10-Q 1 g72163e10-q.txt PIERRE FOODS INC 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 September 1, 2001 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 (3) 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 October 1, 2001 ----- ------------------------------ 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 - September 1, 2001 and March 3, 2001.................................... 1 - 2 Consolidated Statements of Operations and Retained Earnings - Thirteen Weeks Ended September 1, 2001 and Thirteen Weeks Ended September 2, 2000............................ 3 - 4 Consolidated Statements of Operations and Retained Earnings - Twenty-Six Weeks Ended September 1, 2001 and Twenty-Six Weeks Ended September 2, 2000.......................... 5 - 6 Consolidated Statements of Cash Flows - Twenty-Six Weeks Ended September 1, 2001 and Twenty-Six Weeks Ended September 2, 2000.............................. 7 - 8 Notes to Consolidated Financial Statements............................................................ 9 - 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...............12 - 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 16 PART II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K............................... 17 Signatures........................................................... 18 Index to Exhibits.................................................... 19 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PIERRE FOODS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(Unaudited) September 1, 2001 March 3, 2001 ----------------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ -- $ 1,813,185 Accounts receivable, net (includes related party receivables of $258,653 and $229,551 at September 1, 2001 and March 3, 2001, respectively) 20,461,671 18,427,453 Inventories 30,720,079 26,804,063 Refundable income taxes 1,947,667 1,292,667 Deferred income taxes 2,174,642 2,174,642 Prepaid expenses and other current assets (includes related party prepaid expenses of $350,000 at September 1, 2001) 1,531,458 1,033,015 ----------------- ------------- Total current assets 56,835,517 51,545,025 ----------------- ------------- PROPERTY, PLANT AND EQUIPMENT, NET 35,692,334 34,916,493 ----------------- ------------- OTHER ASSETS: Trade name, net 39,547,636 40,286,636 Excess of cost over fair value of net assets of businesses acquired, net 27,359,809 27,871,114 Other intangible assets, net 2,267,510 2,363,956 Notes receivable - related party 705,493 705,493 Deferred loan origination fees, net 2,355,347 2,619,157 Other 482,142 -- ----------------- ------------- Total other assets 72,717,937 73,846,356 ----------------- ------------- Total Assets $ 165,245,788 $ 160,307,874 ================= =============
See accompanying notes to unaudited consolidated financial statements. 1 PIERRE FOODS, INC. AND SUBSIDIARIES
(Unaudited) September 1, 2001 March 3, 2001 ----------------- ------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current installments of long-term debt $ 47,443 $ 67,631 Trade accounts payable 5,842,457 5,368,066 Accrued interest 3,107,515 3,153,280 Accrued payroll and payroll taxes 5,010,587 3,915,799 Accrued promotions (includes related party payables of $32,833 at March 3, 2001) 1,292,321 1,926,650 Accrued taxes (other than income and payroll) 355,982 584,206 Other accrued liabilities 1,029,525 409,835 ------------- ------------- Total current liabilities 16,685,830 15,425,467 ------------- ------------- LONG-TERM DEBT, less current installments 119,940,937 115,097,291 ------------- ------------- OTHER LONG-TERM LIABILITIES 1,192,942 1,347,231 ------------- ------------- DEFERRED INCOME TAXES 1,571,087 1,571,087 ------------- ------------- 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 September 1, 2001 - 5,781,480 shares and March 3, 2001 - 5,781,480 shares 5,781,480 5,781,480 Additional paid in capital 23,317,053 23,317,053 Retained earnings 1,756,459 2,768,265 Note receivable - related party (5,000,000) (5,000,000) ------------- ------------- Total shareholders' equity 25,854,992 26,866,798 ------------- ------------- Total Liabilities and Shareholders' Equity $ 165,245,788 $ 160,307,874 ============= =============
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 -------------------- September 1, 2001 September 2, 2000 ----------------- ----------------- REVENUES $ 57,839,217 $ 47,151,034 ----------------- ----------------- COSTS AND EXPENSES: Cost of goods sold 38,454,858 31,012,505 Selling, general and administrative expenses (includes related party transactions totaling $686,978 and $464,166 in fiscal 2002 and fiscal 2001, respectively) 15,043,653 12,833,693 Loss on disposition of property, plant and equipment, net 13,557 22,505 Depreciation and amortization 1,553,815 1,560,934 ----------------- ----------------- Total costs and expenses 55,065,883 45,429,637 ----------------- ----------------- OPERATING INCOME 2,773,334 1,721,397 ----------------- ----------------- OTHER INCOME (EXPENSE): Interest expense (3,292,574) (3,398,530) Other income, net - (including interest) (includes related party income totaling $14,551 and $17,981 in fiscal 2002 and fiscal 2001, respectively) 16,898 73,860 ----------------- ----------------- Other expense, net (3,275,676) (3,324,670) ----------------- ----------------- LOSS BEFORE INCOME TAX BENEFIT (502,342) (1,603,273) INCOME TAX BENEFIT 251,171 580,387 ----------------- ----------------- NET LOSS $ (251,171) $ (1,022,886) ================= =================
3 RETAINED EARNINGS: Balance at beginning of period $ 2,007,630 $ 5,535,702 Net loss (251,171) (1,022,886) ----------- ----------- Balance at end of period $ 1,756,459 $ 4,512,816 =========== =========== NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (.04) $ (.18) WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 5,781,480 5,781,437
See accompanying notes to unaudited consolidated financial statements. 4 PIERRE FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (Unaudited)
Twenty-Six Weeks Ended ---------------------- September 1, 2001 September 2, 2000 ----------------- ----------------- REVENUES $ 108,665,141 $ 91,484,558 ----------------- ----------------- COSTS AND EXPENSES: Cost of goods sold 71,710,923 60,232,002 Selling, general and administrative expenses (includes related party transactions totaling $2,125,041 and $829,446 in fiscal 2002 and fiscal 2001, respectively) 29,354,614 25,445,548 Loss on disposition of property, plant and equipment, net 13,557 22,505 Depreciation and amortization 3,135,435 3,126,505 ----------------- ----------------- Total costs and expenses 104,214,529 88,826,560 ----------------- ----------------- OPERATING INCOME 4,450,612 2,657,998 ----------------- ----------------- OTHER INCOME (EXPENSE): Interest expense (6,567,931) (6,719,122) Other income, net - (including interest) (includes related party income totaling $29,102 and $35,621 in fiscal 2002 and fiscal 2001, respectively) 93,707 192,405 ----------------- ----------------- Other expense, net (6,474,224) (6,526,717) ----------------- ----------------- LOSS BEFORE INCOME TAX BENEFIT AND EXTRAORDINARY ITEM (2,023,612) (3,868,719) INCOME TAX BENEFIT 1,011,806 1,400,482 ----------------- ----------------- LOSS BEFORE EXTRAORDINARY ITEM (1,011,806) (2,468,237) EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT (NET OF INCOME TAX BENEFIT OF $258,303) -- (455,238) ----------------- ----------------- NET LOSS $ (1,011,806) $ (2,923,475) ================= =================
5 RETAINED EARNINGS: Balance at beginning of period $ 2,768,265 $ 7,436,291 Net loss (1,011,806) (2,923,475) ----------- ----------- Balance at end of period $ 1,756,459 $ 4,512,816 =========== =========== NET LOSS PER COMMON SHARE - BASIC AND DILUTED Loss before extraordinary item $ (.17) $ (.43) Extraordinary loss on early extinguishment of debt -- (.08) ----------- ----------- Net loss $ (.17) $ (.51) =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED 5,781,480 5,781,309
See accompanying notes to unaudited consolidated financial statements. 6 PIERRE FOODS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Twenty-Six Weeks Ended ---------------------- September 1, 2001 September 2, 2000 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (1,011,806) $ (2,923,475) ----------------- ----------------- Adjustments to reconcile net loss to net cash used in operating activities: Extraordinary loss on early extinguishment of debt before income tax benefit -- 713,541 Depreciation and amortization 3,135,435 3,126,505 Amortization of deferred loan origination fees 263,810 206,406 Deferred income taxes -- (724,051) Net loss on disposition of property, plant and equipment 13,557 22,505 Increase in other assets (482,142) -- Decrease in other long-term liabilities (154,289) (142,681) Changes in operating assets and liabilities: Receivables (2,034,218) (464,308) Inventories (3,916,016) (7,154,737) Refundable income taxes, prepaid expenses and other current assets (1,153,443) (1,602,735) Trade accounts payable and other accrued liabilities 1,280,551 (1,437,880) ----------------- ----------------- Total adjustments (3,046,755) (7,457,435) ----------------- ----------------- Net cash used in operating activities (4,058,561) (10,380,910) ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of property, plant and equipment 1,000 -- Decrease in related party notes receivable -- 152,456 Decrease in other notes receivable -- 1,496 Capital expenditures (2,579,082) (1,002,685) ----------------- ----------------- Net cash used in investing activities (2,578,082) (848,733) ----------------- -----------------
7 CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings under revolving credit agreement 4,867,915 9,007,674 Principal payments on long-term debt (44,457) (161,438) Loan origination fees -- (84,992) ----------- ----------- Net cash provided by financing activities 4,823,458 8,761,244 ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (1,813,185) (2,468,399) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,813,185 2,701,464 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ 233,065 =========== ===========
See accompanying notes to unaudited consolidated financial statements. 8 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 September 1, 2001 and March 3, 2001, the results of operations for the thirteen weeks and twenty-six weeks ended September 1, 2001 and September 2, 2000, and the cash flows of the Company for the twenty-six weeks ended September 1, 2001 and September 2, 2000. Financial statements for the year-to-date period ended September 2, 2000 ("fiscal 2001") have been reclassified, where applicable, to conform to financial statement presentation used for the year-to-date period ended September 1, 2001 ("fiscal 2002"). The thirteen week period ended September 1, 2001 is referred to as "second quarter 2002" and the thirteen week period ended September 2, 2000 is referred to as "second quarter 2001." 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 2002 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 3, 2001 audited consolidated financial statements and notes thereto. 2. INVENTORY A summary of inventories, by major classifications, follows: September 1, 2001 March 3, 2001 ----------------- ----------------- Manufacturing supplies $ 1,180,090 $ 1,189,481 Raw materials 4,385,654 4,404,820 Work in process 7,758 4,281 Finished goods 25,146,577 21,205,481 ----------------- ----------------- Total $ 30,720,079 $ 26,804,063 ================= ================= 3. SUPPLEMENTAL CASH FLOW DISCLOSURES - CASH PAID (RECEIVED) DURING THE PERIOD Twenty-Six Twenty-Six Weeks Ended Weeks Ended September 1, 2001 September 2, 2000 ----------------- ----------------- Interest $ 6,333,191 $ 5,911,723 ================= ================= Income taxes net of refunds received $ (356,802) $ 51,358 ================= ================= 9 4. COMPREHENSIVE INCOME Total comprehensive loss was comprised solely of the net loss in fiscal 2002 and fiscal 2001. Comprehensive loss was $251,171 and $1,022,886 for the second quarter 2002 and second quarter 2001, respectively; and $1,011,806 and $2,923,475 for fiscal 2002 and fiscal 2001, respectively. 5. LONG-TERM DEBT Effective May 30, 2000, the Company terminated its $75 million credit facility, resulting in an extraordinary loss on early extinguishment of debt of $455,238, net of income tax benefit of $258,303. Effective May 24, 2000, the Company obtained a three-year variable-rate $25 million revolving credit facility. As of September 1, 2001, the Company had borrowings of approximately $4.9 million under this facility and borrowing availability of approximately $18.1 million. As of September 2, 2000, the Company had borrowings of approximately $9.0 million under this facility and borrowing availability of approximately $13.1 million. In addition, at September 1, 2001 and September 2, 2000, the Company was in compliance with the financial covenants under this facility. 6. RECENTLY ISSUED ACCOUNTING GUIDANCE In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended, establishes accounting and reporting standards for derivative financial instruments, including certain derivative instruments embedded in other contracts (collectively referred to as embedded derivatives) and for hedging activities. The new standard requires an entity to recognize all derivative instruments as either assets or liabilities in its statement of financial position and to measure those instruments at fair value. The Company adopted SFAS No. 133 effective March 4, 2001. The adoption of this new standard did not have a material impact on the financial condition, results of operations, or cash flows of the Company. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations." SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company does not believe that the adoption of SFAS 141 will have a significant impact on its financial position and results of operations. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective for the fiscal year beginning 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. The Company is currently assessing but has not yet determined the impact of SFAS 142 on its financial position and results of operations. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143 ("SFAS 143") "Accounting for Asset Retirement Obligations", which is effective for the Company beginning March 2003. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement cost. The Company does not believe that the adoption of SFAS 143 will have a significant impact on its financial position and results of operations. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144") "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective for the Company beginning 10 March 2002. SFAS 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. The Company is currently assessing, but has not yet determined, the impact of SFAS 144 on its financial position and results of operations. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Second Quarter 2002 Compared to Second Quarter 2001 Revenues. Revenues increased by $10.7 million, or 22.7%, due to increases in demand in core customer channels. Cost of goods sold. Cost of goods sold increased by $7.4 million, or 24.0%. As a percentage of revenues, cost of goods sold increased from 65.8% to 66.5%. This increase primarily was due to an increase in raw material prices and a change in product mix to lower margin products, offset by improved production efficiencies. Selling, general and administrative. Selling, general and administrative expenses increased by $2.2 million, or 17.2%, primarily due to an increase in sales. As a percentage of revenues, selling, general and administrative expenses decreased from 27.2% to 26.0%. Depreciation and amortization. Depreciation and amortization expense remained constant at $1.6 million for both fiscal quarters. Other expense, net. Net other expense remained constant at $3.3 million (see --- "Liquidity and Capital Resources" below). Income tax benefit. The effective tax rate for second quarter 2002 was 50.0%, as compared to 36.2% for second quarter 2001. The higher rate in second quarter 2002 was due to the effects of permanent differences. 12 Fiscal 2002 Compared to Fiscal 2001 Revenues. Revenues increased by $17.2 million, or 18.8%, due to increases in demand in core customer channels. Cost of goods sold. Cost of goods sold increased by $11.5 million, or 19.1%. As a percentage of revenues, cost of goods sold increased from 65.8% to 66.0%. This increase primarily was due to an increase in raw material prices and a change in product mix to lower margin products, offset by improved production efficiencies. Selling, general and administrative. Selling, general and administrative expenses increased by $3.9 million, or 15.4%, primarily due to an increase in sales. As a percentage of revenues, selling, general and administrative expenses decreased from 27.8% to 27.0%. Depreciation and amortization. Depreciation and amortization expense remained constant at $3.1 million for both fiscal year-to-date periods. Other expense, net. Net other expense remained constant at $6.5 million (see --- "Liquidity and Capital Resources" below). Income tax benefit. The effective tax rate for fiscal 2002 was 50.0%, as compared to 36.2% for fiscal 2001. The higher rate in fiscal 2002 was due to the effects of permanent differences. 13 LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities was $4.1 million for fiscal 2002, compared to $10.4 million for fiscal 2001. The primary components of net cash used in operating activities were 1) an increase in inventory of $3.9 million due to the seasonal building of inventories which normally occurs during late spring and early summer to service market channels that require heavy shipments in late summer and early fall; and 2) an increase in accounts receivable of $2.0 million; offset by 3) an increase in trade accounts payable and other accrued liabilities of $1.3 million. Net cash used in investing activities was $2.6 million for fiscal 2002, compared to $.8 million for fiscal 2001, primarily due to an increase in capital expenditures in fiscal 2002. Net cash provided by financing activities was $4.8 million for fiscal 2002, compared to $8.8 million for fiscal 2001. The decrease in cash provided by financing activities was primarily due to a decrease in borrowings under the revolving credit facility in fiscal 2002 compared to fiscal 2001. The Company has a three-year $25 million revolving credit facility, under which it may borrow up to an amount (including standby letters of credit up to $5 million) equal to the lesser of $25 million less required minimum availability or a borrowing base (comprised of eligible accounts receivable and inventory). Funds available under the facility are available for working capital requirements, permitted investments and general corporate purposes. Borrowings under the 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 accounts receivable and inventory of the Company. In addition, the Company is required to meet certain financial covenants regarding net worth, cash flow and restricted payments, including limitations on dividend payments. At September 1, 2001, the Company had no cash or cash equivalents on hand, had outstanding borrowings of $4.9 million under its revolving credit facility, and had approximately $18.1 million of additional borrowing availability. At September 2, 2000, the Company had outstanding borrowings of $9.0 million under its revolving credit facility, and had approximately $13.1 million of availability. At September 1, 2001 and September 2, 2000, the Company was in compliance with the financial covenants under the facility, but continued compliance will depend upon future cash flows and net income, which are not assured. The Company's revolving credit facility expires by its terms on May 24, 2003. The Company has budgeted approximately $2.2 million for capital expenditures for the remainder of fiscal 2002. These expenditures are devoted to routine capital improvement projects and other miscellaneous expenditures and should be sufficient to maintain current operating capacity. The Company believes that funds from operations, borrowings under the $25 million revolving credit facility, as well as the Company's ability to enter into capital or operating leases, will be adequate to finance these capital expenditures. If the Company continues its historical revenue growth trend as expected, the Company will be required to raise and invest additional capital for various plant expansion projects to provide operating capacity to satisfy increased demand. The Company believes that future cash requirements for these plant expansion projects would need to be met either by restructuring its outstanding debt (see "Restructuring Discussions" below) or through other long-term financing sources such as an increase in borrowing availability under the $25 million credit facility, the issuance of industrial revenue bonds or equity investment. The incurrence of additional long-term debt is governed and restricted by the Company's existing debt instruments. Furthermore, there can be no assurance that additional long-term financing will be available on advantageous terms (or any terms) when needed by the Company or that current restructuring discussions will succeed. The Company anticipates continued sales growth in key market areas. As noted above, however, this growth will require capital expansion projects to increase existing plant capacity to satisfy increased demand. Sales growth, improved operating performance and expanded plant capacity - none of which is assured - will be necessary for the Company to continue to service existing debt. 14 SEASONALITY Except for sales to school districts, which represent approximately 26% of total sales and which decline during the early spring and summer and early January, there is no significant seasonal variation in sales. RESTRUCTURING DISCUSSIONS On April 26, 2001, the Company signed a definitive exchange agreement documenting a management buyout proposal by PF Management, Inc. In July, the Special Committee of the Board of Directors of the Company received a competing proposal from William E. Simon & Sons ("Simon") and Triton Partners ("Triton") in which Simon and Triton proposed to commence a tender offer to purchase the Company's common stock for $2.50 per share, subject to certain conditions. The Special Committee was considering the Simon and Triton proposal in light of the exchange agreement and other factors when the Company was contacted in August by Anderson, Kill & Olick, P.C. ("AKO"), counsel to an Ad Hoc Committee of holders of the Company's 10-3/4% Senior Notes Due 2006. AKO stated that the members of the Ad Hoc Committee, who collectively own at least $90 million in aggregate principal amount of the Senior Notes, were interested in negotiating with the Company to restructure the Company's debt and equity capital. The Special Committee and the Board of Directors decided that the Company should pursue these negotiations. In September and October, representatives of the Ad Hoc Committee met with the Company's management and began conducting due diligence of the Company. In addition to its legal counsel, the Ad Hoc Committee has engaged CIBC World Markets Corp. ("CIBC") as its financial advisor. The Company has agreed to compensate AKO for its reasonable fees and disbursements related to representation of the Ad Hoc Committee and has agreed to pay CIBC's fees for advising the Ad Hoc Committee. The Company is currently preparing a comprehensive restructuring proposal, which it intends to present to the Ad Hoc Committee later this month. Once the Company makes its proposal, it hopes to negotiate detailed terms of a broad restructuring with AKO and CIBC on behalf of the Ad Hoc Committee. No assurance can be offered as to whether, when or how these negotiations may come to fruition. The exchange agreement between PF Management, Inc. and the Company remains in effect. The competing proposal made by Simon and Triton has not been withdrawn. 15 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As discussed in its annual report for the fiscal year ended March 3, 2001, the Company is exposed to market risks stemming from changes in interest rates, foreign exchange rates and commodity prices. Changes in these factors could cause fluctuations in the Company's financial condition, results of operations and cash flows. The Company owned no derivative financial instruments or nonderivative financial instruments held for trading purposes at September 1, 2001 or March 3, 2001. Certain of the Company's outstanding nonderivative financial instruments at September 1, 2001 are subject to interest rate risk, but not subject to foreign currency or commodity price risk. The Company's major market risk exposure is potential loss arising from changing interest rates and its impact on long-term debt. The Company's policy is to manage interest rate risk by maintaining a combination of fixed and variable rate financial instruments in amounts and with maturities that management considers appropriate. The risks associated with long-term debt at September 1, 2001 have not changed materially since March 3, 2001. All long-term debt outstanding at September 1, 2001, comprised of $115.0 million of Senior Notes and $4.9 million of outstanding borrowings under the revolving credit facility, was accruing interest at fixed rates. In the future, should the Company borrow funds under its existing credit facility or other long-term financing sources, a rise in prevailing interest rates could have adverse effects on the Company's financial condition and results of operations. CAUTIONARY STATEMENT AS TO FORWARD LOOKING INFORMATION Certain statements made in this document are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from expected results. As detailed in Exhibit 99.1 to the Company's Annual Report on Form 10-K for the fiscal year ended March 3, 2001, with respect to the Company these risks and uncertainties include: substantial leverage and insufficient cash flow from operations; restrictions imposed by the Company's debt instruments; management control; factors inhibiting takeover; limited secondary market for common stock; price volatility; restrictions on payment of dividends; competitive considerations; government regulation; general risks of the food industry; adverse changes in food costs and availability of supplies; dependence on key personnel; potential labor disruptions; and the effects of the pending management buyout. This list of risks and uncertainties is not exhaustive. Also, new risk factors emerge over time. Investors should not place undue reliance on the predictive value of forward-looking statements. 16 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits See the Index to Exhibits provided elsewhere in this report. (b) Reports on Form 8-K A press release was issued and filed under cover of Schedule 14D-9 on August 2, 2001, announcing the receipt and consideration by the Special Committee of a proposal made by William E. Simon & Sons and Triton Partners. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PIERRE FOODS, INC. Date: October 16, 2001 By: /s/ Norbert E. Woodhams ---------------- --------------------------------------- Norbert E. Woodhams President and Chief Executive Officer (Principal Executive Officer) Date: October 16, 2001 By: /s/ Pamela M. Witters ---------------- --------------------------------------- Pamela M. Witters Chief Financial Officer (Principal Financial Officer) 18 INDEX TO EXHIBITS Exhibit No. Description ----------- ----------- 3.1 Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 (No. 333-58711)) 3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.4 to the Company's Annual Report on Form 10-K for its fiscal year ended February 27, 1998) 4.1 Note Purchase Agreement, dated June 4, 1998, among the Company, the Guarantors and the Initial Purchasers (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998) 4.2 Indenture, dated as of June 9, 1998, among the Company, certain Guarantors and State Street Bank and Trust Company, Trustee (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998) 4.3 Registration Rights Agreement, dated June 9, 1998, among the Company, certain Guarantors and certain Initial Purchasers (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998, and incorporated herein by reference) 4.4 Form of Initial Global Note (included as Exhibit A to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998, and incorporated herein by reference) 4.5 Form of Initial Certificated Note (included as Exhibit B to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998, and incorporated herein by reference) 4.6 Form of Exchange Global Note (included as Exhibit C to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998, and incorporated herein by reference) 4.7 Form of Exchange Certificated Note (included as Exhibit D to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the SEC on June 24, 1998, and incorporated herein by reference) 4.8 First Supplemental Indenture, dated as of September 5, 1998, among the Company, State Street Bank and Trust Company, Trustee, and Pierre Leasing, LLC (incorporated by reference to Exhibit 4.8 to Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form S-4 (No. 333-58711)) 4.9 Second Supplemental Indenture dated as of February 26, 1999, among the Company, State Street Bank and Trust Comp any, Trustee, and Fresh Foods Restaurant Group, LLC (incorporated by reference to Exhibit 4.9 to the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended December 4, 1999) 4.10 Third Supplemental Indenture dated as of October 8, 1999, between the Company and State Street Bank and Trust Company, Trustee (incorporated by reference to Exhibit 4.10 to the Company's Quarterly Report on Form 10-Q for its fiscal quarter ended December 4, 1999) 10.1 Amendment No. 1 to Agreement and Plan of Share Exchange dated as of September 18, 2001, by and among Pierre Foods, Inc., PF Management, Inc., James C. Richardson, Jr. and David R. Clark (incorporated by reference to Schedule 14D-9, Amendment No. 3 filed by Pierre Foods, Inc. pursuant to Rule 14D-9 on September 26, 2001). The Company hereby agrees to provide to the Commission, upon request, copies of long-term debt instruments omitted from this report pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K under the Securities Act. 19