (1,946,381 | ) |
| State                      |       | (116,574                    | )          | (1,373,124                  | )          | 878,814                      |       |   |   | (133,957 | ) |
| Total deferred             |       | (5,576,677                  | )          | (2,320,054                  | )          | 370,083                      |       |   |   | (2,080,338 | ) |
| Total provision  (benefit) |       | $                           | 846,821    |                        | $          | (464,862                     | )          | $ | (597,224 | ) |   |   | $ | (2,080,338 | ) |

 

Actual income tax provision (benefit) are different fromamounts computed by applying a statutory federal income tax rate to income orloss.  The computed amount is reconciledto total income tax provision (benefit).
| ** **                                                            | ** ** | **Successor**               | ** ** | ** **                  | ** ** | **Predecessor**              | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|------------------------------|------------|
| ** **                                                            | ** ** | ** **                  | ** ** | ** **                  | ** ** | **Fiscal 2005**         | ** ** | ** ** | ** ** | **Fiscal 2005** | ** ** |
| ** **                                                            | ** ** | **Fiscal 2007**        | ** ** | **Fiscal 2006**        | ** ** | **For the Period** | ** ** | ** ** | ** ** | **For the Period** | ** ** |
| ** **                                                            | ** ** | **For the Year**  | ** ** | **For the Year**  | ** ** | **July 1, 2004**   | ** ** | ** ** | ** ** | **March 7, 2004** | ** ** |
| ** **                                                            | ** ** | **Ended**                   | ** ** | **Ended**                   | ** ** | **Through**                  | ** ** | ** ** | ** ** | **Through** | ** ** |
| ** **                                                            | ** ** | **March 3, 2007** | ** ** | **March 4, 2006** | ** ** | **March 5, 2005**  | ** ** | ** ** | ** ** | **June 30, 2004** | ** ** |
| ** **                                                            | ** ** | ** **                  | ** ** | **Percent of**              | ** ** | ** **                   | ** ** | **Percent of** | ** ** | ** ** | ** ** | **Percent of** | ** ** | ** ** | ** ** | ** ** | ** ** | **Percent of** | ** ** |
| ** **                                                            | ** ** | **Amount**                  | ** ** | **Pretax  Income**          | ** ** | **Amount**                   | ** ** | **Pretax  Income** | ** ** | **Amount** | ** ** | **Pretax  Income** | ** ** | ** ** | ** ** | **Amount** | ** ** | **Pretax  Income** | ** ** |
| Computed (benefit)  provision at statutory rate                       |       | $                           | 926,336    |                        | 35.0       | %                            | $          | 593,894 |   | 35.0 | % | $ | (1,724,314 | ) | 35.0 | % |   |   | $ | (2,157,087 | ) | 34.0 | % |
| Tax effect resulting  from:                                           |       |                        |       |                        |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| State and local income  taxes, net of federal tax provision (benefit) |       | (6,948                      | )          | (0.1                        | )          | (51,645                      | )          | (3.1 | ) | (195,884 | ) | 4.0 |   |   |   | 119,372 |   | (1.9 | ) |
| Change in estimated  effective tax rate                               |       | 4,828                       |       | —                      |       | (43,628                      | )          | (2.6 | ) | 1,121,312 |   | (22.8 | ) |   |   | — |   | — |   |
| General business credit  generated                                    |       | (7,527                      | )          | (0.1                        | )          | (10,702                      | )          | (0.6 | ) | 76,143 |   | (1.6 | ) |   |   | — |   | — |   |
| Impact of Ohio law  change on deferred taxes                          |       | —                      |       | —                      |       | (1,115,496                   | )          | (65.7 | ) | — |   | — |   |   |   | — |   | — |   |
| Extraterritorial Income  Exclusion                                    |       | (54,554                     | )          | (2.1                        | )          | —                       |       | — |   | — |   | — |   |   |   | — |   | — |   |
| Domestic Manufacturing  Deduction                                     |       | (159,936                    | )          | (6.1                        | )          | (61,089                      | )          | (3.6 | ) | — |   | — |   |   |   | — |   | — |   |
| Change in valuation of  Ohio Investment Tax Credits                   |       | 57,847                      |       | 2.2                         |       | —                       |       | — |   | — |   | — |   |   |   | — |   | — |   |
| Meals and entertainment                                               |       | 242,425                     |       | 9.2                         |       | 90,513                       |       | 5.3 |   |   |   |   |   |   |   |   |   |   |   |
| Permanent differences                                                 |       | (123,397                    | )          | (4.7                        | )          | 88,016                       |       | 5.2 |   | — |   | — |   |   |   | — |   | — |   |
| Other                                                                 |       | (32,253                     | )          | (1.3                        | )          | 45,275                       |       | 2.7 |   | 125,519 |   | (2.5 | ) |   |   | (42,623 | ) | 0.7 |   |
| Income tax provision (benefit)                                        |       | $                           | 846,821    |                        | 32.0       | %                            | $          | (464,862 | ) | (27.4 | ) | $ | (597,224 | ) | 12.1 | % |   |   | $ | (2,080,338 | ) | 32.8 | % |

 

F-21

----

The approximate tax effect of each type of temporary difference andcarryforward that gave rise to the Company’s deferred income tax assets andliabilities for successor fiscal 2007 and successor fiscal 2006 is as follows:
| ** **                                  | ** ** | **March 3, 2007** | ** ** | **March 4, 2006** | ** ** |
|---------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                  | ** ** | **Assets**                  | ** ** | **Liabilities**             | ** ** | **Total** | ** ** | **Assets** | ** ** | **Liabilities** | ** ** | **Total** | ** ** |
| Current:                                    |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| Allowance for doubtful receivables          |       | $                           | 100,210    |                        |       |   | $ | 100,210 |   | $ | 113,076 |   | $ | — |   | $ | 113,076 |   |
| Inventory                                   |       | 2,063,204                   |       |                        |       | 2,063,204 |   | 1,122,147 |   | — |   | 1,122,147 |   |
| Accrued bonus                               |       | 1,790,579                   |       |                        |       | 1,790,579 |   | 1,830,368 |   | — |   | 1,830,368 |   |
| Accrued promotional expense                 |       | 80,571                      |       |                        |       | 80,571 |   | 141,702 |   | — |   | 141,702 |   |
| Accrued vacation pay                        |       | 726,026                     |       |                        |       | 726,026 |   | 548,152 |   | — |   | 548,152 |   |
| Reserve for returns                         |       | 156,780                     |       |                        |       | 156,780 |   | 53,655 |   | — |   | 53,655 |   |
| Reserves - other                            |       | 573,456                     |       |                        |       | 573,456 |   | 152,940 |   | — |   | 152,940 |   |
| Prepaid expenses                            |       | —                      |       | (706,941                    | )          | (706,941 | ) | — |   | (365,783 | ) | (365,783 | ) |
| Accrued worker’s compensation          |       | 387,305                     |       | —                      |       | 387,305 |   | 354,759 |   | — |   | 354,759 |   |
| Other                                       |       | —                      |       | (11,831                     | )          | (11,831 | ) | 24,996 |   | — |   | 24,996 |   |
| Total current                               |       | 5,878,131                   |       | (718,772                    | )          | 5,159,359 |   | 4,341,795 |   | (365,783 | ) | 3,976,012 |   |
|                                        |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| Non-current:                                |       |                        |       |                        |       |   |   |   |   |   |   |   |   |
| Property, plant and equipment               |       | —                      |       | (9,725,329                  | )          | (9,725,329 | ) | — |   | (8,804,363 | ) | (8,804,363 | ) |
| Amortization of intangibles                 |       | —                      |       | (38,462,809                 | )          | (38,462,809 | ) | — |   | (42,922,591 | ) | (42,922,591 | ) |
| Non-qualified deferred compensation plan    |       | 532,224                     |       | —                      |       | 532,224 |   | 316,308 |   | — |   | 316,308 |   |
| General business credit carryforward        |       | 844,492                     |       | —                      |       | 844,492 |   | 906,615 |   | — |   | 906,615 |   |
| Alternative minimum tax credit carryforward |       |                        |       | —                      |       | — |   | 206,421 |   | — |   | 206,421 |   |
| Federal loss carryforward                   |       | 1,185,899                   |       | —                      |       | 1,185,899 |   | 1,439,564 |   | — |   | 1,439,564 |   |
| State loss carryforward                     |       | 189,291                     |       | —                      |       | 189,291 |   | 103,718 |   | — |   | 103,718 |   |
| Ohio investment tax credit                  |       | 908,092                     |       | —                      |       | 908,092 |   | 1,101,698 |   | — |   | 1,101,698 |   |
| Valuation allowance                         |       | (1,133,877                  | )          | —                      |       | (1,133,877 | ) | (1,168,629 | ) | — |   | (1,168,629 | ) |
| Total non-current                           |       | 2,526,121                   |       | (48,188,138                 | )          | (45,662,017 | ) | 2,905,695 |   | (51,726,954 | ) | (48,821,259 | ) |
| Total current and non-current               |       | $                           | 8,404,252  |                        | $          | (48,906,910 | ) | $ | (40,502,658 | ) | $ | 7,247,490 |   | $ | (52,092,737 | ) | $ | (44,845,247 | ) |
|                                             |            |                             |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

At March 3, 2007, federal net operating loss carryforwards ofapproximately $3.4 million are available to offset future federal taxableincome.  In addition, the Company hasstate net operating loss carryforwards of approximately $4.0 million.  The federal and state net operating losscarryforwards expire between the years 2021-2023 and 2024-2027, respectively.

As a result of the change in ownership in conjunction with theAcquisition of Pierre, a portion of the federal and state net operating losscarryforwards are subject to limitations on utilization under Internal RevenueCode Section 382.  As such, managementhas evaluated the Company’s ability to utilize those losses and has determinedthat it is more likely than not that all of the loss carryforwards will beutilized by the Company.  

In addition, as of March 3, 2007, the Company has general businesscredit carryforwards of approximately $0.8 million.  These credit carryforwards are set to expirebetween the years 2007-2019.  Also as ofMarch 3, 2007, the Company has Ohio investment tax credits of approximately$0.9 million.

As a result of the Acquisition of Pierre, a portion of the federal andstate credit carryforwards is subject to limitations on utilization under theInternal Revenue Code Section 383.  Assuch, management has evaluated the Company’s ability to utilize these lossesand has determined that it is more likely than not that a portion of thefederal and state credits will not be utilized by the Company.  A valuation allowance has been recordedagainst the federal general business credits and Ohio investment tax credits ofapproximately $0.4 million and $0.8 million, respectively.

F-22

----

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

The Company leases certain autos, machinery, and equipment, andfurniture and fixtures under leases classified as capital leases.  The leases have original terms ranging fromone to six years.  The assets coveredunder these leases have carrying values of $4,602,563 and $900,082 at March 3,2007 and March 4, 2006, respectively. 

Certain machinery and equipment and real estate are under operatingleases with terms that are effective for varying periods until 2012.  Certain of these leases have remainingrenewal clauses, exercisable at the option of the lessee.  

At March 3, 2007, minimum rental payments required under operating andcapital leases are summarized as follows:
| ** **                                                                                                      | ** ** | **Minimum Rental Payments** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Operating**                         | ** ** | **Capital** | ** ** |
| **Fiscal Year**                                                                                            | ** ** | **Leases**                            | ** ** | **Leases** | ** ** |
| 2008                                                                                                            |       | 3,806,215                             |       | 1,799,869 |   |
| 2009                                                                                                            |       | 473,981                               |       | 1,650,521 |   |
| 2010                                                                                                            |       | 172,629                               |       | 820,009 |   |
| 2011                                                                                                            |       | 51,768                                |       | 185,573 |   |
| 2012                                                                                                            |       | 13,067                                |       | 23,199 |   |
| Later years                                                                                                     |       | —                                |       | — |   |
| Total minimum  lease payments                                                                                   |       | $                                     | 4,517,660  |   | 4,479,171 |   |
| Less amount  representing interest                                                                              |       |                                  |       | (435,115 | ) |
| Present value of  minimum lease payments under capital leases (See Note 7, “Financing  Arrangements”) |       |                                  |       | $ | 4,044,056 |   |
|                                                                                                                 |            |                                       |            |  |  |  |  |

 

Rental expense is as follows:
| ** **  | ** ** | **Successor** | ** ** | ** ** | ** ** | **Predecessor** | ** ** |
|-------------|------------|---------------|------------|------------|------------|-----------------|------------|
| ** **  | ** ** | **Fiscal**    | ** ** | **Fiscal** | ** ** | **Fiscal**      | ** ** | ** ** | ** ** | **Fiscal** | ** ** |
| ** **  | ** ** | **2007**      | ** ** | **2006**   | ** ** | **2005**        | ** ** | ** ** | ** ** | **2005** | ** ** |
| Real estate |       | $             | 134,877    |       | $          | 137,155         |       | $ | 63,244 |   |   |   | $ | 222,055 |   |
| Equipment   |       | 4,876,758     |       | 4,355,226  |       | 2,535,838       |       |   |   | 1,375,181 |   |
| Total       |       | $             | 5,011,635  |       | $          | 4,492,381       |       | $ | 2,599,082 |   |   |   | $ | 1,597,236 |   |

 

F-23

----

**10.          EMPLOYEE BENEFITS**

The Company maintains a401(k) Retirement Plan for its employees, which provides that the Company willmake a matching contribution of up to 50% of an employee’s voluntarycontribution, limited to the lesser of 5% of that employee’s annualcompensation or $15,000 in successor fiscal 2007.  The Company’s contributions wereapproximately $0.6 million, $0.5 million, and $0.5 million in successor fiscal2007, successor fiscal 2006, and predecessor fiscal 2005 and successor fiscal2005 combined, respectively.

The Company providesemployee health insurance benefits to employees.  Medical benefits are provided through selfinsurance group medical plans and fully incurred group medical plans.  The Company’s contributions for the selfinsured group medical plans included in operations were approximately $4.4million, $3.7 million, and $3.8 million, for successor fiscal 2007, successorfiscal 2006, and predecessor fiscal 2005 and successor fiscal 2005 combined,respectively.  The Company’s contributionsfor the fully insured group medical plans included in operations wereapproximately $0.4 million during successor fiscal 2007.

In connection with theAcquisition of Pierre, the management investors invested approximately $4.9million in a deferred compensation plan of Holding.  This initial investment was recorded in thefinancial statements of Holding.  Inaddition, this deferred compensation plan is funded through a rabbi trust thatowns preferred stock of Holding with a stated annual return of 10%. Anadditional return of 10% on any unpaid dividends is earned annually on theanniversary date of the plan.  TheCompany reflects the stated return and corresponding increase in liquidationvalue as compensation expense in its consolidated statements of operations.  The Company has recorded compensation expenseof approximately $0.6 million, $0.5 million, and $0.3 million in successorfiscal 2007, successor fiscal 2006, and successor fiscal 2005, respectively,associated with the deferred compensation plan. The aggregate liquidation value of the deferred compensation plan wasapproximately $6.3 million and $5.7 million as of March 3, 2007 and March 4,2006, respectively.

**11.          STOCK-BASED COMPENSATION**

The following tablesummarizes changes in options granted for successor fiscal 2007, successorfiscal 2006, and successor fiscal 2005:
| ** **                        | ** ** | **Shares** | ** ** | **Weighted Average Exercise  Price Per Share** | ** ** |
|-----------------------------------|------------|------------|------------|--------------------------------------------------------------------|------------|
| Adoption of Plan on June 30, 2004 |       | —     |       |                                                               |       |
| Options granted                   |       | 127,397    |       | $                                                                  | 10.00      |   |
| Balance at March 5, 2005          |       | 127,397    |       | $                                                                  | 10.00      |   |
|                              |       |       |       |                                                               |       |
| Options granted                   |       | 3,960      |       | $                                                                  | 10.00      |   |
| Options forfeited                 |       | 5,138      |       | $                                                                  | 10.00      |   |
| Balance at March 4, 2006          |       | 126,219    |       | $                                                                  | 10.00      |   |
|                              |       |       |       |                                                               |       |
| Options granted                   |       | —     |       | $                                                                  | 10.00      |   |
| Options forfeited                 |       | —     |       | $                                                                  | 10.00      |   |
| Balance at March 3,  2007         |       | 126,219    |       | $                                                                  | 10.00      |   |

Thefollowing table summarizes shares available for grant and excercisable sharesas of March 3, 2007, March 4, 2006, and March 5, 2005:
| ** **                  | ** ** | **March 3, 2007** | ** ** | **March 4, 2006** | ** ** | **March 5, 2005** | ** ** |
|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Shares available for  grant |       | 37,559                      |       | 37,559                      |       | 36,381                      |       |
| Shares exercisable          |       | 26,115                      |       | 16,064                      |       | 6,313                       |       |

 

In connection with the election of Scott W. Meader tothe Company’s Board of Directors in 2005, Holding entered into a restrictedstock agreement with Mr. Meader, pursuant to which Mr. Meaderpurchased 2,000 shares of common stock of Holding for $10.00 per share. Theshares vest as follows: 187 vested upon execution of the restricted stockagreement and the remaining 1,813 vest over 41¤2 yearsprovided that Mr. Meader continues to be a director of the Company andHolding. In the event that he ceases to be a director of the Company orHolding, Holding has an option to repurchase the vested shares as the greaterof the fair market value or $10.00 per share and the unvested shares at $10.00per share. If Holding does not exercise such option, MDP then has the option topurchase the shares on the same terms. The shares are subject to restrictions,including restrictions on transfer, set forth in the Stockholders’ Agreementdated June 30, 2004 among certain stockholders of Holding.

F-24

----

**12.          DISCLOSURES ABOUT FAIR VALUES OFFINANCIAL INSTRUMENTS**

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

At March 3, 2007excluding long-term debt, the book values of each of the nonderivativefinancial instruments recorded in the Company’s balance sheet are consideredrepresentative of fair value due to variable interest rates, short terms tomaturity and/or short length of time outstanding.

The fair value of theCompany’s New Notes is estimated based on quoted market prices and interestrates currently available for issuance of debt with similar terms andmaturities.  As of March 3, 2007 andMarch 4, 2006, the fair values of the New Notes were approximately $130,625,000and $134,869,000, respectively.  Thecarrying value of all other long-term debt is considered representative of itsfair value as of March 3, 2007 and March 4, 2006.

**13.          BUSINESS SEGMENT**

During successor fiscal 2007, successor fiscal 2006, and predecessorfiscal 2005 and successor fiscal 2005 combined, the Companyoperated solely in the food processing segment, with the exception ofcertain immaterial distribution services by Zar Tran to third parties insuccessor fiscal 2007.  Note that as a result of the Acquisition of Pierre describedabove, the results for predecessor fiscal 2005 and successor fiscal 2005 arecombined in the table below in order to provide a more meaningfulperiod-to-period comparison. Sales by major product line are as follows:
| ** **                      | ** ** | **Net Revenues by Source** | ** ** |
|---------------------------------|------------|-------------------------------------------|------------|
| ** **                      | ** ** | **Successor  Fiscal 2007**           | ** ** | **Successor  Fiscal 2006** | ** ** | **Predecessor Fiscal 2005   And  Successor Fiscal 2005  Combined** | ** ** |
| ** **                      | ** ** | **(in millions)**                    | ** ** |
| Food processing            |       |                                      |       |   |   |   |   |
| Fully-cooked protein  products  |       | $                                         | 263.2      |   | $ | 254.8 |   | $ | 255.3 |   |
| Ready-to-cook protein  products |       | 6.7                                       |       |   | ** ** | ** ** | ** ** |
| Microwaveable  sandwiches       |       | 195.5                                     |       | 168.4 |   | 147.3 |   |
| Bakery and other  products      |       | 22.4                                      |       | 8.4 |   | 7.8 |   |
| Total food processing           |       | $                                         | 487.8      |   | $ | 431.6 |   | $ | 410.4 |   |

Substantiallyall revenues and long-lived assets are derived from and reside in the UnitedStates.

**14.          COMMITMENTS, CONTINGENCIES, ANDCONTRACTUAL OBLIGATIONS**

The Company provided aletter of credit in the amount of $2.8 million, $5.5 million, and $4.5 millionin successor fiscal 2007, successor fiscal 2006, and predecessor fiscal 2005and successor fiscal 2005 combined, respectively, to its insurance carrier forthe underwriting of certain performance bonds. The current letter of credit expires in successor fiscal 2008.  The Company also provides secured letters ofcredit to its insurance carriers for outstanding and potential workers’compensation and general liability claims. Letters of credit for these claims totaled $675,000 in successor fiscal2007 and $110,000 in both successor fiscal 2006 and in predecessor fiscal 2005and successor fiscal 2005 combined.  Inaddition, the Company provides secured letters of credit to a limited number ofsuppliers.

The Company is involvedin various legal proceedings.  Managementbelieves, based on the advice of legal counsel, that the outcome of suchproceedings will not have a materially adverse effect on the Company’sfinancial position or future results of operations and cash flows.  See Item 3 – “Legal Proceedings” of theCompany’s Annual Report on Form 10-K for successor fiscal 2007 and Note 17 – “LegalProceedings,”  for further discussion ofproceedings as of March 3, 2007.

F-25

----

In conjunction with theAcquisition of Pierre, the Company and the selling shareholders****entered into a tax sharing and indemnification agreementcontaining certain representations and warranties of the selling shareholderswith respect to taxes.  The agreementprovides that any net operating loss carryforwards attributable to expensesrelating to the sale of the Company (“Deal Related NOLs”) and certain otherdeal related expenses, will be for the benefit of the sellingshareholders.  As of the date of theAcquisition of Pierre, these Deal Related NOLs and other deal related expensestotaled approximately $24.2 million and $6.6 million, respectively.  Accordingly, the Company was required pay andhas paid to the selling shareholders the amount of any tax benefit attributableto such Deal Related NOLs and other deal related expenses, except that thefirst $4.0 million of such tax benefits was paid into an escrow account thatsecures the selling shareholders indemnification obligations under the taxsharing and indemnification agreement. The Company is required to make payments to the selling shareholders orthe escrow account for tax benefits derived from such utilization 20 days afterthe filing of the tax return that utilizes such Deal Related NOLs or other dealrelated expenses.

Initially, the Companyrecorded a net long-term liability to the selling shareholders totaling $10.3million for the estimated obligations under the tax sharing and indemnificationagreement.  During successor fiscal 2007,the Company increased the estimated obligation under the tax sharing andindemnification agreement by approximately $1.3 million based on thedifferences in the tax rate initially used to estimate the liability, theactual payments to the selling shareholders, and the estimated remainingobligation to the selling shareholders. The adjustment to the liability to the selling shareholders resulted ina corresponding increase in goodwill related to the Acquisition of Pierre.

As of March 3, 2007,based on all federal and state income tax returns filed subsequent to theAcquisition of Pierre (including the return filed recently on November 15, 2006for the tax year ended February 24, 2006), the Company has utilized $24.2million of the Deal Related NOLs and $1.7 million in other deal relatedexpenses.  Also as of March 3, 2007, theCompany has submitted payments based on the tax benefits received, net of othertax assessments due to the Company from the selling shareholders, to an escrowaccount (approximately $4.0 million) and directly to the selling shareholders(approximately $5.4 million).  As of theend of successor fiscal 2007, the Company has a remaining liability to theselling shareholders totaling $2.2 million (which reflects the aforementioned$1.3 million adjustment during successor fiscal 2007 and the $3.9 millionpayment made to the selling shareholders in conjunction with the filing of itstax return on November 15, 2006).  Theremaining portion of the liability is classified as long-term based on theexpected timing of the remaining payments to the selling shareholders.  While the Company expects to fully utilizethe Deal Related NOLs and other deal related expenses, the obligations to theselling shareholders under the tax sharing and indemnification agreement andthe timing of future payments are unknown.

F-26

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**15.          SUPPLEMENTAL CASH FLOW DISCLOSURE—CASHREFUNDED (PAID) DURING THE PERIOD AND NON-CASH TRANSACTIONS**

Cash paid for interest, income taxes refunded, and non-cash transactionsconsisting of notes issued for assets acquired, capital lease additions, andcertain tax benefits utilized by PFMI and Holding accounted for as adistribution to PFMI and Holding are as follows:
| ** **                                                       | ** ** | **Successor**        | ** ** | ** **           | ** ** | **Predecessor**      | ** ** |
|------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                       | ** ** | **Fiscal 2007** | ** ** | **Fiscal 2006** | ** ** | **Fiscal 2005** | ** ** | ** ** | ** ** | **Fiscal 2005** | ** ** |
| Cash paid during the period for:                                 |       |                 |       |                 |       |                 |       |   |   |   |   |
| Interest                                                         |       | $                    | 19,704,659 |                 | $          | 20,558,245           |       | $ | 13,440,430 |   |   |   | $ | 7,915,332 |   |
| Income taxes paid                                                |       | $                    | 9,466,997  |                 | $          | 599,501              |       | $ | 1,939,806 |   |   |   | $ | — |   |
|                                                             |       |                 |       |                 |       |                 |       |   |   |   |   |
| Non-cash transactions:                                           |       |                 |       |                 |       |                 |       |   |   |   |   |
| Restructuring transactions                                       |       |                 |       |                 |       |                 |       |   |   |   |   |
| Assumption of PFMI debt                                          |       | $                    | —     |                 | $          | —               |       | $ | — |   |   |   | $ | 14,274,050 |   |
| Assumption of deferred tax liability for aircraft                |       | $                    | —     |                 | $          | —               |       | $ | — |   |   |   | $ | 1,576,000 |   |
| Cancellation of note receivable                                  |       | $                    | —     |                 | $          | —               |       | $ | — |   |   |   | $ | 993,247 |   |
| Cancellation of accrual to PF Purchasing                         |       | $                    | —     |                 | $          | —               |       | $ | — |   |   |   | $ | 3,479,007 |   |
| Cancellation of accrual to PF Distribution                       |       | $                    | —     |                 | $          | —               |       | $ | — |   |   |   | $ | 535,251 |   |
| Other                                                            |       | $                    | —     |                 | $          | —               |       | $ | — |   |   |   | $ | 174,874 |   |
|                                                             |       |                 |       |                 |       |                 |       |   |   |   |   |
| Acquisition of Pierre transactions:                              |       |                 |       |                 |       |                 |       |   |   |   |   |
| Elimination of Predecessor Pierre capital and  retained earnings |       | $                    | —     |                 | $          | —               |       | $ | 4,883,415 |   |   |   | $ | — |   |
| Cancellation of receivable from selling Shareholder              |       | $                    | —     |                 | $          | —               |       | $ | 5,000,000 |   |   |   | $ | — |   |
| Distribution of property, plant, and equipment                   |       | $                    | —     |                 | $          | —               |       | $ | 8,476,080 |   |   |   | $ | — |   |
| Distribution of other current assets                             |       | $                    | —     |                 | $          | —               |       | $ | 9,255 |   |   |   | $ | — |   |
| Equity from PFMI and Holding                                     |       | $                    | —     |                 | $          | —               |       | $ | 250,087,097 |   |   |   | $ | — |   |
| Tax sharing liability to selling shareholders                    |       | $                    | —     |                 | $          | —               |       | $ | 10,317,601 |   |   |   | $ | — |   |
| Valuation of goodwill and other intangibles                      |       | $                    | —     |                 | $          | —               |       | $ | 323,626,414 |   |   |   | $ | — |   |
| Deferred tax liability                                           |       | $                    | —     |                 | $          | —               |       | $ | 54,464,900 |   |   |   | $ | — |   |
| Adjustment of inventory to fair value                            |       | $                    | —     |                 | $          | —               |       | $ | 2,020,948 |   |   |   | $ | — |   |
| Adjustment of property, plant, and equipment to fair  value      |       | $                    | —     |                 | $          | —               |       | $ | 4,438,984 |   |   |   | $ | — |   |
|                                                             |       |                 |       |                 |       |                 |       |   |   |   |   |
| Other transactions:                                              |       |                 |       |                 |       |                 |       |   |   |   |   |
| Liability to selling shareholders                                |       | $                    | 1,329,087  |                 | $          | —               |       | $ | — |   |   |   | $ | — |   |
| Capital lease additions                                          |       | $                    | —     |                 | $          | —               |       | $ | 247,536 |   |   |   | $ | 1,013,300 |   |

**16.          TRANSACTIONSWITH RELATED PARTIES**

**Successor Pierre**

In conjunction with orsubsequent to the Acquisition of Pierre, the following relationships andrelated transactions existed:

·                  In conjunction with the Acquisition of Pierre,John Grigg, one of the Company’s former directors, was paid a fee at the closing,pursuant to his letter agreement with the Company dated as of January 29, 2004,for professional services performed on behalf of the Company and PFMI.  The fee of approximately $780,952 was paidfrom the proceeds to the selling shareholders and expensed during predecessorfiscal 2005.

·                  MDPreceived a fee of $5.0 million at the closing of the Acquisition of Pierre,plus out-of-pocket expenses incurred in connection with the Acquisition ofPierre.  MDP may be paid additional feesfrom time to time in the future for providing management, consulting oradvisory services and will be reimbursed for all future expenses incurred inconnection with its investment in Holding.

F-27

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·                  In connection with the Acquisition of Pierre,Mr. Woodhams and Mr. Naylor, invested approximately $4.9 millionin a deferred compensation plan.  Thisdeferred compensation plan is funded through a rabbi trust that owns preferredstock of Holding with an aggregate liquidation value of approximately$6.3 million as of March 3, 2007.

·                  In conjunction with the Acquisition of Pierre,the Company and the selling shareholders entered into a tax sharing andindemnification agreement which contains certain representations and warrantiesof the selling shareholders with respect to taxes.  The agreement provides that any net operatingloss carryforward (“NOL”) with respect to periods before the Acquisition ofPierre, and attributable to expenses relating to the Acquisition of Pierre,will be for the benefit of the selling shareholders.  Accordingly, the Company has paid and willpay to the selling shareholders the amount of any tax benefit attributable tosuch NOL, except that the first $4.0 million of such tax benefits was paidinto an escrow account that will secure the selling shareholders indemnificationobligations under the tax sharing agreement. The Company has made payments to the selling shareholders totaling $9.4million, of which $4.0 million was paid into this escrow account.  The Company has recorded a net long-termliability to the former shareholders totaling $2.2 million and $5.3 million asof March 3, 2007 and March 4, 2006, respectively, for the estimated obligationsunder the tax sharing agreement.

·                  Norbert J. Woodhams, one of the Company’s VicePresidents, is the son of Norbert E. Woodhams, the Company’s President andChief Executive Officer, Chairman of the Board and a director.  In successor fiscal 2007, Norbert J. Woodhamsreceived a base salary of one hundred and seventeen thousand dollars and earneda bonus of forty thousand dollars under the Company’s bonus plan.  In successor fiscal 2006, Norbert J. Woodhamsreceived a base salary of one hundred and one thousand dollars and earned abonus of thirty-three thousand dollars under the Company’s bonus plan.  In predecessor fiscal 2005 and successorfiscal 2005 combined, Norbert J. Woodhams received a base salary ofninety-three thousand dollars and earned a bonus of forty-eight thousanddollars under the Company’s bonus plan. The base salary and bonus earned by Norbert J. Woodhams is consistentwith the earnings of other Company employees with similar responsibilities.

**Predecessor Pierre**

As described in Note 1, “Basisof Presentation and Acquisitions”, on March 8, 2004 the Company and the Trusteeunder the Company’s Indenture executed a Fourth Supplemental Indenture and,pursuant to the terms of the Fourth Supplemental Indenture, the Companyterminated substantially all of its related party transactions.  The following related party transactions werespecifically permitted under the terms of the Fourth Supplemental Indenture:

·                  Columbia Hill Land Company, LLC, owned 50% byeach of Messrs. Richardson and Clark, leases office space to the Company inHickory, North Carolina, pursuant to a ten-year lease that commenced inSeptember 1998.  Rents paid under thelease were approximately $58,000 in predecessor fiscal 2005.

·                  On March 8, 2004 the Company took title to anaircraft that was transferred from CHA, owned 100% by PFMI, subject to existingdebt.  The aircraft was originally leasedby the Company from CHA beginning in the fourth quarter of predecessor fiscal2002.  Effective March 1, 2002, theoriginal lease was cancelled and replaced with a non-exclusive lease agreement.  Pursuant to this new lease, the Company wasobligated to make 16 quarterly lease payments of $471,500 each for the right touse the aircraft for up to 115 flight hours per quarter, based onavailability.  Under this leaseagreement, CHA was responsible for all expenses incurred in the operation ofthe use of the aircraft, except that the Company provided its own flightcrew.  CHA was not a subsidiary of theCompany; however, the Company considered CHA a non-independent special purposeleasing entity.  Accordingly, CHA’sfinancial condition, results of operations and cash flows have been included inthe Company’s Consolidated Financial Statements included herein.  Under the terms of the operating lease withCHA, and the financing agreements between CHA and its creditor, the Company didnot maintain the legal rights of ownership to the aircraft, nor did CHA’screditor maintain any legal recourse to the Company.  Subsequently, as a result of the Acquisitionof Pierre, the aircraft was distributed to a former shareholder.

Any related partytransactions described below that were in effect at March 6, 2004 weresubsequently terminated as of March 8, 2004 pursuant to the terms of the FourthSupplemental Indenture.  As a result ofthe termination of these related party transactions, subsequent to March 8,2004, the Company performs the purchasing and distribution servicesinternally.  Other related party servicesare outsourced as necessary at comparable cost.

·                  During predecessor fiscal 2004, PFMI owed theCompany as much as $993,247 pursuant to a promissory note payable on demand andbearing interest at the prime rate. Prior to the Acquisition of Pierre, PFMI was owned in part by Messrs.Richardson and Clark, who have unconditionally guaranteed repayment of thenote.  As of March 8, 2004, this note wasforgiven in connection with the Fourth Supplemental Indenture.

·                  Effective February 21, 2003, Messrs.Richardson and Clark sold their net assets in Compass Outfitters, LLC, acompany that provided team-building opportunities for customers and employeesof the Company, to the Company for a total of $270,983.  In exchange for the net assets, the Companyissued notes in the amount of $135,491 to each of Messrs. Richardson andClark.  The notes were five-year notes,bearing interest at 6% per annum, with interest and principal due at maturity.  As of March 8, 2004, in connection with theFourth Supplemental Indenture, these notes were cancelled.

F-28

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·                  Atlantic Cold Storage of Mocksville, LLC (“ACS”),owned one-third each by Messrs. Richardson and Clark, planned to construct andfinance a public cold storage warehouse which would lease space to the Companyas well as to others.  The proposedagreement with the Company was for 10 years and a minimum of 4,000 palletpositions to be leased as of the first date the facility becameoperational.  During predecessor fiscal2001, the Company paid $250,000 to ACS for specialized construction costs.  As of March 8, 2004, in connection with theFourth Supplemental Indenture, these costs were written-off.

·                  Thefollowing transactions were entered into on March 8, 2004 as permitted by theFourth Supplemental Indenture:
| Assumption of  PFMI debt                           |   | $          | (14,274,050 | )      |
|----------------------------------------------------|--------|------------|-------------|--------|
| Accrued  liabilities to PFP cancelled              |   | 3,479,007  |        |
| Assumption of  deferred tax liability for aircraft |   | (1,576,000 | )           |
| Note receivable  cancelled                         |   | (993,247   | )           |
| Accrued  liabilities to PFD cancelled              |   | 535,251    |        |
| Cash received                                      |   | 763,998    |        |
| Other                                              |   | (174,874   | )           |
| Total                                              |   | $          | (12,239,915 | )      |
|                                               |   |       |        |
| Allocated to the  following accounts:              |   |       |        |
| Retained  Earnings                                 |   | $          | 11,900,276  |   |
| Common Stock                                       |   | 339,639    |        |
| Total                                              |   | $          | 12,239,915  |   |

The $339,639 chargerepresents the removal of members’ equity of CHA.

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

On June 30, 2004, in conjunction with the Acquisitionof Pierre, all previously existing related party transactions were terminatedas described in Note 1 – “Basis of Presentation and Acquisitions.”

**17.          LEGALPROCEEDINGS**

***Environmental.***  On August 19, 2003, as a result ofcomplaints from neighboring businesses, the Company received a Notice ofViolation (“NOV”) from the Hamilton County Department of Environmental Services(“HCDOES”) relating to operations at its Cincinnati, Ohio plant facility.  The NOV alleged that the Company violated itspermits by exceeding the visual emission (“VE”) specification of 20%opacity.  The Company received additionalNOV’s for opacity violations on October 22, 2003 and November 26, 2003, all ofwhich were the result of complaints from neighboring businesses.

Subsequent to the original NOV received in August2003, the Company began investigating and testing various emission reductiontechnologies.  The Company found asolution that enabled operations to continue with less smoke output andcompleted the upgrade during early 2004. HCDOES inspected the upgrade in April 2004 and determined that theCompany had returned to compliance with the opacity limit.  In connection with the upgrade, the Companywas required to submit a revised Permit to Install (“PTI”) application.

In August 2005, pursuant to its regulatory authority,HCDOES requested a Method 5 Stack Test be performed to assess the Company’scompliance with its emissions limits. The Company contacted HCDOES, requesting the scheduled stack emissioncompliance test be postponed while the Company’s independent consulting firm conductedan emissions audit program consisting of a series of engineering stack teststhat were performed at both controlled and uncontrolled emission test points inorder to evaluate the magnitude of the emissions based on current productiondata and to estimate new emissions factors by product line.  HCDOES agreed to this approach and grantedpermission to delay the standard Method 5 Stack Test originally requested whilethe Company conducted its emissions audit program.

The Company contracted with an independentenvironmental consulting firm to perform the audit and evaluation.  As part of the overall audit, this firmperformed preliminary testing in early September 2005, which indicated thatviolations of emission levels may have occurred, and retested in late September2005.  The firm conducted additionaltests during October and November of 2005. The Company received the results of the audit in January 2006.  The results allowed the Company to evaluatethe facility’s current and historical potential and actual emissions.  The testing revealed that assumptions made bythe Company’s former outside engineering firm concerning particulate emissionsand throughput were incorrect.  Thismiscalculation caused the Company to receive permit limits that are lower thanactual emissions for certain cook lines. The Company met with HCDOES in February 2006, to discuss the results ofthe emissions audit program.

F-29

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On March 20, 2006, HCDOES sent an NOV to the Companyalleging that the Company violated its permit limits for particulate matter (“PM”)and reserved the right to pursue an enforcement action and a civil penalty inthe future.  On July 7, 2006, HCDOES sentanother NOV to the Company alleging that the Company was in violation of itspermit limits for PM emissions and again reserved the right to pursue anenforcement action in the future. Depending on HCDOES’ interpretation of the data, HCDOES may allegeadditional violations of emission limits and other regulatoryrequirements.  To date, the Company hasspent approximately $1.6 million for emissions control equipment purchases tocomply with relevant laws, and expects to spend an additional $0.3 in fiscal2008.  The Company installed this controlequipment in first and second quarter of its successor fiscal 2007.  Furthermore, in August 2006, HCDOES requestedthat the Company submit a determination as to whether or not it was subject toTitle V or major new source permitting requirements.  The Company responded to HCDOES’ request inSeptember 2006, concluding that the Company was not subject to Title V or majornew source permitting requirements based on the Company’s interpretation ofsuch regulations.  The Company received aletter on April 3, 2007, from the Director of the Ohio EPA agreeing that theCompany did not trigger major new source permitting requirements.  The ultimate resolution of whether or not theCompany was subject to Title V permitting requirements depends on potentiallydisputed legal issues.  The Company iscooperating with the authorities in all aspects of these matters.  In addition, the Company consulted with itsoutside legal counsel to assist them in resolving these matters and estimatethe potential fines and penalties that may be assessed in the future.

***General.***  The Company continuously evaluatescontingencies based upon the best available information.  The Company believes it has recordedappropriate liabilities to the extent necessary in cases where the outcome ofsuch liabilities is considered probable and reasonably estimable, and that itsassessment of contingencies is reasonable. To the extent that resolution of contingencies results in amounts thatvary from management’s estimates, future earnings will be charged or creditedaccordingly.

As part of its ongoing operations in the foodprocessing industry, the Company is subject to extensive federal, state, andlocal regulations and its food processing facilities and food products aresubject to frequent inspection, audits and inquiries by the USDA, the FDA, andvarious local health and agricultural agencies and by federal, state, and localagencies responsible for the enforcement of environmental, labor, and otherlaws and regulations.  The Company isalso involved in various legal actions arising in the normal course ofbusiness.  These matters are continuouslybeing evaluated and, in some cases, are being contested by the Company and theoutcome is not predictable. Consequently, an estimate of the possible loss orrange of loss associated with these actions cannot be made.  Although occasional adverse outcomes (orsettlements) may occur and could possibly have an adverse effect on the resultsof operations in any one accounting period, the Company believes that the finaldisposition of such matters will not have a material adverse affect on theCompany’s consolidated financial position.

F-30

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**18.  SubsidiaryGuarantors**

Each of the subsidiaries of Pierre Foods, Inc. fullyand unconditionally guarantees the New Notes on a joint and several basis. Thesubsidiaries resulting from the Acquisition of Clovervale and the Acquisitionof Zartic became guarantors from the date of their respective acquisitions insuccessor fiscal 2007.  Fresh FoodsProperties, LLC, which was the only subsidiary of Pierre Foods, Inc. prior tosuccessor fiscal 2007, is inactive and holds two trademarks that are notcurrently in use by the Company.  Thefollowing presents financial information about Pierre Foods, Inc., as theissuer of the New Notes, and each of the guarantor subsidiaries.  Pierre has no non-guarantor subsidiaries.  Intercompany transactions are eliminated.

The following supplemental condensed statements ofoperations for the year ended March 3, 2007, condensed balance sheets as ofMarch 3, 2007, and the supplemental cash flows for the year ended March 3, 2007,depict in separate columns, the issuer (Pierre Foods, Inc.), the subsidiaries,all of which are guarantors, elimination adjustments, and the consolidatedtotal.  The financial information followsthe legal structure of the Company and therefore, may not necessarily beindicative of the results of operations or financial position of the Company,including the subsidiaries, had they been operated as independent entities.

**PIERRE FOODS, INC.**

**CONDENSED STATEMENTS OF OPERATIONS**

**YEAR ENDED MARCH 3, 2007**
| ** **                                                 | ** ** | **Pierre Foods, Inc.** | ** **  | **Guarantor**    | ** ** | ** **       | ** ** | ** **  | ** ** |
|------------------------------------------------------------|------------|----------------------------------|-------------|------------------|------------|------------------|------------|-------------|------------|
| ** **                                                 | ** ** | **(Issuer)**                     | ** **  | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**   | ** ** |
|                                                       |       |                             |        |             |       |             |       |        |       |
| REVENUES, NET:                                             |       |                             |        |             |       |             |       |        |       |
| Customers                                                  |       | $                                | 451,673,756 |             | $          | 36,169,230       |       | $           | —     |   | $ | 487,842,986 |   |
| Intercompany                                               |       | —                           |        | 12,551,135       |       | (12,551,135      | )          | —      |       |
| Total Revenues,  net                                       |       | 451,673,756                      |        | 48,720,365       |       | (12,551,135      | )          | 487,842,986 |       |
|                                                       |       |                             |        |             |       |             |       |        |       |
| COSTS AND EXPENSES:                                        |       |                             |        |             |       |             |       |        |       |
| Cost of goods  sold                                        |       | 316,859,226                      |        | 38,991,630       |       | (11,686,290      | )          | 344,164,566 |       |
| Selling, general  and administrative expenses              |       | 78,802,957                       |        | 7,465,764        |       | (864,845         | )          | 85,403,876  |       |
| Loss on  disposition of property, plant and equipment, net |       | 5,301                            |        | (7,326           | )          | —           |       | (2,025      | )          |
| Depreciation and  amortization                             |       | 27,275,160                       |        | 3,092,645        |       | —           |       | 30,367,805  |       |
| Total costs and  expenses                                  |       | 422,942,644                      |        | 49,542,713       |       | (12,551,135      | )          | 459,934,222 |       |
| OPERATING INCOME (LOSS)                                    |       | 28,731,112                       |        | (822,348         | )          | —           |       | 27,908,764  |       |
| INTEREST EXPENSE AND  OTHER INCOME:                        |       |                             |        |             |       |             |       |        |       |
| Interest expense                                           |       | (23,429,261                      | )           | (1,947,854       | )          | —           |       | (25,377,115 | )          |
| Other income                                               |       | 94,905                           |        | 20,121           |       | —           |       | 115,026     |       |
| Interest expense  and other income, net                    |       | (23,334,356                      | )           | (1,927,733       | )          | —           |       | (25,262,089 | )          |
|                                                       |       |                             |        |             |       |             |       |        |       |
| INCOME (LOSS) BEFORE  INCOME TAX                           |       | 5,396,756                        |        | (2,750,081       | )          | —           |       | 2,646,675   |       |
|                                                       |       |                             |        |             |       |             |       |        |       |
| INCOME TAX (PROVISION)  BENEFIT                            |       | (1,814,119                       | )           | 967,298          |       | —           |       | (846,821    | )          |
| EQUITY IN NET LOSS OF  SUBSIDIARIES                        |       | (1,782,783                       | )           | —           |       | 1,782,783        |       | —      |       |
| NET INCOME (LOSS)                                          |       | $                                | 1,799,854   |             | (1,782,783 | )                | $          | 1,782,783   |       | $ | 1,799,854 |   |
|                                                            |            |                                  |             |                  |            |                  |            |             |            |  |  |  |  |

 

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**CONDENSED BALANCE SHEETS**

**MARCH 3, 2007**
| ** **                                                                                   | ** ** | **Pierre Foods, Inc.** | ** **  | **Guarantor**    | ** ** | ** **       | ** ** | ** **  | ** **   |
|----------------------------------------------------------------------------------------------|------------|----------------------------------|-------------|------------------|------------|------------------|------------|-------------|--------------|
| ** **                                                                                   | ** ** | **(Issuer)**                     | ** **  | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**   | ** **   |
| ** **                                                                                   | ** ** | ** **                       | ** **  | ** **       | ** ** | ** **       | ** ** | ** **  | ** **   |
| **ASSETS**                                                                                   | ** ** | ** **                       | ** **  | ** **       | ** ** | ** **       | ** ** | ** **  | ** **   |
| CURRENT ASSETS:                                                                              |       |                             |        |             |       |             |       |        |         |
| Cash and cash equivalents                                                                    |       | $                           | 49,357      |             | $          | 39,274           |       | $           | -            |   | $ | 88,631 |   |
| Accounts receivable, net                                                                     |       | 35,545,947                       |        | 10,592,702       |       | -                |       | 46,138,649  |         |
| Inventories                                                                                  |       | 51,000,807                       |        | 17,495,459       |       | -                |       | 68,496,266  |         |
| Refundable income taxes                                                                      |       | 4,612,613                        |        | -                |       | -                |       | 4,612,613   |         |
| Deferred income taxes                                                                        |       | 4,376,950                        |        | 782,409          |       | -                |       | 5,159,359   |         |
| Prepaid expenses and other current assets                                                    |       | 3,563,052                        |        | 1,990,211        |       | -                |       | 5,553,263   |         |
| Total current assets                                                                         |       | 99,148,726                       |        | 30,900,055       |       | -                |       | 130,048,781 |         |
|                                                                                         |       |                             |        |             |       |             |       |        |         |
| PROPERTY, PLANT,  AND EQUIPMENT, NET                                                         |       | 56,954,832                       |        | 41,605,029       |       | -                |       | 98,559,861  |         |
| OTHER ASSETS:                                                                                |       |                             |        |             |       |             |       |        |         |
| Other intangibles, net                                                                       |       | 110,382,124                      |        | 29,168,632       |       | -                |       | 139,550,756 |         |
| Goodwill                                                                                     |       | 187,864,137                      |        | 30,357,729       |       | -                |       | 218,221,866 |         |
| Deferred loan origination fees                                                               |       | 8,266,710                        |        | -                |       | -                |       | 8,266,710   |         |
| Investment in subsidiaries                                                                   |       | 111,665,219                      |        | -                |       | (111,665,219     | )          | -           |         |
| Intercompany accounts                                                                        |       | 2,895,982                        |        | 670,075          |       | (3,566,057       | )          | -           |         |
| Other                                                                                        |       | 4,839,678                        |        | 341,823          |       | -                |       | 5,181,501   |         |
| Total other assets                                                                           |       | 425,913,850                      |        | 60,538,259       |       | (115,231,276     | )          | 371,220,833 |         |
| Total Assets                                                                                 |       | $                           | 582,017,408 |             | $          | 133,043,343      |       | $           | (115,231,276 | ) | $ | 599,829,475 |   |
|                                                                                         |       |                             |        |             |       |             |       |        |         |
| **LIABILITIES  AND SHAREHOLDER'S EQUITY**                                                    | ** ** | ** **                       | ** **  | ** **       | ** ** | ** **       | ** ** | ** **  | ** **   |
| CURRENT  LIABILITIES:                                                                        |       |                             |        |             |       |             |       |        |         |
| Current installments of long-term debt                                                       |       | $                           | 190,293     |             | $          | 1,367,301        |       | $           | -            |   | $ | 1,557,594 |   |
| Trade accounts payable                                                                       |       | 12,697,660                       |        | 7,869,665        |       | -                |       | 20,567,325  |         |
| Accrued payroll and payroll taxes                                                            |       | 4,711,518                        |        | 2,404,527        |       | -                |       | 7,116,045   |         |
| Accrued interest                                                                             |       | 5,568,643                        |        | -                |       | -                |       | 5,568,643   |         |
| Accrued promotions                                                                           |       | 2,479,254                        |        | 799,176          |       | -                |       | 3,278,430   |         |
| Accrued taxes (other than income and payroll)                                                |       | 833,774                          |        | 261,737          |       | -                |       | 1,095,511   |         |
| Other accrued liabilities                                                                    |       | 2,435,853                        |        | 674,753          |       | -                |       | 3,110,606   |         |
| Total current liabilities                                                                    |       | 28,916,995                       |        | 13,377,159       |       | -                |       | 42,294,154  |         |
| LONG-TERM DEBT,  less current installments                                                   |       | 355,249,190                      |        | 2,037,272        |       | -                |       | 357,286,462 |         |
| DEFERRED INCOME  TAXES                                                                       |       | 43,541,698                       |        | 2,120,319        |       | -                |       | 45,662,017  |         |
| INTERCOMPANY  ACCOUNTS                                                                       |       | 670,075                          |        | 2,895,982        |       | (3,566,057       | )          | -           |         |
| OTHER LONG-TERM  LIABILITIES                                                                 |       | 3,819,340                        |        | 947,392          |       | -                |       | 4,766,732   |         |
| Total Liabilities                                                                            |       | 432,197,298                      |        | 21,378,124       |       | (3,566,057       | )          | 450,009,365 |         |
|                                                                                         |       |                             |        |             |       |             |       |        |         |
| SHAREHOLDER'S  EQUITY:                                                                       |       |                             |        |             |       |             |       |        |         |
| Common stock - Class A, 100,000 shares authorized,  issued, and outstanding at March 3, 2007 |       | 150,187,941                      |        | 113,448,002      |       | (113,448,002     | )          | 150,187,941 |         |
| Accumulated deficit                                                                          |       | (367,831                         | )           | (1,782,783       | )          | 1,782,783        |       | (367,831    | )            |
| Total Shareholder's Equity                                                                   |       | 149,820,110                      |        | 111,665,219      |       | (111,665,219     | )          | 149,820,110 |         |
| Total Liabilities and Shareholder's Equity                                                   |       | $                           | 582,017,408 |             | $          | 133,043,343      |       | $           | (115,231,276 | ) | $ | 599,829,475 |   |

 

F-32

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**CONDENSED STATEMENTS OF CASH FLOWS**

**YEAR ENDED MARCH 3, 2007**
| ** **                                                           | ** ** | **Pierre Foods, Inc.** | ** ** | **Guarantor**    | ** ** | ** **       | ** ** | ** **   | ** ** |
|----------------------------------------------------------------------|------------|----------------------------------|------------|------------------|------------|------------------|------------|--------------|------------|
| ** **                                                           | ** ** | **(Issuer)**                     | ** ** | **Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total**    | ** ** |
|                                                                 |       |                             |       |             |       |             |       |         |       |
| CASH FLOWS FROM  OPERATING ACTIVITIES                                |       | $                                | 13,268,816 |             | $          | 527,637          |       | **—**   |       | $ | 13,796,453 |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES                                |       |                             |       |             |       |             |       |         |       |
| Net cash used in the Acquisition of Zartic                           |       | (91,602,574                      | )          | —           |       | —           |       | (91,602,574  | )          |
| Net cash used in the Acquisition of Clovervale                       |       | (21,845,428                      | )          | —           |       | —           |       | (21,845,428  | )          |
| Intercompany Accounts                                                |       | (2,225,907                       | )          | —           |       | 2,225,907        |       | —       |       |
| Capital expenditures                                                 |       | (7,867,891                       | )          | (790,422         | )          | —           |       | (8,658,313   | )          |
| Proceeds from disposition of property, plant, and  equipment         |       | —                           |       | 22,866           |       | —           |       | 22,866       |       |
| Net cash used in investing activities                                |       | (123,541,800                     | )          | (767,556         | )          | 2,225,907        |       | (122,083,449 | )          |
|                                                                 |       |                             |       |             |       |             |       |         |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES                                |       |                             |       |             |       |             |       |         |       |
| Borrowings of revolving credit agreement                             |       | 800,000                          |       | —           |       | —           |       | 800,000      |       |
| Principal payments on long-term debt                                 |       | (14,354,176                      | )          | (334,336         | )          | —           |       | (14,688,512  | )          |
| Loan origination fees                                                |       | (2,626,605                       | )          | —           |       | —           |       | (2,626,605   | )          |
| Borrowings under new term loan                                       |       | 124,000,000                      |       | —           |       | —           |       | 124,000,000  |       |
| Repayment of debt in conjunction with the  Acquisition of Clovervale |       | —                           |       | (1,612,378       | )          | —           |       | (1,612,378   | )          |
| Intercompany Accounts                                                |       | —                           |       | 2,225,907        |       | (2,225,907       | )          | —       |       |
| Return of capital to parent                                          |       | (37,600                          | )          | —           |       | —           |       | (37,600      | )          |
| Net cash provided by (used in) financing activities                  |       | 107,781,619                      |       | 279,193          |       | (2,225,907       | )          | 105,834,905  |       |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                |       | (2,491,365                       | )          | 39,274           |       | —           |       | (2,452,091   | )          |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF YEAR                        |       | 2,540,722                        |       | —           |       | —           |       | 2,540,722    |       |
| CASH AND CASH  EQUIVALENTS, END OF YEAR                              |       | $                                | 49,357     |             | $          | 39,274           |       | $            | —     |   | $ | 88,631 |   |
|                                                                      |            |                                  |            |                  |            |                  |            |              |            |  |  |  |  |

 

F-33

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**SELECTEDQUARTERLY FINANCIAL DATA (UNAUDITED)**
| ** **                                              | ** ** | **Successor Fiscal 2007  Quarters Ended**                           | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                                              | ** ** | **June 3, 2006**                                                         | ** ** | **September 2, 2006** | ** ** | **December 2, 2006** | ** ** | **March 3, 2007** | ** ** |
| ** **                                              | ** ** | **(Dollars in thousands, except per share amounts)** | ** ** |
| Revenues, net                                           |       | $                                                                                  | 105,755    |   | $ | 98,913 |   | $ | 127,137 |   | $ | 156,037 | ** ** |
| Costs and  expenses                                     |       | $                                                                                  | 99,241     |   | $ | 93,095 |   | $ | 116,976 |   | $ | 150,621 | ** ** |
| Operating income                                        |       | $                                                                                  | 6,514      |   | $ | 5,818 |   | $ | 10,161 |   | $ | 5,416 | ** ** |
| Net income  (loss)                                      |       | $                                                                                  | 680        |   | $ | 130 |   | $ | 2,762 |   | $ | (1,772 | ) |
| Net income/(loss) per  common share - basic and diluted |       | $                                                                                  | 6.80       |   | $ | 1.30 |   | $ | 27.62 |   | $ | (17.72 | ) |

 
| ** **                                              | ** ** | **Successor Fiscal 2006  Quarters Ended**                           | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                                              | ** ** | **June 6, 2005**                                                         | ** ** | **September 3, 2005** | ** ** | **December 3, 2005** | ** ** | **March 4, 2006** | ** ** |
| ** **                                              | ** ** | **(Dollars in thousands, except per share amounts)** | ** ** |
| Revenues, net                                           |       | $                                                                                  | 107,735    |   | $ | 99,180 |   | $ | 115,453 |   | $ | 109,265 | ** ** |
| Costs and  expenses                                     |       | $                                                                                  | 103,280    |   | $ | 97,542 |   | $ | 105,665 |   | $ | 101,270 | ** ** |
| Operating income                                        |       | $                                                                                  | 4,455      |   | $ | 1,638 |   | $ | 9,788 |   | $ | 7,995 | ** ** |
| Net income  (loss)                                      |       | $                                                                                  | (612       | ) | $ | (1,555 | ) | $ | 2,550 |   | $ | 1,779 | ** ** |
| Net income/(loss) per  common share - basic and diluted |       | $                                                                                  | (6.12      | ) | $ | (15.55 | ) | $ | 25.50 |   | $ | 17.79 | ** ** |

 

F-34

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REPORT OF MANAGEMENT

The management of Pierre Foods, Inc. is responsiblefor the preparation and integrity of the consolidated financial statements ofthe Company.  The financial statementsand notes have been prepared by the Company in accordance with accountingprinciples generally accepted in the United States of America and, in thejudgment of management, present fairly and consistently the Company’s financialposition and results of operations and cash flows.  The financial information contained elsewherein this annual report is consistent with that in the financial statements.  The financial statements and other financialinformation in this annual report include amounts that are based on management’sbest estimates and judgments.

The Company maintains a system of internal accountingcontrols to provide reasonable assurance that assets are safeguarded and thattransactions are executed in accordance with management’s authorization andrecorded properly to permit the preparation of financial statements inaccordance with accounting principles generally accepted in the United Statesof America.

The Company’s financial statements have been auditedby Deloitte & Touche LLP.  Managementhas made available to them all of the Company’s financial records and relateddata, and believes that all representations made to Deloitte & Touche LLPduring this audit were valid and appropriate.
| /s/ NORBERT  E. WOODHAMS         |                    | /s/ JOSEPH  W. MEYERS |   |
|---------------------------------------|-------------------------|----------------------------|--------|
| Norbert E. Woodhams                   |                    | Joseph W. Meyers           |   |
| President and Chief Executive Officer | Chief Financial Officer |                       |

 

F-35

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