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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 August 30, 2003

          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

(Former name or former address, if changed since last report)

     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.

     
Yes [X]   No [  ]

     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 November 15, 2003
 
Class A Common Stock   100,000

 

 

PIERRE FOODS, INC.

INDEX

             
        Page No.
       
Part I. Financial Information:
        
Item 1. Financial Statements
        
 
Consolidated Balance Sheets - August 30, 2003 and March 1, 2003
     3 - 4  
 
Consolidated Statements of Operations and Retained Earnings - Thirteen Weeks Ended August 30, 2003 and Thirteen Weeks Ended August 31, 2002
     5 - 6  
 
Consolidated Statements of Operations and Retained Earnings - Twenty-Six Weeks Ended August 30, 2003 and Twenty-Six Weeks Ended August 31, 2002
     7 - 8  
 
Consolidated Statements of Cash Flows - Twenty-Six Weeks Ended August 30, 2003 and Twenty-Six Weeks Ended August 31, 2002
     9 - 10  
 
Notes to Consolidated Financial Statements
     11 - 13  
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
     14 - 18  
Item 3. Quantitative and Qualitative Disclosures About Market Risk
     19  
Item 4. Controls and Procedures
    20  
Part II. Other Information:
        
Item 5. Other Information
     21 - 23  
Item 6. Exhibits and Reports on Form 8-K
     24  
 
Signatures
     25  
 
Index to Exhibits
     26 - 27  

2

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PIERRE FOODS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

                     
        (Unaudited)        
        August 30, 2003   March 1, 2003
       
 
ASSETS
                
CURRENT ASSETS:
                
 
Cash and cash equivalents
   $ 146,977     $ 274,329  
 
Certificates of deposit of special purpose entity
     1,240,000       1,240,000  
 
Accounts receivable, net
     24,759,993       23,654,358  
 
Inventories
     34,644,667       32,584,777  
 
Refundable income taxes
     818,941       165,829  
 
Deferred income taxes
     2,642,526       2,642,526  
 
Prepaid expenses and other current assets (includes prepayments to related parties of $375,000 at March 1, 2003)
     1,758,015       3,264,746  
 
 
    
     
 
   
Total current assets
     66,011,119       63,826,565  
 
    
     
 
PROPERTY, PLANT AND EQUIPMENT, NET
     60,562,108       55,549,083  
 
    
     
 
OTHER ASSETS:
                
 
Trade name, net
     38,808,636       38,808,636  
 
Note receivable – related party
     993,247       993,247  
 
Deferred income taxes
     6,283,871       6,283,871  
 
Deferred loan origination fees, net
     1,920,139       2,950,109  
 
Other
     333,788       369,500  
 
    
     
 
   
Total other assets
     48,339,681       49,405,363  
 
    
     
 
   
Total Assets
   $ 174,912,908     $ 168,781,011  
 
    
     
 

     See accompanying notes to unaudited consolidated financial statements.

3

 

PIERRE FOODS, INC. AND SUBSIDIARIES

                     
        (Unaudited)        
        August 30, 2003   March 1, 2003
       
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
CURRENT LIABILITIES:
                
 
Current installments of long-term debt
   $ 377,155     $ 369,467  
 
Trade accounts payable
     6,531,221       9,422,256  
 
Accrued interest
     3,039,959       3,056,662  
 
Accrued payroll and payroll taxes
     5,706,695       5,929,464  
 
Accrued promotions
     3,016,592       2,280,788  
 
Accrued taxes (other than income and payroll)
     899,725       561,642  
 
Other accrued liabilities (includes related party liabilities of $4,527,040 and $425,330 at August 30, 2003 and March 1, 2003, respectively)
     5,685,580       1,490,086  
 
 
    
     
 
   
Total current liabilities
     25,256,927       23,110,365  
 
    
     
 
LONG-TERM DEBT, less current installments
     136,494,023       130,387,174  
 
    
     
 
OBLIGATION OF SPECIAL PURPOSE ENTITY
     5,440,710       5,591,813  
 
    
     
 
OTHER LONG-TERM LIABILITIES
     514,219       693,750  
 
    
     
 
SHAREHOLDERS’ EQUITY:
                
 
Common stock – Class A, 100,000 shares authorized, issued and outstanding at August 30, 2003 and March 1, 2003
     29,438,172       29,438,172  
 
Retained earnings (deficit)
     (17,231,143 )     (15,440,263 )
 
Note receivable – related party
     (5,000,000 )     (5,000,000 )
 
    
     
 
   
Total shareholders’ equity
     7,207,029       8,997,909  
 
    
     
 
   
Total Liabilities and Shareholders’ Equity
   $ 174,912,908     $ 168,781,011  
 
    
     
 

See accompanying notes to unaudited consolidated financial statements.

4

 

PIERRE FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Retained Earnings

(Unaudited)

                         
            Thirteen Weeks Ended
           
            August 30, 2003   August 31, 2002
           
 
REVENUES
   $ 81,248,052     $ 61,843,102  
 
    
     
 
COSTS AND EXPENSES:
                
 
Cost of goods sold (includes related party transactions totaling $1,089,235 and $1,013,356 in fiscal 2004 and fiscal 2003, respectively)
     58,209,167       40,979,098  
 
Selling, general and administrative expenses (includes related party transactions totaling $7,568,055 and $6,449,381 in fiscal 2004 and fiscal 2003, respectively)
     18,964,282       17,309,562  
 
(Gain) loss on disposition of property, plant and equipment, net
     632       (13,000 )
 
Depreciation
     1,164,222       978,693  
 
    
     
 
     
Total costs and expenses
     78,338,303       59,254,353  
 
    
     
 
OPERATING INCOME
     2,909,749       2,588,749  
 
    
     
 
OTHER INCOME (EXPENSE):
                
 
Interest expense
     (5,883,160 )     (3,615,736 )
 
Other income, net - (including interest) (includes related party income of $192,484 in fiscal 2003)
     —       213,616  
 
    
     
 
       
Other expense, net
     (5,883,160 )     (3,402,120 )
 
    
     
 
LOSS BEFORE INCOME TAX BENEFIT
     (2,973,411 )     (813,371 )
INCOME TAX BENEFIT
     1,039,296       142,233  
 
    
     
 
NET LOSS
   $ (1,934,115 )   $ (671,138 )
 
    
     
 

See accompanying notes to unaudited consolidated financial statements.

5

 

                         
            Thirteen Weeks Ended
           
            August 30, 2003   August 31, 2002
           
 
RETAINED EARNINGS (DEFICIT):
                
 
Balance at beginning of period
   $ (15,250,028 )   $ (15,949,291 )
 
Net loss
     (1,934,115 )     (671,138 )
 
Distributions of special purpose leasing entity
     (47,000 )     (1,009,196 )
 
    
     
 
 
Balance at end of period
   $ (17,231,143 )   $ (17,629,625 )
 
    
     
 
NET LOSS PER COMMON SHARE – BASIC AND DILUTED
   $ (19.34 )   $ (6.71 )
 
    
     
 
WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC AND DILUTED
     100,000       100,000  

See accompanying notes to unaudited consolidated financial statements.

6

 

PIERRE FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Retained Earnings

(Unaudited)

                       
          Twenty-Six Weeks Ended
         
          August 30, 2003   August 31, 2002
         
 
REVENUES
   $ 162,727,921     $ 123,721,531  
 
    
     
 
COSTS AND EXPENSES:
                
 
Cost of goods sold (includes related party transactions totaling $2,529,440 and $2,200,157 in fiscal 2004 and fiscal 2003, respectively)
     114,429,082       81,231,933  
 
Selling, general and administrative expenses (includes related party transactions totaling $15,408,207 and $12,748,123 in fiscal 2004 and fiscal 2003, respectively)
     39,061,557       34,886,063  
 
Loss on disposition of property, plant and equipment, net
     632       10,408  
 
Depreciation
     2,314,979       1,967,360  
 
    
     
 
   
Total costs and expenses
     155,806,250       118,095,764  
 
    
     
 
OPERATING INCOME
     6,921,671       5,625,767  
 
    
     
 
OTHER INCOME (EXPENSE):
                
 
Interest expense
     (9,330,640 )     (7,033,251 )
 
Other income, net - (including interest) (includes related party income of $387,484 in fiscal 2003)
     —       426,558  
 
    
     
 
     
Other expense, net
     (9,330,640 )     (6,606,693 )
 
    
     
 
LOSS BEFORE INCOME TAX BENEFIT AND CUMMULATIVE EFFECT OF ACCOUNTING CHANGE
     (2,408,969 )     (980,926 )
INCOME TAX BENEFIT
     851,089       196,186  
 
    
     
 
LOSS BEFORE CUMMULATIVE EFFECT OF ACCOUNTING CHANGE
     (1,557,880 )     (784,740 )
CUMMULATIVE EFFECT OF ACCOUNTING CHANGE (net of income tax benefit of $10,415,037 in fiscal 2003)
     —       (18,604,534 )
 
    
     
 
NET LOSS
   $ (1,557,880 )   $ (19,389,274 )
 
    
     
 

See accompanying notes to unaudited consolidated financial statements.

7

 

                       
          Twenty-Six Weeks Ended
         
          August 30, 2003   August 31, 2002
         
 
RETAINED EARNINGS (DEFICIT):
                
 
Balance at beginning of period
   $ (15,440,263 )   $ 2,768,845  
 
Net loss
     (1,557,880 )     (19,389,274 )
 
Distributions of special purpose leasing entity
     (233,000 )     (1,009,196 )
 
    
     
 
 
Balance at end of period
   $ (17,231,143 )   $ (17,629,625 )
 
    
     
 
NET INCOME PER COMMON SHARE – BASIC AND DILUTED
                
 
Loss before cumulative effect of accounting change
   $ (15.58 )   $ (7.85 )
 
Cumulative effect of accounting change
     —       (186.05 )
 
    
     
 
 
Net loss
   $ (15.58 )   $ (193.90 )
 
    
     
 
WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC AND DILUTED
     100,000       100,000  

See accompanying notes to unaudited consolidated financial statements.

8

 

PIERRE FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

                         
            Twenty-Six Weeks Ended
           
            August 30, 2003   August 31, 2002
           
 
CASH FLOWS FROM OPERATING ACTIVITIES
                
 
Net loss
   $ (1,557,880 )   $ (19,389,274 )
 
 
    
     
 
 
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
                
     
Cumulative effect of accounting change
     —       18,604,534  
     
Depreciation
     2,314,979       1,967,360  
     
Amortization of deferred loan origination fees
     416,637       339,420  
     
Write-off of deferred loan origination fees
     1,233,530       —  
     
Loss on disposition of property, plant and equipment, net
     632       10,408  
     
Decrease in other assets
     35,716       35,717  
     
Decrease in other long-term liabilities
     (179,531 )     (166,433 )
     
Changes in operating assets and liabilities:
                
       
Receivables
     (1,105,635 )     (1,876,550 )
       
Inventories
     (2,059,890 )     (9,852,094 )
       
Refundable income taxes, prepaid expenses and other current assets
     853,617       (1,938,712 )
       
Trade accounts payable and other accrued liabilities
     2,138,874       2,995,353  
 
    
     
 
       
Total adjustments
     3,648,929       10,119,003  
 
    
     
 
       
Net cash provided by (used in) operating activities
     2,091,049       (9,270,271 )
 
    
     
 
CASH FLOWS FROM INVESTING ACTIVITIES
                
 
Proceeds from sales of property, plant and equipment
     500       43,000  
 
Capital expenditures
     (7,329,138 )     (8,828,745 )
 
    
     
 
       
Net cash used in investing activities
     (7,328,638 )     (8,785,745 )
 
    
     
 

See accompanying notes to unaudited consolidated financial statements.

9

 

                         
            Twenty-Six Weeks Ended
           
            August 30, 2003   August 31, 2002
           
 
CASH FLOWS FROM FINANCING ACTIVITIES
                
   
Repayment of revolving credit agreement with former lender
   $ (15,085,146 )   $ —  
   
Net borrowings under new revolving credit agreement
     21,109,082       16,249,527  
   
Principal payments on long-term debt
     (60,502 )     (93,061 )
   
Loan origination fees
     (620,197 )     (1,583,467 )
   
Distributions by special purpose leasing entity
     (233,000 )     (1,009,196 )
 
    
     
 
       
Net cash provided by financing activities
     5,110,237       13,563,803  
 
    
     
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
     (127,352 )     (4,492,213 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
     274,329       4,577,982  
 
    
     
 
CASH AND CASH EQUIVALENTS, END OF PERIOD
   $ 146,977     $ 85,769  
 
    
     
 

See accompanying notes to unaudited consolidated financial statements.

10

 

PIERRE FOODS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

1. Basis of Presentation

     The financial information as of March 1, 2003, included in these financial statements has been derived from the audited consolidated financial statements included in that report. 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 August 30, 2003 and March 1, 2003, the results of operations for the thirteen weeks and twenty-six weeks ended August 30, 2003 and August 31, 2002, and the cash flows of the Company for the twenty-six weeks ended August 30, 2003 and August 31, 2002. The thirteen week period ended August 30, 2003 is referred to as “second quarter 2004” and the thirteen week period ended August 31, 2002 is referred to as “second quarter 2003.” Financial statement presentation used for the year-to-date period ended August 31, 2002 (“fiscal 2003”) have been reclassified, where applicable, to conform to financial statement presentation used for the year-to-date period ended August 30, 2003 (“fiscal 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 fiscal 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:

                   
      August 30, 2003   March 1, 2003
     
 
Manufacturing supplies
   $</