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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission File Number: 0-7277

PIERRE FOODS, INC.

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 (2) 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.

PIERRE FOODS, INC.

INDEX

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PIERRE FOODS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

     See accompanying notes to unaudited consolidated financial statements.

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     PIERRE FOODS, INC. AND SUBSIDIARIES

     See accompanying notes to unaudited consolidated financial statements.

4

PIERRE FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Retained Earnings

(Unaudited)

     See accompanying notes to unaudited consolidated financial statements.

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     See accompanying notes to unaudited consolidated financial statements.

6

PIERRE FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

     See accompanying notes to unaudited consolidated financial statements.

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See accompanying notes to unaudited consolidated financial statements.

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     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 May 31, 2003 and March 1, 2003, the results of operations for the thirteen weeks ended May 31, 2003 and June 1, 2002, and the cash flows of the Company for the thirteen weeks ended May 31, 2003 and June 1, 2002. The thirteen week period ended May 31, 2003 is referred to as “first quarter 2004” and the thirteen week period ended June 1, 2002 is referred to as “first quarter 2003.” Financial statement presentation used for the first quarter 2003 have been reclassified, where applicable, to conform to financial statement presentation used for the first quarter 2004.

     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 2004 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 1, 2003 audited consolidated financial statements and notes thereto.

2.		Inventories
		A summary of inventories, by major classifications, follows:

3.

Intangible Assets

     In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 142 (“SFAS 142”) “Goodwill and Other Intangible Assets,” which was effective for the fiscal year beginning March 3, 2002. SFAS 142 required, among other things, the discontinuance of goodwill amortization. In addition, the standard included provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. Upon the Company’s adoption of SFAS 142 on March 3, 2002, the Company ceased amortizing goodwill and indefinite-lived intangibles. Prior to the Company’s adoption of SFAS 142, Goodwill and other intangible assets were being amortized using the straight line method over a period of 30 years. Also effective March 3, 2002, the Company reclassified the value of its assembled workforce to goodwill.

     As prescribed under SFAS 142, the Company tested goodwill for impairment during fiscal 2003 using a two-step process. The Company utilized a valuation technique based on market values of publicly-traded equity, as adjusted, plus publicly-owned subordinated notes, which were determined in conjunction with the Management Buyout in fiscal 2003.

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At the date of adoption, management determined that the entire carrying amount of the goodwill balance was impaired. The carrying amount, $29,019,571, was written-off as the Cumulative Effect of an Accounting Change, net of income taxes of $10,415,037, in the statement of operations for the quarter ended June 1, 2002.

4.

Long-Term Debt

     Effective May 29, 2002, the Company obtained a five-year variable rate secured credit facility in an aggregate amount up to $50 million. The 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 May 31, 2003, the Company had borrowings under this facility of $14.8 million and borrowing availability of approximately $0.1 million. As of June 1, 2002, the Company had borrowings under this facility of $0.6 million and borrowing availability of approximately $18.2 million. In addition, at May 31, 2003 and June 1, 2002, the Company was in compliance with the financial covenants under this facility (see —Item 5 “Other Information”).

     The Company’s Chairman and Vice Chairman agreed to guarantee payment of the $50 million facility in exchange for guarantee fees to be paid annually in advance, equal to 1.5% each of the amount committed for lending under the facility. As of May 31, 2003, all guarantee fees previously paid were fully amortized, and no additional guarantee fees were paid.

     Subsequent to the end of First Quarter Fiscal 2004, effective August 13, 2003, the Company terminated its five-year variable-rate $50 million revolving credit facility. Existing debt issuance costs related to the Company’s former $50 million facility in the amount of $1.2 million were written off and charged to interest expense in conjunction with the termination of this facility. A prepayment penalty in the amount of $1 million was paid to the former lender and charged to interest expense, also in conjunction with the termination of this facility. Also effective August 13, 2003, the Company obtained a three year variable rate $40 million revolving credit facility from a new lender, which includes a $5 million real estate term loan subline, a $5 million equipment term loan subline and a $7.5 million letter of credit subfacility. Funds available under this new facility are available for working capital requirements, permitted investments and general corporate purposes. Borrowings under the new facility bear interest at floating rates based upon the interest rate option selected from time to time by the Company and are secured by a first-priority security interest in substantially all of the Company’s assets. The interest rate for borrowings under the new facility at August 13, 2003 was 5% (prime plus 1%). In addition, the Company is required to satisfy certain financial covenants regarding cash flow and capital expenditures. The Company’s Chairman and Vice Chairman did not guarantee payment of the new facility, nor are they receiving guarantee fees.

5.

Common Stock

     On July 26, 2002, PF Management, Inc. closed its management buyout of the Company. This going-private transaction resulted in the exchange of each share of common stock owned by a person other than PF Management for the right to receive $2.50 in cash. There were 5,781,480 shares issued and outstanding immediately before the closing. Of that amount, 2,151,268 shares were owned by persons other than PF Management. After the closing, the Company amended and restated its Articles of Incorporation to authorize the issuance of up to 100,000 shares of Class A common stock as the only authorized class of capital stock of the Company. All 100,000 shares of authorized common stock have been issued to PF Management. All per share amounts have been retroactively restated for all periods presented to reflect the transaction.

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6.

Comprehensive Income

     Total comprehensive income (loss) is comprised solely of net income (loss) in first quarter 2004 and first quarter 2003. Comprehensive income (loss) was $376,235 and ($18,718,136) for the first quarter 2004 and the first quarter 2003, respectively.

7.

Supplemental Cash Flow Disclosures - Cash Paid (Received) During the Period

8.

Recently Issued Accounting Guidance.

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

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

9.

Related Party Transactions

     At May 31, 2003, there were no significant changes in related party transactions from those described at March 1, 2003. However, as described in Part II, Item 5 of this report, Item 13 of the 10-K for the fiscal year ended March 1, 2003, as well as in Note 17 “Subsequent Events” in the Company’s annual report for the year ended March 1, 2003, on March 8, 2004 the Company and the Trustee under the Company’s Indenture executed a Fourth Supplemental Indenture and, pursuant to the terms of the Fourth Supplemental Indenture, the Company terminated substantially all of its related party transactions.

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Results of Operations

First Quarter 2004 Compared to First Quarter 2003

     Revenues, net. Net revenues increased by $19.6 million, or 31.7%. The increase in net revenues was primarily due to the substantial development of national business with an existing customer, short term co-packing operations and an increase in existing product lines.

     Cost of goods sold. Cost of goods sold increased by $16.0 million, or 39.7%. As a percentage of revenues, cost of goods sold increased from 65.1% to 69.0%. This increase primarily was due to a change in product mix to lower margin products, offset by lower fixed overhead due to increased production as a result of the Cincinnati plant expansion.

     Selling, general and administrative. Selling, general and administrative expenses increased by $2.5 million, or 14.3%, primarily due to an increase in distribution expense on higher product volumes. As a percentage of revenues, selling, general and administrative expenses decreased from 28.4% to 24.7%.

     Depreciation and amortization. Depreciation and amortization expense increased by $0.2 million, or 16.4%, due primarily to capital expenditures associated with the fiscal 2003 Cincinnati plant expansion.

     Other expense, net. The primary component of net other expense for first quarter 2004 and first quarter 2003 is interest expense. Interest expense consists primarily of interest on fixed and variable rate long-term debt (see - -— “Liquidity and Capital Resources” below). Net other expense increased by $0.2 million or 7.6% in first quarter 2004.

     Income taxes. The effective tax rate for first quarter 2004 was 33.3% compared to 32.2% for first quarter 2003. The increase in the effective tax rate is due primarily to the effects of permanent differences and compensation deduction limitations in fiscal 2003.

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Critical Accounting Policies and Estimates

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

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

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

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

     Goodwill and Other Intangible Assets. During fiscal 2003, upon adoption of SFAS 142, the Company determined that the entire carrying amount of the goodwill balance was impaired. The carrying amount, $29,019,571, net was written-off at March 3, 2002 as the Cumulative Effect of an Accounting Change, net of income taxes of $10,415,037 in the statement of operations.

     Promotions. Promotional expenses associated with rebates, marketing promotions and special pricing arrangements are recorded as a redu