UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended June 1, 2002 | ||
| OR | ||
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transaction period from _______________ to _______________ |
Commission File Number: 0-7277
PIERRE FOODS, INC.
(Exact name of registrant as specified in its charter)
North Carolina
(State or other jurisdiction of incorporation or organization)
56-0945643
(I.R.S. Employer Identification No.)
9990 Princeton Road
Cincinnati, Ohio 45246
(Address of principal executive offices) (zip code)
Registrant’s telephone number, including area code: (513) 874-8741
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (3) has been subject to such filing requirements for the past 90 days.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at July 15, 2002 | ||||
| Common Stock, no par value | 5,781,480 | ||||
PIERRE FOODS, INC.
INDEX
| Page No. | |||||
Part I. Financial Information: |
|||||
Item 1. Financial Statements |
|||||
Consolidated Balance Sheets —
June 1, 2002 and March 2, 2002 |
1-2 | ||||
Consolidated Statements of Operations and Retained Earnings —
Thirteen Weeks Ended June 1, 2002 and Thirteen Weeks Ended June 2, 2001 |
3-4 | ||||
Consolidated Statements of Cash Flows —
Thirteen Weeks Ended June 1, 2002 and Thirteen Weeks Ended June 2, 2001 |
5-6 | ||||
Notes to Consolidated Financial Statements |
7-10 | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations |
11-13 | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
14 | ||||
Part II. Other Information: |
|||||
Item 6. Exhibits and Reports on Form 8-K |
15 | ||||
Signatures |
16 | ||||
Index to Exhibits |
17 | ||||
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PIERRE FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
| (Unaudited) | ||||||||||
| June 1, 2002 | March 2, 2002 | |||||||||
ASSETS |
||||||||||
CURRENT ASSETS: |
||||||||||
Cash and cash equivalents |
$ | 64,351 | $ | 4,577,982 | ||||||
Certificates of deposit of special purpose entity |
1,240,000 | 1,240,000 | ||||||||
Accounts receivable, net (includes related party receivables of
$195,000 and employee receivables of $465,000 in fiscal
2003) |
18,510,190 | 21,469,035 | ||||||||
Inventories |
31,386,151 | 23,852,855 | ||||||||
Refundable income taxes |
56,675 | 70,622 | ||||||||
Deferred income taxes |
2,349,617 | 2,349,617 | ||||||||
Prepaid expenses and other current assets |
2,116,307 | 1,624,161 | ||||||||
Total current assets |
55,723,291 | 55,184,272 | ||||||||
PROPERTY, PLANT AND EQUIPMENT, NET |
44,197,045 | 43,281,303 | ||||||||
OTHER ASSETS: |
||||||||||
Trade name, net |
38,808,636 | 38,808,636 | ||||||||
Goodwill, net |
29,019,571 | 29,019,571 | ||||||||
Notes receivable – related party |
993,247 | 993,247 | ||||||||
Deferred loan origination fees, net |
3,514,365 | 2,092,904 | ||||||||
Other |
423,072 | 440,931 | ||||||||
Total other assets |
72,758,891 | 71,355,289 | ||||||||
Total Assets |
$ | 172,679,227 | $ | 169,820,864 | ||||||
See accompanying notes to unaudited consolidated financial statements.
1
PIERRE FOODS, INC. AND SUBSIDIARIES
| (Unaudited) | ||||||||||
| June 1, 2002 | March 2, 2002 | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||
CURRENT LIABILITIES: |
||||||||||
Current installments of long-term debt |
$ | 328,848 | $ | 325,071 | ||||||
Trade accounts payable |
4,440,936 | 4,972,870 | ||||||||
Accrued interest |
6,181,250 | 3,090,624 | ||||||||
Accrued payroll and payroll taxes |
4,033,247 | 6,077,062 | ||||||||
Accrued promotions |
2,137,036 | 1,943,479 | ||||||||
Accrued taxes (other than income and payroll) |
733,341 | 566,677 | ||||||||
Other accrued liabilities (includes related party liabilities of
$2,085,265 at June 1, 2002) |
3,089,021 | 1,147,558 | ||||||||
Total current liabilities |
20,943,679 | 18,123,341 | ||||||||
LONG-TERM DEBT, less current installments |
115,605,593 | 115,047,605 | ||||||||
OBLIGATION OF SPECIAL PURPOSE ENTITY |
5,854,800 | 5,858,139 | ||||||||
OTHER LONG-TERM LIABILITIES |
950,268 | 1,032,696 | ||||||||
DEFERRED INCOME TAXES |
2,552,066 | 2,552,066 | ||||||||
SHAREHOLDERS’ EQUITY: |
||||||||||
Preferred stock – par value $.10, authorized 2,500,000 shares; no
shares issued |
— | — | ||||||||
Common stock – no par value, authorized 100,000,000 shares;
issued and outstanding June 1, 2002 and March 2, 2002 –
5,781,480 shares |
5,781,480 | 5,781,480 | ||||||||
Additional paid in capital |
23,336,098 | 23,656,692 | ||||||||
Retained earnings |
2,655,243 | 2,768,845 | ||||||||
Note receivable – related party |
(5,000,000 | ) | (5,000,000 | ) | ||||||
Total shareholders’ equity |
26,772,821 | 27,207,017 | ||||||||
Total Liabilities and Shareholders’ Equity |
$ | 172,679,227 | $ | 169,820,864 | ||||||
See accompanying notes to unaudited consolidated financial statements.
2
PIERRE FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings
(Unaudited)
| Thirteen Weeks Ended | |||||||||||
| June 1, 2002 | June 2, 2001 | ||||||||||
REVENUES |
$ | 61,760,799 | $ | 50,825,924 | |||||||
COSTS AND EXPENSES: |
|||||||||||
Cost of goods sold (includes related party transactions totaling
$1,186,801 in fiscal 2003) |
40,252,835 | 33,256,065 | |||||||||
Selling, general and administrative expenses (includes related
party transactions totaling $6,298,742 and $1,438,063 in fiscal
2003 and fiscal 2002, respectively) |
17,458,871 | 14,310,961 | |||||||||
Loss on disposition of property, plant and equipment, net |
23,408 | — | |||||||||
Depreciation and amortization |
988,667 | 1,581,620 | |||||||||
Total costs and expenses |
58,723,781 | 49,148,646 | |||||||||
OPERATING INCOME |
3,037,018 | 1,677,278 | |||||||||
OTHER INCOME (EXPENSE): |
|||||||||||
Interest expense |
(3,417,515 | ) | (3,275,357 | ) | |||||||
Other income, net — (including interest) (includes related
party income of $195,000 and $14,551 in fiscal 2003 and 2002,
respectively) |
212,942 | 76,809 | |||||||||
Other expense, net |
(3,204,573 | ) | (3,198,548 | ) | |||||||
LOSS BEFORE INCOME TAX BENEFIT |
(167,555 | ) | (1,521,270 | ) | |||||||
INCOME TAX BENEFIT |
53,953 | 760,635 | |||||||||
NET LOSS |
$ | (113,602 | ) | $ | (760,635 | ) | |||||
See accompanying notes to unaudited consolidated financial statements.
3
RETAINED EARNINGS: |
|||||||||
Balance at beginning of period |
$ | 2,768,845 | $ | 2,768,265 | |||||
Net loss |
(113,602 | ) | (760,635 | ) | |||||
Balance at end of period |
$ | 2,655,243 | $ | 2,007,630 | |||||
| |
|||||||||
NET LOSS PER COMMON SHARE – BASIC AND
DILUTED |
$ | (.02 | ) | $ | (.13 | ) | |||
| |
|||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC AND
DILUTED |
5,781,480 | 5,781,480 | |||||||
See accompanying notes to unaudited consolidated financial statements.
4
PIERRE FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
| Thirteen Weeks Ended | ||||||||||||
| June 1, 2002 | June 2, 2001 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||
Net loss |
$ | (113,602 | ) | $ | (760,635 | ) | ||||||
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities: |
||||||||||||
Depreciation and amortization |
988,667 | 1,581,620 | ||||||||||
Amortization of deferred loan origination fees |
137,150 | 131,966 | ||||||||||
Loss on disposition of property, plant and equipment, net |
23,408 | |||||||||||
Decrease in other assets |
17,859 | — | ||||||||||
Decrease in other long-term liabilities |
(82,428 | ) | (76,414 | ) | ||||||||
Changes in operating assets and liabilities: |
||||||||||||
Receivables |
2,958,845 | 2,290,651 | ||||||||||
Inventories |
(7,533,296 | ) | (2,428,612 | ) | ||||||||
Refundable income taxes, prepaid expenses and other
current assets |
(478,199 | ) | (1,168,646 | ) | ||||||||
Trade accounts payable and other accrued liabilities |
2,816,561 | (3,733,816 | ) | |||||||||
Total adjustments |
(1,151,433 | ) | (3,403,251 | ) | ||||||||
Net cash used in operating activities |
(1,265,035 | ) | (4,163,886 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||||||
Proceeds from sales of property, plant and equipment |
30,000 | — | ||||||||||
Capital expenditures |
(1,957,817 | ) | (808,855 | ) | ||||||||
Net cash used in investing activities |
(1,927,817 | ) | (808,855 | ) | ||||||||
See accompanying notes to unaudited consolidated financial statements.
5
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||
Net borrowings under revolving credit agreement |
659,319 | 3,192,822 | ||||||||
Principal payments on long-term debt |
(100,893 | ) | (33,266 | ) | ||||||
Loan origination fees |
(1,558,611 | ) | — | |||||||
Distributions by special purpose leasing entity |
(320,594 | ) | — | |||||||
Net cash provided by (used in) financing activities |
(1,320,779 | ) | 3,159,556 | |||||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(4,513,631 | ) | (1,813,185 | ) | ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
4,577,982 | 1,813,185 | ||||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 64,351 | $ | — | ||||||
See accompanying notes to unaudited consolidated financial statements.
6
PIERRE FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of June 1, 2002 and March 2, 2002, the results of operations for the thirteen weeks ended June 1, 2002 and June 2, 2001, and the cash flows of the Company for the thirteen weeks ended June 1, 2002 and June 2, 2001. Financial statements for the thirteen weeks ended June 2, 2001 have been reclassified, where applicable, to conform to financial statement presentation used for the thirteen weeks ended June 1, 2002. The thirteen week period ended June 1, 2002 is referred to as “first quarter 2003” and the thirteen week period ended June 2, 2001 is referred to as “first quarter 2002.”
The Company reports the results of its operations using a 52-53 week basis. In line with this, each quarter of the fiscal year will contain 13 weeks except for the infrequent fiscal years with 53 weeks.
The results of interim operations for first quarter 2003 are not necessarily indicative of the results to be expected for the full fiscal year. These interim unaudited consolidated financial statements should be read in conjunction with the Company’s March 2, 2002 audited consolidated financial statements and notes thereto.
2. Inventories
A summary of inventories, by major classifications, follows:
| June 1, 2002 | March 2, 2002 | ||||||||
Manufacturing supplies |
$ | 1,351,961 | $ | 1,199,647 | |||||
Raw materials |
5,531,152 | 4,975,188 | |||||||
Finished goods |
24,503,038 | 17,678,020 | |||||||
Total |
$ | 31,386,151 | $ | 23,852,855 | |||||
3. Intangible Assets
The Company adopted FASB Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets,” effective March 3, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption, which will occur during the Company’s second quarter ending August 31, 2002. Any impairment loss resulting from the transitional impairment test would be recorded as a cumulative effect of a change in accounting principle effective March 3, 2002. Accordingly, the financial statements for first quarter 2003 would be restated for any such impairment loss.
The Company is currently assessing the impact of SFAS 142 on its financial position and results of operation. As a result, the assembled work force, with an amortized balance of $2,171,067 at June 1, 2002, was reclassified as goodwill. In addition, there are indications that the revised goodwill amount of $29,019,571 may be impaired. The
7
reason for the potential impairment loss is the result of the change (effective March 3, 2002) in the evaluation criteria for goodwill from an undiscounted cash flow approach, which was previously utilized under the guidance in Accounting Principles Board Opinion No. 17, to the fair value approach which is stipulated in SFAS 142. The intangible asset established for trade name is deemed to have an indefinite life because the trade name is expected to generate cashflows indefinitely. Accordingly, as required by SFAS 142, amortization of both goodwill and tradename has been discontinued. The assessment of the impact of SFAS 142 will be completed by second quarter ending August 31, 2002.
As of June 1, 2002, the Company had the following acquired intangible assets recorded:
| June 1, 2002 | June 1, 2002 | June 1, 2002 | ||||||||||||
| Gross Carrying | Accumulated | Net Carrying | ||||||||||||
| Amount | Amortization | Amount | ||||||||||||
Goodwill |
$ | 33,571,687 | $ | (4,552,116 | ) | $ | 29,019,571 | |||||||
Intangible assets with
indefinite lives: |
||||||||||||||
Trade name |
$ | 44,340,000 | $ | (5,531,364 | ) | $ | 38,808,636 | |||||||
Total |
$ | 77,911,687 | $ | (10,083,480 | ) | $ | 67,282,207 | |||||||
As required by SFAS 142, the results for first quarter 2002 have not been restated. The table below presents the effect on net loss and loss per share as if SFAS 142 had been in effect for first quarter 2002:
| Thirteen | Thirteen | ||||||||
| Weeks Ended | Weeks Ended | ||||||||
| June 1, 2002 | June 2, 2001 | ||||||||
Reported net loss |
$ | (113,602 | ) | $ | (760,635 | ) | |||
Add back: |
|||||||||
Goodwill and tradename amortization (net of tax) |
— | 336,688 | |||||||
Adjusted net loss |
$ | (113,602 | ) | $ | (423,947 | ) | |||
Basic and diluted net loss per share: |
|||||||||
Reported net loss |
$ | (.02 | ) | $ | (.13 | ) | |||
Adjusted net loss |
$ | (.02 | ) | $ | (.07 | ) | |||
8
4. Long-Term Debt
Effective May 29, 2002, the Company terminated its $25 million credit facility, and obtained a new five-year variable rate secured credit facility in an aggregate amount up to $50 million. The new facility includes a $16 million term loan subline, a $10 million capital expenditures subline and a $7 million letter of credit subfacility. The collateral for the facility includes substantially all of the Company’s assets. As of June 1, 2002, the Company had borrowings under this new facility of $.6 million and borrowing availability of approximately $18.2 million. As of June 2, 2001, the Company had borrowings under its former $25 million credit facility of $3.2 million and borrowing availability of approximately $18.4 million. In addition, at June 1, 2002 and June 2, 2001, the Company was in compliance with the financial covenants under each facility.
The Company’s Chairman and Vice Chairman agreed to guarantee payment of the new $50 million facility in exchange for guarantee fees to be paid annually, equal to 1.5% each of the amount committed for lending under the facility. As of June 1, 2002, no payments had been made under these agreements.
5. Comprehensive Income
Total comprehensive loss is comprised solely of the net loss in fiscal 2003 and fiscal 2002. Comprehensive loss was $113,602 and $760,635 for first quarter 2003 and first quarter 2002, respectively.
6. Supplemental cash flow disclosures — cash paid (received) during the period
| Thirteen | Thirteen | |||||||
| Weeks Ended | Weeks Ended | |||||||
| June 1, 2002 | June 2, 2001 | |||||||