** **

**UNITEDSTATES**

## **SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

#### **FORM 10-K/A**

**(Amendment No. 1)**

 

**(Mark One)**

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

**For thefiscal year ended:  March 5, 2005**

**OR**

 

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

**For the transition period from                          to                          **

 

**Commission File No.:  0-7277**

 

 

**PIERREFOODS, INC.**

(Exact name of Registrant asspecified 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 telephone number,including area code:  **(513) 874-8741**

 

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

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

 

Indicate by check mark if the registrant is a well-knownseasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o   No ý

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act.  Yes o   No ý

 

Indicate by check mark whether theregistrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the precedingtwelve months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.     Yes ý   Noo

 

Indicate by check mark if disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of the registrant’s knowledge,in definitive proxy or information statements incorporated by reference in Part IIIof this Form 10-K or any amendment to this Form 10-K.     ý

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Exchange Act Rule 12b-2).  Yes o   Noý

 

Indicate by check mark whether the registrant is a shellcompany (as defined in Exchange Act Rule 12b-2).  Yes o   Noý

 

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

 

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

 

 

----

 

**EXPLANATORY NOTE**

 

This Amendment No. 1 on Form 10-K/A(the “Amended 10-K”) is being filed with respect to the Annual Report on Form 10-Kof Pierre Foods, Inc. (the “Company” or “Pierre”) for the fiscal yearended March 5, 2005.  This Amended 10-Kamends the Company’s original Form 10-K as filed on June 3, 2005 (the“Original Filing”).  This Amended 10-Kalso does not reflect events occurring after the filing of the Original Filingor modify or update those disclosures (including, except as otherwise providedherein, the exhibits to the Original Filing) affected by subsequentevents.  Accordingly, this Amended 10-Kshould be read in conjunction with the Company’s filings made with theSecurities and Exchange Commission subsequent to the Original Filing, includingthe Company’s filing of Form 10-Q for the quarters ended June 4, 2005and September 3, 2005.

 

The Company hereby amends Item 9A. Controlsand Procedures of the Original Filing, Item 8. Financial Statements andSupplementary Data of the Original Filing, and Item 15. Exhibits and FinancialStatement Schedules of the Original Filing. With respect to the Company’s Consolidated Financial Statements, theOriginal Filing has not been amended except to reflect revisions to columnheadings in the Company’s Consolidated Statements of Cash Flows in order to beconsistent with heading presented in the Company’s Consolidated Statements ofOperations and to reflect revisions to the Selected Quarterly Financial Data thatfollows Note 17 of the Notes to Consolidated Financial Statements in order topresent the information in a manner that is consistent with the presentation ofthe Company’s Consolidated Statements of Operations (including the eliminationof gross profit as a line item).

 

As required by Rule 12b-15 under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), newcertifications by the Company’s Principal Executive Officer and PrincipalAccounting Officer are being filed as exhibits to this Amended 10-K under Item15.

 

For purposes of this Amended 10-K, and inaccordance with Rule 12b-15 under the Exchange Act, Item 9A, Item 8 andItem 15 of the Original Filing have been amended and restated in theirentirety.  No changes have been made inthis Amended 10-K that modify or update other disclosures as presented in theOriginal Filing.

 

2

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**TABLE OFCONTENTS**

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

 

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*Notincluded in this Amended 10-K. Information responsive to the item is contained in the 10-K filed on June 3,2005.

 

3

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

 

The Company’s Consolidated Financial Statementsrequired by this Item are on pages F-1 through F-32 of this Amended10-K.

 

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

 

*Evaluation of Disclosure Controlsand Procedures*.  As of theend of the period covered by this report, the Company performed an evaluation,under the supervision and with the participation of its management includingthe President and Chief Executive Officer and Principal Accounting Officer ofthe effectiveness of the Company’s disclosure controls and procedures (as suchterm is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)).  Based upon this evaluation, the Company’s Presidentand Chief Executive Officer and Principal Accounting Officer have concludedthat as of March 5, 2005, the Company’s disclosure controls and procedureswere effective for the purposes of ensuring that information required to be disclosed in reports that theCompany files or submits under the 1934 Act has been recorded, processed,summarized and reported in accordance with the rules and forms of theSecurities and Exchange Commission.

 

*Changes in Internal Controls*.  Therehave been no changes in the Company’s internal controls over financialreporting during the quarter ended March 5, 2005 that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

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

 

(a)           1.             Financial Statements

 

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

 

2.             Financial Statement Schedules

 

Financial statement schedules have been omittedbecause they are not applicable or not required, or because the requiredinformation is provided in the Company’s Consolidated Financial Statements ornotes thereto.

 

3.             Exhibits

 

See Index to Exhibits below.

 

4

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, Pierre Foods, Inc. hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

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

 

Dated:January 3, 2006

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below by the followingpersons on behalf of Pierre Foods, Inc., in the capacities and on thedates indicated.

 
| **Signature**           | ** ** | **Title**                         | ** ** | **Date**             |
|-------------------------|------------|-----------------------------------|------------|----------------------|
|                    |       |                              |       |                 |
| /S/ NORBERT E. WOODHAMS |       | Chief Executive Officer and       |       | January 3, 2006 |
| Norbert E. Woodhams     |       | President (Principal  Executive   |       |                 |
|                    |       | Officer), Director and  Chairman  |       |                 |
|                    |       | of the Board                      |       |                 |
|                    |       |                              |       |                 |
| /S/ JOSEPH W. MEYERS    |       | Vice President, Finance           |       | January 3, 2006 |
| Joseph W. Meyers        |       | (Principal Financial  Officer and |       |                 |
|                    |       | Principal Accounting  Officer)    |       |                 |
|                    |       |                              |       |                 |
| /S/ NICHOLAS W. ALEXOS  |       | Director                          |       | January 3, 2006 |
| Nicholas W. Alexos      |       |                              |       |                 |
|                    |       |                              |       |                 |
| /S/ SCOTT W. MEADER     |       | Director                          |       | January 3, 2006 |
| Scott W. Meader         |       |                              |       |                 |
|                    |       |                              |       |                 |
| /S/ GEORGE A. PEINADO   |       | Director                          |       | January 3, 2006 |
| George A. Peinado       |       |                              |       |                 |
|                    |       |                              |       |                 |
| /S/ ROBIN P. SELATI     |       | Director                          |       | January 3, 2006 |
| Robin P. Selati         |       |                              |       |                 |

 

5

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**INDEX TO EXHIBITS**

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

 

6

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

 

7

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

 

8

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|   |   | 10.20       Credit Agreement, dated as of June 30, 2004, among Pierre Merger  Corp., Wachovia Bank, National Association, as administrative and collateral  agent, Wachovia Capital Markets, LLC and Banc of America Securities LLC, as  joint lead arrangers and book-running managers, and a syndicate of banks,  financial institutions and other institutional lenders party thereto (filed  as Exhibit 10.14 to the Registration Statement on Form S-4, filed  with the Securities and Exchange Commission on September 27, 2004) |   | **     |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |
|   |   | 10.21       Tax Sharing and Indemnification Agreement, dated as of May 11,  2004, among PF Management, Inc., the PF Management, Inc.  Shareholders, David R. Clark as Shareholders Agent and Pierre Holding Corp.  (filed as Exhibit 10.18 to the Registration Statement on Form S-4,  filed with the Securities and Exchange Commission on September 27, 2004)                                                                                                                                                              |   | **     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |
| (12)   |   | CALCULATION OF RATIO OF  EARNINGS TO FIXED CHARGES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | *      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |
| (21)   |   | 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 in accordance with Section 302 of the Sarbanes-Oxley Act of  2002                                                                                                                                                                                                                                                                                                                                                                            |   | — |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |
|   |   | 31.2         Rule 13a-14(a) Certification of Principal Financial Officer  of the Company in accordance with Section 302 of the Sarbanes-Oxley Act  of 2002                                                                                                                                                                                                                                                                                                                                                                        |   | — |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |
| (32)   |   | SECTION 1350  CERTIFICATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   |
|   |   | 32            Section 1350 Certification of Chief  Executive Officer and Principal Financial Officer of the Company in  accordance with Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                   |   | — |

 

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*   Indicates that Exhibit was filed withthe Original Filing.

 

**  Indicates that Exhibit is incorporatedby reference in this Report from a previous filing with the Commission.

 

“C”  Confidential treatmentrequested as to certain portions, which have been filed separately with theCommission.

 

9

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**INDEX TOFINANCIAL STATEMENTS**

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

 

F-1

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

 

 

Tothe Board of Directors and Shareholder of

PierreFoods, Inc.

Cincinnati,Ohio

 

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

 

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

 

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

 

 

DELOITTE & TOUCHE LLP

Cincinnati, Ohio

June 2, 2005

 

F-2

----

 

**PIERREFOODS, INC.**

 

**CONSOLIDATED BALANCE SHEETS**

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

 

Seeaccompanying notes to consolidated financial statements.

 

F-3

----

 

**PIERREFOODS, INC.**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

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

 

Seeaccompanying notes to consolidated financial statements.

 

F-4

----

 

**PIERREFOODS, INC.**

 

**CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY**

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

 

See accompanying notes to consolidatedfinancial statements.

 

F-5

----

 

**PIERREFOODS, INC.**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 
| ** **                                                                                | ** ** | **Successor**          | ** ** | ** ** | **Predecessor**        | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------|------------|------------|------------------------|------------|
| ** **                                                                                | ** ** | **Fiscal 2005**        | ** ** | ** ** | **Fiscal 2005**        | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                | ** ** | **For the Period**     | ** ** | ** ** | **For the Period**     | ** ** | **Fiscal 2004** | ** ** | **Fiscal 2003** | ** ** |
| ** **                                                                                | ** ** | **July 1, 2004**  | ** ** | ** ** | **March 7, 2004** | ** ** | **For the Year** | ** ** | **For the Year** | ** ** |
| ** **                                                                                | ** ** | **Through**            | ** ** | ** ** | **Through**            | ** ** | **Ended** | ** ** | **Ended** | ** ** |
| ** **                                                                                | ** ** | **March 5, 2005** | ** ** | ** ** | **June 30, 2004** | ** ** | **March 6, 2004** | ** ** | **March 1, 2003** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                      |       |                   |       |       |                   |       |   |   |   |   |
| Net income  (loss)                                                                        |       | $                      | (4,329,387 | )          |                   | $          | (4,264,035 | ) | $ | 1,433,795 |   | $ | (16,826,551 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by operating activities: |       |                   |       |       |                   |       |   |   |   |   |
| Cumulative  effect of accounting change                                                   |       | —                 |       |       | —                 |       | — |   | 18,604,534 |   |
| Depreciation  and amortization                                                            |       | 23,169,814             |       |       | 1,544,903              |       | 4,604,954 |   | 4,124,641 |   |
| Amortization  of deferred loan origination fees                                           |       | 1,029,109              |       |       | 716,478                |       | 769,587 |   | 746,262 |   |
| Deferred  income taxes                                                                    |       | 370,083                |       |       | (2,080,338             | )          | 1,296,247 |   | 1,286,191 |   |
| Write-off of  deferred loan origination fees                                              |       | 4,283,122              |       |       | —                 |       | 1,233,530 |   | — |   |
| Net loss on  disposition of assets (net of writedowns)                                    |       | 5,372                  |       |       | 339,921                |       | 11,042 |   | 88,937 |   |
| Decrease in  other assets                                                                 |       | —                 |       |       | 296,694                |       | 72,806 |   | 79,831 |   |
| Increase  (decrease) in other long-term liabilities                                       |       | 199,565                |       |       | (94,477                | )          | (366,339 | ) | (338,946 | ) |
| Changes in  operating assets and liabilities providing (using) cash:                      |       |                   |       |       |                   |       |   |   |   |   |
| Receivables                                                                               |       | (9,566,451             | )          |       | 5,660,719              |       | (1,987,250 | ) | (2,170,878 | ) |
| Inventories                                                                               |       | 458,272                |       |       | (4,911,529             | )          | (6,389,241 | ) | (8,731,922 | ) |
| Refundable  income taxes, prepaid expenses and other assets                               |       | (3,636,860             | )          |       | 949,584                |       | 193,708 |   | (1,726,478 | ) |
| Trade  accounts payable and other accrued liabilities                                     |       | 867,917                |       |       | 2,227,855              |       | 2,388,092 |   | 4,906,862 |   |
| Total  adjustments                                                                        |       | 17,179,943             |       |       | 4,649,810              |       | 1,827,136 |   | 16,869,034 |   |
| Net cash  provided by operating activities                                                |       | 12,850,556             |       |       | 385,775                |       | 3,260,931 |   | 42,483 |   |
|                                                                                      |       |                   |       |       |                   |       |   |   |   |   |
| CASH FLOWS  FROM INVESTING ACTIVITIES                                                     |       |                   |       |       |                   |       |   |   |   |   |
| Proceeds  from sales of assets to others                                                  |       | —                 |       |       | —                 |       | 278,400 |   | 83,000 |   |
| Capital  expenditures                                                                     |       | (3,677,259             | )          |       | (2,084,160             | )          | (10,040,768 | ) | (16,216,292 | ) |
| Net cash  used in investing activities                                                    |       | (3,677,259             | )          |       | (2,084,160             | )          | (9,762,368 | ) | (16,133,292 | ) |
|                                                                                      |       |                   |       |       |                   |       |   |   |   |   |
| CASH FLOWS  FROM FINANCING ACTIVITIES                                                     |       |                   |       |       |                   |       |   |   |   |   |
| Net  borrowings (repayments) of revolving credit agreement                                |       | (17,702,886            | )          |       | 7,712,901              |       | (1,805,161 | ) | 15,085,147 |   |
| Borrowings  under equipment term loan subline                                             |       | —                 |       |       | —                 |       | 5,000,000 |   | — |   |
| Borrowings  under real estate term loan subline                                           |       | —                 |       |       | —                 |       | 5,000,000 |   | — |   |
| Principal  payments on long-term debt                                                     |       | (16,169,945            | )          |       | (673,526               | )          | (849,257 | ) | (311,967 | ) |
| Loan  origination fees                                                                    |       | (9,952,798             | )          |       | (3,371,999             | )          | (680,609 | ) | (1,603,467 | ) |
| Payoff of  Old Notes                                                                      |       | (115,000,000           | )          |       | —                 |       | — |   | — |   |
| Issuance of  New Notes                                                                    |       | 125,000,000            |       |       | —                 |       | — |   | — |   |
| Borrowings  under new term loan                                                           |       | 150,000,000            |       |       | —                 |       | — |   | — |   |
| Repayment of  debt in conjunction with the Acquisition                                    |       | (29,048,031            | )          |       | —                 |       | — |   | — |   |
| Termination  of certificate of deposit                                                    |       | 1,262,245              |       |       | —                 |       | — |   | — |   |
| Return of  capital to parent                                                              |       | (100,085,738           | )          |       | —                 |       | — |   | — |   |
| Distribution  of special purpose leasing entity                                           |       | —                 |       |       |                   |       | (233,000 | ) | (1,382,557 | ) |
| Contribution  from parent                                                                 |       | 350,000                |       |       | —                 |       | — |   | — |   |
| Net cash  provided by (used in) financing activities                                      |       | (11,347,153            | )          |       | 3,667,376              |       | 6,431,973 |   | 11,787,156 |   |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                     |       | (2,173,856             | )          |       | 1,968,991              |       | (69,464 | ) | (4,303,653 | ) |
| CASH AND  CASH EQUIVALENTS, BEGINNING OF YEAR                                             |       | 2,173,856              |       |       | 204,865                |       | 274,329 |   | 4,577,982 |   |
| CASH AND  CASH EQUIVALENTS, END OF YEAR                                                   |       | $                      | —     |       |                   | $          | 2,173,856 |   | $ | 204,865 |   | $ | 274,329 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

F-6

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**PIERREFOODS, INC.**

 

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

###### ** **

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

 

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

 

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

 

*Management Buyout. *On July 26, 2002, management completed agoing private transaction in which the Company’s shareholders approved theAmended and Restated Agreement and Plan of Share Exchange dated as of December 20,2001, and amended as of June 20, 2002. This going-private transaction resulted in the Company becoming awholly-owned subsidiary of PF Management, Inc. (“PFMI”); accordingly,there is no public market fort the Company’s common stock.  The Company had 5,781,480 shares issued andoutstanding immediately before the closing and 2,500,000 shares of preferredstock authorized, none of which were outstanding.  After the closing, the Company amended andrestated its Articles of Incorporation to authorize the issuance of up to100,000 shares of Class A common stock as the only authorized class ofcapital stock of the Company.  All100,000 shares of authorized common stock were issued to PFMI.  All per share amounts have been retroactivelyrestated in the accompanying Consolidated Financial Statements and Notes toConsolidated Financial Statements for all periods presented to reflect the transaction.

 

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

 

F-7

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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 FourthSupplemental Indenture, the Company took title to an aircraft transferred froma related party subject to $5.6 million of existing purchase money debt;assumed $15.3 million of debt from PFMI; cancelled the $1.0 million relatedparty note receivable against the debt assumed from PFMI; cancelled thebalances owed by the Company to certain related parties, as follows: $0.5million owed to Columbia Hill Aviation; $3.5 million owed to PF Purchasing;$0.5 million owed to PF Distribution; and assumed the operating leases of PFDistribution in connection with the Fourth Supplemental Indenture.

 

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

 

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

 

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

 

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

 

•      The Company terminated its few remaining relatedparty transactions (described in Note 16, “Transactions with Related Parties,”to the Consolidated Financial Statements), transferred miscellaneous assets to Messrs. Richardsonand Clark, the Company’s former Chairman and Vice Chairman, respectively,including the Company’s airplane, which was distributed to Mr. Richardson.

 

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

 

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

 

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

 

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

 

F-8

----

 

•      In addition to the base purchase price, the stockpurchase agreement entitled the selling shareholders to earn-out cash payments,which included an additional aggregate amount of $13.0 million in the eventthat, at the end of any fiscal quarter during the fiscal year ended March 5,2005, the Company achieved EBITDA (as defined in the stock purchase agreement)for the prior four fiscal quarters then ended of $56.0 million or more.  No portion of the additional amount ispayable as of March 5, 2005, as this EBITDA target was not met.

 

The following table presents unaudited proforma information for predecessor fiscal 2004, and for predecessor fiscal 2005and successor fiscal 2005 combined, as if the Acquisition had occurred on March 2,2003 and March 7, 2004, as applicable.

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

 

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 been acquired by MDP on March 2,2003 or March 7, 2004, as applicable. Purchase related adjustments to theresults of operations include the effects on depreciation and amortization,interest expense, cost of goods sold and income taxes.

 

Included in these pro forma results arecertain predecessor fees that the Company does not expect to incur in thefuture. These include professional fees, primarily related to the restructuringof the Fourth Supplemental Indenture on March 8, 2004 and the ManagementBuy Out on July 26, 2002. For predecessor fiscal 2004, these fees amountedto $2,392,660.  For predecessor fiscal2005 and successor fiscal 2005 combined, these fees amounted to $2,591,989.

 

Other predecessor expenses included in thesepro forma results that are no longer expected to be incurred include outsideBoard of Director fees, community relations and donations to our formershareholder’s alma mater.  For predecessorfiscal 2004 and for predecessor fiscal 2005 and successor fiscal 2005 combined,these fees amounted to $1,004,818 and $710,673, respectively.

 

Also included in the pro forma results forpredecessor fiscal 2005 and successor fiscal 2005 combined are certainAcquisition expenses related to the sale of the Company to MDP. Thesetransaction expenses include professional fees of $956,000 for predecessorfiscal 2005 and successor fiscal 2005 combined. Other predecessor fiscal 2005and successor fiscal 2005 combined transaction expenses relating to theprevious shareholders’ adviser amounted to $780,952. A termination payoff ofthe endorsement between the Company and Crawford Race Cars, LLC also resultedin expense in predecessor fiscal 2005 and successor fiscal 2005 combinedamounting to $318,000 that is not expected to be incurred in the future.

 

The unaudited pro forma condensedconsolidated financial statements reflect the Acquisition of the Company inaccordance with Financial Accounting Standard No. 141 (“FAS 141”)—Business Combinations and Financial Accounting Standard No. 142 (“FAS 142”)—Goodwill and Other Intangible Assets.

 

F-9

----

 

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

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

 

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

 

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

 

*Principles of Consolidation.*  The accompanying consolidated financialstatements include Pierre Foods, Inc. and subsidiaries, as well as theaccounts of the special purpose leasing entity (see Note 16).  All intercompany transactions have beeneliminated.

 

*Fiscal Year.* TheCompany operates on a 52-week or 53-week fiscal year ending on the firstSaturday in March or if the last day of February is a Saturday, thelast day of February.  Each quarter ofthe fiscal year contains 13 weeks except for the infrequent fiscal yearswith 53 weeks.  The results forpredecessor fiscal 2005 and successor fiscal 2005 combined contain 52weeks.  The results for predecessor fiscal2004 contain 53 weeks.  The results forpredecessor fiscal 2003 contain 52 weeks.

 

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

 

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

 

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

 

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

 

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

 

*Goodwilland Other Intangible Assets*.  ****In June 2001, the Financial AccountingStandards Board (“FASB”) issued SFAS 142, “Goodwill and Other IntangibleAssets,” which was effective for the fiscal year beginning March 3,2002. ****Asprescribed under SFAS 142, the Company tested goodwill for impairment duringfiscal 2003 using a two-step process. The

 

F-10

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firststep of the goodwill impairment test is used to identify potential impairmentby comparing the fair value of the entity with its net asset value (or carryingamount), including goodwill.  If the fairvalue of the entity exceeds its net asset value, goodwill of the entity isconsidered not impaired and the second step of the goodwill impairment test isnot needed.  If the net asset value ofthe entity exceeds the fair market value, the second step of the goodwillimpairment test is performed to measure the amount of impairment loss, ifany.  The second step of the goodwillimpairment test compares the implied fair value of the entity’s goodwill withthe carrying amount of that goodwill.  Ifthe carrying amount of the entity’s goodwill exceeds the implied fair value ofthat goodwill, an impairment loss is recognized in an amount equal to thatexcess.  Subsequent to recognizing animpairment loss, the adjusted carrying amount of the intangible asset shall beits new accounting basis.  Reversal of apreviously recognized impairment loss is prohibited.

 

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

 

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

 

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

 

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

 

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

 

*Revenue Recognition. *Revenue from sales of food processedproducts is recorded at the time title transfers.  Standard shipping terms are FOB destination,therefore title passes at the time the product is delivered to thecustomer.  Revenue is recognized as thenet amount to be received after deductions for estimated discounts, productreturns and other allowances. These estimates are based on historical trends and expected futurepayments (see also “Promotions” below).

 

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

 

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

 

F-11

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

 

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

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

 

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

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

 

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

 

F-12

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*Advertising Costs.*  The Company expenses advertising costs asincurred.  Advertising expense forpredecessor fiscal 2005 and successor fiscal 2005 combined, predecessor fiscal2004 and predecessor fiscal 2003 was $272,945, $558,689 and $652,927,respectively.

 

*Research and Development. *The Company expenses research and developmentcosts as incurred.  Research anddevelopment expense for predecessor fiscal 2005 and successor fiscal 2005combined, predecessor fiscal 2004 and predecessor fiscal 2003 was $1,650,000,$1,286,000 and $1,030,000,respectively.

 

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

 

*Distribution Expense.* The Company expenses distribution costs asincurred.  These costs includewarehousing, fulfillment and freight costs, and are included in selling,general and administrative expense. Distribution expense included in operations for predecessor fiscal 2005and successor fiscal 2005 combined, predecessor fiscal 2004 and predecessorfiscal 2003 was $22,372,599, $31,126,379 and $21,544,130, respectively (SeeNote 16).

 

*Use of Estimates. *The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  Significant accounting estimates includesales discounts and promotional allowances, inventory reserves, insurancereserves, and useful lives assigned to intangible assets.  Actual results could differ from thoseestimates.

 

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

 

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

 

In November 2004, the Financial AccountingStandards Board (the “FASB”) issued SFAS No. 151, “Inventory Costs—anamendment of ARB No. 43, Chapter 4” (“SFAS No. 151”). SFAS No. 151amends ARB 43, Chapter 4, to clarify that abnormal amounts of idlefacility expense, freight, handling costs and wasted materials (spoilage)should be recognized as current-period charges. In addition, SFAS No. 151requires that allocation of fixed production overheads to the costs ofconversion be based on the normal capacity of the production facilities. Wewill adopt the provisions of SFAS No. 151, effective March 5, 2006for our fiscal 2007 consolidated financial statements. Management currentlybelieves that adoption of the provisions of SFAS No. 151 will not have amaterial impact on our consolidated financial statements.

 

F-13

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

 

Accounts and notes receivable consist of the following:

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

 

See Note 16 regarding a $5,000,000 notereceivable from a previous shareholder presented as a reduction of shareholders’equity at March 6, 2004.

 

The following is a summary of activityin the allowance for doubtful receivables for successor fiscal 2005,predecessor fiscal 2005, predecessor fiscal 2004 and predecessor fiscal 2003.

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

 

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

 

A summary of inventories, by major classification, follows:

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

 

F-14

----

 

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

 

The majorcomponents of property, plant and equipment are as follows:

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

 

F-15

----

 

**6. GOODWILL AND OTHER INTANGIBLE ASSETS**

 

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

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

 

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

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

 

F-16

----

 

**7. FINANCING ARRANGEMENTS**

 

Long-term debt is comprised of the following:

 
| ** **                                                                                                                                      | ** ** | **March 5, 2005** | ** **  | **March 6, 2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|------------------------|------------|
|                                                                                                                                            |       |                   |        |                   |       |
| 12.25%  Senior Notes, interest payable on June 1 and December 1 of each  year, maturing on June 1, 2006, (“Old Notes”) |       | $                      | —      |                   | $          | 115,000,000 |   |
| 9.875%  Senior Notes, interest payable on January 15 and July 15 of each  year, maturing on July 15, 2012                        |       | 125,000,000            |        | —                 |       |
| $150 million  term loan, with floating interest rates maturing 2010                                                                             |       | 136,500,000            |        | —                 |       |
| New  revolving line of credit, maximum borrowings of $40 million with floating  interest rates maturing 2009                                    |       | 790,000                |        | —                 |       |
| Former  revolving line of credit, maximum borrowings of $40 million with floating  interest rates maturing 2007                                 |       | —                 |        | 13,279,985             |       |
| 5.25% Term  loan subline-equipment                                                                                                              |       | —                 |        | 4,583,339              |       |
| 5.25% Term  loan subline-real estate                                                                                                            |       | —                 |        | 4,708,331              |       |
| Aircraft  note payable-variable interest rate                                                                                                   |       | —                 |        | 5,606,685              |       |
| 6% Note  payable maturing 2008                                                                                                                  |       | —                 |        | 270,983                |       |
| 0.0% to  11.5% capitalized lease obligations maturing through 2010(Note 9)                                                                      |       | 1,290,371              |        | 244,713                |       |
| Total  long-term debt                                                                                                                           |       | 263,580,371            |        | 143,694,036            |       |
| Less current  installments                                                                                                                      |       | 421,713                |        | 1,628,276              |       |
|                                                                                                                                            |       |                   |        |                   |       |
| Long-term  debt, less current installments                                                                                                      |       | $                      | 263,158,658 |                   | $          | 142,065,760 |   |

 

On March 8, 2004, following a consentsolicitation in which consents of holders of $112.4 million in aggregateprincipal amount of the Company’s Old Notes, representing 97.74% of theoutstanding Old Notes, consented to a Fourth Supplemental Indenture between theCompany and U.S. Bank National Association, as trustee (the “Trustee”), theCompany entered into the Fourth Supplemental Indenture with the Trustee.  Concurrently with the execution of the FourthSupplemental Indenture the Company took title to an aircraft transferred from arelated party subject to $5.6 million of existing purchase money debt;cancelled the $1.0 million related party note receivable from itsprincipal shareholders; cancelled the balances owed by the Company to certainrelated parties, as follows: $0.5 million owed to Columbia Hill Aviation;$3.5 million owed to PF Purchasing and $0.5 million owed to PFDistribution; and assumed the operating leases of PF Distribution in connectionwith the Fourth Supplemental Indenture. Minimum lease payments on the former PFDistribution operating leases were scheduled to be $3.0 million duringfiscal year 2005, $2.9 million during fiscal year 2006 and$0.5 million during fiscal year 2007. The Company assumed$15.3 million of subordinated debt of PFMI the sole shareholder of theCompany, in connection with the execution of the Fourth Supplemental Indentureand cancelled the $1.0 million related party note receivable against thedebt assumed from PFMI.

 

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

 

F-17

----

 

the new revolving credit facility and the new term loan at March 5,2005 was 7.5% (prime plus 1.75%).  Repaymentof borrowings under the term loan was initially $375,000 per quarter, which beganon September 4, 2004, with a balloon payment of $141.4 million due onJune 5, 2010.  In addition to thescheduled quarterly payment, prepayments on the term loan totaling $12.4million were made during successor fiscal 2005. These prepayments have satisfied the scheduled quarterly paymentrequirements, therefore, the remaining outstanding balance of $136.5 million asof March 5, 2005 is due on June 5, 2010.  The maturity date of the $40 millionrevolving credit facility is June 30, 2009.  In addition, the Company is required tosatisfy certain financial covenants regarding cash flow and capitalexpenditures.

 

Also in conjunction with the Acquisition, theCompany issued $125.0 million of 97/8% Senior Subordinated Notesdue 2012 (the “New Notes”). The proceeds of the New Notes, together with theequity contributions from MDP and certain members of management and borrowingsunder our new senior credit facility, were used to finance the Acquisition ofthe Company and to repay outstanding indebtedness, including paying off debt ofPFMI assumed by the Company under the Fourth Supplemental Indenture (exceptcapital leases), paying for the Old Notes tendered in connection with thetender offer described in Note 1, “Basis of Presentation and Acquisition” andredeeming the Old Notes not tendered.  Asof March 5, 2005, the Company had borrowing availability of approximately$34.7 million under its revolving credit facility.

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

 

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

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

 

F-18

----

 

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

 

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

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

 

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

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

 

F-19

----

 

The approximate tax effect of each type of temporary differenceand carryforward that gave rise to the Company’s deferred income tax assets andliabilities for fiscal 2005 and fiscal 2004 is as follows:

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

 

For fiscal 2004, the Company filed a consolidated federal incometax return with its parent, PF Management. Under consolidated tax return rules, PF Management was able to utilizethe net operating loss and certain other deductions of the Company that couldnot have otherwise been utilized by the Company on a separate return basis. Thetax sharing agreement between PF Management and the Company did not require PFManagement to reimburse the Company for the net operating loss and otherdeductions that could not be utilized on a separate return basis.  Accordingly, the Company recorded a noncashdistribution to PF Management in the amount of $3,578,169 for the utilizationof the Company’s deferred tax assets in PF Management’s consolidated federalincome tax return for fiscal 2004.  Forsuccessor fiscal 2005, the Company will file a consolidated federal income taxreturn with PF Management and Holding. Due to changes in the Company’s structure, as a result of theAcquisition, the Company does not expect

 

At March 5, 2005, federal and state loss carryovers ofapproximately $12,599,105 and $13,109,061, respectively, are available tooffset future federal and state taxable income. The carryover periods range from fifteen to twenty years, which willresult in expirations of varying amounts beginning in fiscal 2015 andcontinuing through fiscal 2025.  As aresult of the Acquisition, a portion of the federal and state losscarryforwards are subject to limitations on utilization under Internal RevenueCode Section 382.  As such,management has evaluated the Company’s ability to utilize those losses and hasdetermined that it is more likely than not that all of the loss carryforwardswill be utilized.

 

At March 5, 2005, the Company also had federal and state taxcredit carryforwards of $1,667,182 and $881,197, respectively.  The carryover periods range from 7 years toindefinite carryover.  As a result of theAcquisition, a portion of the federal and state credit carryforwards is subjectto limitations on utilization under Internal Revenue Code Sections 382 and383.  As such, management has evaluatedthe Company’s ability to utilize those losses and has determined that it ismore likely than not that a portion of the federal credits will not be utilizedby the Company.  A valuation allowancehas been established accordingly.

 

F-20

----

 

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

 

The Company leases certain machinery and equipment and furniture andfixtures under leases classified as capital leases.  The leases have original terms ranging fromone to eight years.  The assets coveredunder these leases have carrying values of $1,452,471 and $310,904 at March 5,2005 and March 6, 2004, respectively.

 

Certain machinery and equipment and real estate are underoperating leases with terms that are effective for varying periods until2012.  Certain of these leases haveremaining renewal clauses, exercisable at the option of the lessee.

 

At March 5, 2005, minimum rental payments required underoperating and capital leases are summarized as follows:

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

 

Rental expensecharged to continuing operations is as follows:

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

 

F-21

----

 

**10.   EMPLOYEE BENEFITS**

 

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

 

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

 

EffectiveAugust 1, 2000, the Company adopted the Pierre Foods, Inc.Compensation Exchange Plan. The Plan is a non-qualified deferred compensationplan in which eligible participants consist of highly compensated employees andthe Company’s former Board of Directors. Cash contributions to the Plan were $43,839 during fiscal 2003.  ** **Effective December 31, 2002,the Company terminated the plan.

 

In connection with the Acquisition the managementinvestors invested approximately $4.9 million in a deferred compensationplan. This deferred compensation plan is funded through a rabbi trust that ownspreferred stock of Holding with an aggregate liquidation value of approximately$4.9 million.

 

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

 

The following table summarizes changes inshares for predecessor fiscal 2005 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      |   |
|                                              |       |       |       |                                           |       |
| Shares available for grant at March 5,  2005 |       | 36,381     |       |                                           |       |
|                                              |       |       |       |                                           |       |
| Shares exercisable at March 5, 2005          |       | 6,313      |       |                                           |       |

 

F-22

----

 

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

 

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

 

At March 5,2005 excluding long-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 the Company’s New Notes and OldNotes is estimated based on quoted market prices and interest rates currentlyavailable for issuance of debt with similar terms and maturities.  As of March 5, 2005, the fair value ofthe New Notes was $131,875,000.  As of March 6,2004, the fair value of the Old Notes was $115,000,000.  The carrying value of all other long-termdebt is considered representative of its fair value as of March 5, 2005.

 

**13.****          ****BUSINESSSEGMENT**

 

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

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

 

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

 

**14.****          ****COMMITMENTSAND CONTINGENCIES**

 

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

 

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

 

F-23

----

 

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

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

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

 

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

 

F-24

----

 

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

 

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

 
| ** **                                                       | ** ** | **Successor**   | ** **  | ** ** | **Predecessor** | ** ** |
|------------------------------------------------------------------|------------|-----------------|-------------|------------|-----------------|------------|
| ** **                                                       | ** ** | **Fiscal 2005** | ** **  | ** ** | **Fiscal 2005** | ** ** | **Fiscal 2004** | ** ** | **Fiscal 2003** | ** ** |
|                                                             |       |            |        |       |            |       |   |   |   |   |
| Cash paid  during the period for:                                |       |            |        |       |            |       |   |   |   |   |
| Interest                                                         |       | $               | 13,440,430  |       |            | $          | 7,915,332 |   | $ | 14,857,594 |   | $ | 13,515,920 |   |
| Income taxes paid (refunds received)                             |       | $               | 1,939,806   |       |            | $          | — |   | $ | (197,977 | ) | $ | (68,506 | ) |
|                                                             |       |            |        |       |            |       |   |   |   |   |
| Non-cash  transactions                                           |       |            |        |       |            |       |   |   |   |   |
| Restructuring transactions                                       |       |            |        |       |            |       |   |   |   |   |
| Assumption of PF Management debt                                 |       | $               | —      |       |            | $          | 14,274,050 |   | $ | — |   | $ | — |   |
| Assumption of deferred tax liability for  aircraft               |       | $               | —      |       |            | $          | 1,576,000 |   | $ | — |   | $ | — |   |
| Cancellation of note receivable                                  |       | $               | —      |       |            | $          | 993,247 |   | $ | — |   | $ | — |   |
| Cancellation of accrual to PF Purchasing                         |       | $               | —      |       |            | $          | 3,479,007 |   | $ | — |   | $ | — |   |
| Cancellation of accrual to PF Distribution                       |       | $               | —      |       |            | $          | 535,251 |   | $ | — |   | $ | — |   |
| Other                                                            |       | $               | —      |       |            | $          | 174,874 |   | $ | — |   | $ | — |   |
|                                                             |       |            |        |       |            |       |   |   |   |   |
| Acquisition transactions                                         |       |            |        |       |            |       |   |   |   |   |
| Elimination of Predecessor Pierre capital  and retained earnings |       | $               | 4,883,415   |       |            | $          | — |   | $ | — |   | $ | — |   |
| Cancellation of receivable from previous  Shareholder            |       | $               | 5,000,000   |       |            | $          | — |   | $ | — |   | $ | — |   |
| Distribution of plant, property and  equipment                   |       | $               | 8,476,080   |       |            | $          | — |   | $ | — |   | $ | — |   |
| Distribution of other current assets                             |       | $               | 9,255       |       |            | $          | — |   | $ | — |   | $ | — |   |
| Equity from parent                                               |       | $               | 250,087,097 |       |            | $          | — |   | $ | — |   | $ | — |   |
| Tax sharing liability to previous  shareholders                  |       | $               | 10,317,601  |       |            | $          | — |   | $ | — |   | $ | — |   |
| Valuation of goodwill and other intangibles                      |       | $               | 323,626,414 |       |            | $          | — |   | $ | — |   | $ | — |   |
| Deferred tax liability                                           |       | $               | 54,464,900  |       |            | $          | — |   | $ | — |   | $ | — |   |
| Adjustment of inventory to fair value                            |       | $               | 2,020,948   |       |            | $          | — |   | $ | — |   | $ | — |   |
| Adjustment of plant, property and equipment  to fair value       |       | $               | 4,438,984   |       |            | $          | — |   | $ | — |   | $ | — |   |
|                                                             |       |            |        |       |            |       |   |   |   |   |
| Other transactions                                               |       |            |        |       |            |       |   |   |   |   |
| Distribution to parent—tax benefit                          |       | $               | —      |       |            | $          | — |   | $ | 3,578,167 |   | $ | — |   |
| Capital lease additions                                          |       | $               | 247,536     |       |            | $          | 1,013,300 |   | $ | 273,208 |   | $ | 73,475 |   |
| Note issued for assets acquired                                  |       | $               | —      |       |            | $          | — |   | $ | — |   | $ | 270,983 |   |

 

F-25

----

** **

**16.  TRANSACTIONS WITH RELATED PARTIES**

 

**Successor Pierre**

 

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

 

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

 

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

 

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

 

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

 

•                  NorbertJ. Woodhams, one of the Company’s Vice Presidents, is the son of Norbert E.Woodhams.  Norbert E. Woodhams is theCompany’s President, Chief Executive Officer, Director and Chairman of theBoard.  In predecessor fiscal 2005 andsuccessor fiscal 2005 combined, Norbert J. Woodhams received a base salary ofninety-two thousand and seven hundred dollars and earned a bonus of forty-seventhousand and eight hundred dollars under the Company’s bonus plan.  The base salary and bonus earned by NorbertJ. Woodhams is consistent with the earnings of other Company employees withsimilar responsibilities.

 

**Predecessor Pierre**

 

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

 

•                  Columbia Hill Land Company, LLC, owned50% by each of Messrs. Richardson and Clark, leases office space to theCompany in Hickory, North Carolina, pursuant to a ten-year lease that commencedin September 1998.  Rents paid underthe lease were approximately $58,000 and $116,000 in predecessor fiscal 2005and predecessor fiscal 2004, respectively.

 

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

 

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

 

F-26

----

 

•                  On March 8, 2004 the Companytook title to an aircraft that was transferred from Columbia Hill Aviation, LLC(“CHA”), owned 100% by PFMI, subject to existing purchase money debt.  The aircraft was originally leased by theCompany from CHA beginning in the fourth quarter of predecessor fiscal2002.  Effective March 1, 2002, theoriginal lease was cancelled and replaced with a non-exclusive leaseagreement.  Pursuant to this new lease,the Company was obligated to make 16 quarterly lease payments of $471,500 eachfor the right to use the aircraft for up to 115 flight hours per quarter, basedon availability.  Under this leaseagreement, CHA was responsible for all expenses incurred in the operation ofthe use of the aircraft, except that the Company provided its own flightcrew.  During predecessor fiscal 2004 andpredecessor fiscal 2003, the Company paid CHA approximately $2.6 million and$3.2 million, respectively, in lease payments. CHA was not a subsidiary of the Company; however, the Company consideredCHA a non-independent special purpose leasing entity.  Accordingly, CHA’s financial condition,results of operations and cash flows have been included in the Company’sConsolidated Financial Statements included herein.  Under the terms of the operating lease withCHA, and the financing agreements between CHA and its creditor, the Company didnot maintain the legal rights of ownership to the aircraft, nor did CHA’screditor maintain any legal recourse to the Company.  Subsequently, as a result of the Acquisition,the aircraft was distributed to a former shareholder.

 

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

 

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

 

•                  Duringpredecessor fiscal 2004, PFMI owed the Company as much as $993,247 pursuant toa promissory note payable on demand and bearing interest at the primerate.  Prior to the Acquisition, PFMI wasowned in part by Messrs. Richardson and Clark, who have unconditionallyguaranteed repayment of the note.  As of March 8,2004, this note was forgiven in connection with the Fourth SupplementalIndenture.

 

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

 

•                  PF Purchasing, LLC (“PFP”), previously owned 100% byPFMI, served as the exclusive purchasing agent for the Company, pursuant to athree-year agreement that commenced September 3, 2001.  Under the agreement, PFP made an incentivepayment of $100,000 per quarter to the Company in consideration of the opportunityto act as exclusive purchasing agent, and in exchange was entitled to receiveall rebates or discounts receivable by Pierre from suppliers and vendors fororders negotiated and placed by PFP.  Inpredecessor fiscal 2004 and predecessor fiscal 2003, net fees paid to PFP wereapproximately $2,122,000 and $3,960,000, respectively.

 

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

 

F-27

----

 

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

 

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

 

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

 
| Assumption of PFMI debt                            |   | $          | (14,274,050 | ) |
|----------------------------------------------------|--------|------------|-------------|---|
| Accrued  liabilities to PFP cancelled              |   | 3,479,007  |        |
| Assumption  of deferred tax liability for aircraft |   | (1,576,000 | )           |
| Note  receivable cancelled                         |   | (993,247   | )           |
| Accrued liabilities  to PFD cancelled              |   | 535,251    |        |
| Cash  received                                     |   | 763,998    |        |
| Other                                              |   | (174,874   | )           |
| Total                                              |   | $          | (12,239,915 | ) |

 
| Allocated to  the following accounts: |   |    |       |
|---------------------------------------|--------|---------|------------|
| Retained  Earnings                    |   | $       | 11,900,276 |   |
| Common Stock                          |   | 339,639 |       |
| Total                                 |   | $       | 12,239,915 |   |

 

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

 

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

 

On June 30, 2004, inconjunction with the Acquisition, all previously existing related partytransactions were terminated as described in Note 1, “Basis of Presentation andAcquisition,” to the Consolidated Financial Statements.

 

F-28

----

 

**17.    RESTATEDQUARTERLY FINANCIAL INFORMATION (UNAUDITED)**

 

The followingquarterly financial information for the Company’s fiscal year 2005 is, by meansof this filing, being restated to reflect the following mistatements previouslyreported:  1)  the tax basis of assets assumed in connectionwith the Restructuring, 2)  the tax basisof assets and liabilities following the Acquisition, 3)  the classification of professional feesincurred in connection with the Acquisition and related debt transactions and4)  the calculation of depreciationexpense following the Acquisition.

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

 

F-29

----

 

**CONSOLIDATED BALANCE SHEETS:**

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

 

F-30

----

 

**SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)**

 
| ** **                                             | ** ** | **Predecessor**                                      | ** ** | ** **             | **Successor** | ** ** |
|--------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------|---------------|------------|
| ** **                                             | ** ** | ** **                                           | ** ** | **For the Period**     | ** **    | ** ** | **For the Period** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                             | ** ** | **Quarter**                                          | ** ** | **June 6, 2004**  | ** **    | ** ** | **July 1, 2004** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
| ** **                                             | ** ** | **Ended**                                            | ** ** | **Through**            | ** **    | ** ** | **Through** | ** ** | **Ended** | ** ** | **Ended** | ** ** |
| ** **                                             | ** ** | **June 5, 2004**                                | ** ** | **June 30, 2004** | ** **    | ** ** | **September 4, 2004** | ** ** | **December 4, 2004** | ** ** | **March 5, 2005** | ** ** |
| ** **                                             | ** ** | **(Dollars in thousands, except per share amounts)** | ** ** |
|                                                   |       |                                                 |       |                   |          |       |   |   |   |   |   |
| Revenues,  net                                         |       | $                                                    | 92,013     |                   | $             | 23,536     |   |   | $ | 75,439 |   | $ | 111,969 |   | $ | 107,459 |   |
| Costs and  expenses                                    |       | $                                                    | 87,410     |                   | $             | 27,948     |   |   | $ | 74,961 | * | $ | 104,134 | * | $ | 101,230 |   |
| Operating  income                                      |       | $                                                    | 4,604      |                   | $             | (4,412     | ) |   | $ | 478 | * | $ | 7,835 | * | $ | 6,229 |   |
| Net income  (loss)                                     |       | $                                                    | (121       | )                      | $             | (4,143     | ) |   | $ | (5,720 | )* | $ | 1,777 | * | $ | (386 | ) |
| Net ncome/(loss) per common share - basic  and diluted |       | $                                                    | (1.21      | )                      | $             | (41.43     | ) |   | $ | (57.20 | )* | $ | 17.77 | * | $ | (3.86 | ) |

 
| ** **                                             | ** ** | **Predecessor**    | ** ** |
|--------------------------------------------------------|------------|--------------------|------------|
| ** **                                             | ** ** | **Quarters Ended** | ** ** |
| ** **                                             | ** ** | **5/31/2003**      | ** ** | **8/30/2003** | ** ** | **11/29/2003** | ** ** | **3/6/2004** | ** ** |
|                                                   |       |               |       |   |   |   |   |   |   |
| Revenues,  net                                         |       | $                  | 81,480     |   | $ | 81,248 |   | $ | 93,825 |   | $ | 101,996 |   |
| Costs and  expenses                                    |       | $                  | 77,468     |   | $ | 78,338 |   | $ | 87,430 |   | $ | 95,597 |   |
| Operating  income                                      |       | $                  | 4,012      |   | $ | 2,910 |   | $ | 6,395 |   | $ | 6,399 |   |
| Net income  (loss)                                     |       | $                  | 376        |   | $ | (1,934 | ) | $ | 1,768 |   | $ | 1,224 |   |
| Net ncome/(loss) per common share - basic  and diluted |       | $                  | 3.76       |   | $ | (19.34 | ) | $ | 17.68 |   | $ | 12.24 |   |

 

----

*As restated; see Note 17.

 

F-31

----

 

REPORT OF MANAGEMENT

 

The managementof Pierre Foods, Inc. is responsible for the preparation and integrity of theconsolidated financial statements of the Company.  The financial statements and notes have beenprepared by the Company in accordance with accounting principles generallyaccepted in the United States of America and, in the judgment of management,present fairly and consistently the Company’s financial position and results ofoperations and cash flows.  The financialinformation contained elsewhere in this annual report is consistent with thatin the financial statements.  Thefinancial statements and other financial information in this annual reportinclude amounts that are based on management’s best estimates and judgments.

 

The Companymaintains a system of internal accounting controls to provide reasonableassurance that assets are safeguarded and that transactions are executed inaccordance with management’s authorization and recorded properly to permit thepreparation of financial statements in accordance with generally acceptedaccounting principles.

 

The Company’sfinancial statements have been audited by Deloitte & Touche LLP.  Management has made available to them all ofthe Company’s financial records and related data, and believes that allrepresentations made to Deloitte & Touche LLP during this audit were validand appropriate.

 

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

 

F-32

----