UNITED ~~STATES SECURITIES~~ ~~AND EXCHANGE COMMISSION~~STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

		For the quarterly period ended December 3, 2005

		OR

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

		For the transition period from to

For the quarterly period ended September 3, 2005

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

For the transition 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~~

Cincinnati, Ohio 45246

(Address of principal executive offices) (zip code)

Registrant’s telephone number, including area code: (513) 874-8741

(Former name, former address or former fiscal year 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 12twelve 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 ý No o

~~Yes~~Indicate ýby Nocheck mark whether the registrant is an accelerated filer, as defined in Exchange Act Rule 12b-2). Yes o No ý

Indicate by check mark whether the registrant is ana ~~accelerated~~shell ~~filer~~ company (as defined in Exchange Act Rule 12b-2 ~~of the Exchange Act~~). Yes o No ý

Yes o No ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No ý

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~~January 1716, ~~2005~~2006
Class A Common Stock		100,000

PIERRE FOODS, INC. AND SUBSIDIARIES

INDEX Part I. Financial Information: Item 1. Financial Statements Condensed Consolidated Balance Sheets -— ~~September~~December 3, 2005 and March 5, 2005 Condensed Consolidated Statements of Operations – for the thirteen weeks ~~endedSeptember~~ended December 3, 2005 and for the ~~periods~~thirteen ~~from~~weeks ~~June~~ended 6,December ~~2004 through June 30, 2004 and July 1, 2004 through September~~ 4, 2004 Condensed Consolidated Statements of Operations – for the ~~twenty~~thirty-~~six~~nine weeks ~~endedSeptember~~ended December 3, 2005 and for the periods from March 7, 2004 through June 30, 2004 and July 1, 2004 through ~~September~~December 4, 2004 Condensed Consolidated Statement of Shareholder’s Equity –— for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 3, 2005 Condensed Consolidated Statements of Cash Flows – for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 3, 2005 and for the periods from March 7, 2004 through June 30, 2004 and July 1, 2004 through ~~September~~December 4, 2004 Notes to the Condensed Consolidated Financial Statements Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II. Other Information: Item 5.Other Information Item 6. Exhibits Signatures Exhibit 14 Exhibit 31.1 Exhibit 31.2 Exhibit 32

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PIERRE FOODS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	Successor Pierre
	September 3, 2005		March 5, 2005
	December 3, 2005		March 5, 2005
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—9,282,373	$	—
Accounts receivable, net	3028,~~465~~631,~~533~~494		29,547,340
Inventories	4946,~~795~~614,~~172~~504		45,448,224
Refundable income taxes	2727,~~228,738~~234		2,906,502
Deferred income taxes	5,764,233		5,764,233
Prepaid expenses and other current assets	42,~~071~~820,~~456~~799		2,954,942
Total current assets	9293,~~325~~840,~~132~~637		86,621,241
PROPERTY, PLANT AND EQUIPMENT, NET	5655,~~472~~540,~~047~~070		56,284,482
OTHER ASSETS:
Other intangibles, net	~~146~~140,~~533~~688,~~552~~792		158,223,072
Goodwill	186,535,050		186,535,050
Deferred loan origination fees, net	87,~~227~~875,~~816~~489		8,923,688
Total other assets	~~341~~335,~~296~~099,~~418~~331		353,681,810
Total Assets	$	~~490~~484,~~093~~480,~~597~~038	$	496,587,533

See accompanying notes to unaudited ~~condensed~~Condensed ~~consolidated~~Consolidated ~~financial statements~~Financial Statements.

PIERRE FOODS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	Successor Pierre
	December 3, 2005			March 5, 2005
	(Unaudited)
LIABILITIES AND SHAREHOLDER’S EQUITY

CURRENT LIABILITIES:
Current installments of long-term debt	$	242,834		$	421,713
Trade accounts payable	9,729,960			11,172,350
Accrued interest	4,873,378			1,832,374
Accrued payroll and payroll taxes	5,357,854			4,663,372
Accrued promotions	4,039,645			3,499,230
Accrued taxes (other than income and payroll)	666,322			949,572
Other accrued liabilities	1,694,438			1,420,979

Total current liabilities	26,604,431			23,959,590

LONG-TERM DEBT, less current installments	249,825,893			263,158,658

DEFERRED INCOME TAXES	52,137,864			52,929,534

OTHER LONG-TERM LIABILITIES	9,599,268			10,517,166

Total Liabilities	338,167,456			350,564,948

SHAREHOLDER’S EQUITY:
Common stock – Class A, 100,000 shares authorized, issued and outstanding at December 3, 2005 and March 5, 2005	150,258,543			150,351,972
Retained deficit	(3,945,961		)	(4,329,387		)

Total shareholder’s equity	146,312,582			146,022,585

Total Liabilities and Shareholder’s Equity	$	484,480,038		$	496,587,533

	Successor Pierre
	September 3, 2005			March 5, 2005
	(Unaudited)
LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt	$	301,959		$	421,713
Trade accounts payable	9,736,590			11,172,350
Accrued interest	1,850,250			1,832,374
Accrued payroll and payroll taxes	6,064,813			4,663,372
Accrued promotions	3,810,274			3,499,230
Accrued taxes (other than income and payroll)	1,035,071			949,572
Other accrued liabilities	1,495,567			1,420,979
Total current liabilities	24,294,524			23,959,590
LONG-TERM DEBT, less current installments	260,414,359			263,158,658
DEFERRED INCOME TAXES	52,137,864			52,929,534
OTHER LONG-TERM LIABILITIES	9,475,534			10,517,166
Total Liabilities	346,322,281			350,564,948
SHAREHOLDER’S EQUITY:
Common stock – Class A, 100,000 shares authorized, issued and outstanding at September 3, 2005 and March 5, 2005	150,267,522			150,351,972
Retained deficit	(6,496,206		)	(4,329,387		)
Total shareholder’s equity	143,771,316			146,022,585
Total Liabilities and Shareholder’s Equity	$	490,093,597		$	496,587,533

See accompanying notes to unaudited Condensed Consolidated Financial Statements.

See accompanying notes to unaudited condensed consolidated financial statements.

PIERRE FOODS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

	Successor Pierre						~~Predecessor Pierre~~
	For the			For the ~~Period~~			~~For the Period~~
	Thirteen Weeks			~~July~~Thirteen ~~1, 2004~~Weeks			~~June 6, 2004~~
	Ended			~~Through~~Ended			~~Through~~
	September 3, 2005			September 4, 2004			June 30, 2004
	December 3, 2005			December 4, 2004
REVENUES	$	99115,~~180~~452,~~153~~651		$	75111,~~439~~968,~~415~~412		$	~~23,535,282~~
COSTS AND EXPENSES:
Cost of goods sold	73,790,865			59,432,272			19,980,334
Cost of goods sold (includes related party transactions totaling $194,847 for the thirteen weeks ended December 4, 2004)	81,100,838			80,147,774
Selling, general and administrative expenses (includes related party transactions totaling $37,690 and $52,095 for the thirteen weeks ended September 3, 2005 and the thirteen weeks ended September 4, 2004, respectively)	16,164,970			9,554,960			7,608,480
Selling, general and administrative expenses (includes related party transactions totaling $35,333 and $27,793 for the thirteen weeks ended December 3, 2005 and December 4, 2004, respectively)	17,011,852			15,409,997
Depreciation and amortization	7,~~585~~545,~~945~~947			58,~~972~~576,~~918~~802			~~358,777~~
Total costs and expenses	97,541,780			74,960,150			27,947,591
Loss on disposal of plant, property and equipment, net	6,388			—
OPERATING INCOME (LOSS)	1,638,373			479,265			(4,412,309		)
Total costs and expenses	105,665,025			104,134,573
OTHER INCOME (EXPENSE):
OPERATING INCOME	9,787,626			7,833,839
Interest expense	(5,479,488		)	(9,029,105		)	(1,754,115		)
OTHER INCOME (EXPENSE):
Other income, net	8,152			—			1,784
Interest expense	(5,688,999		)	(5,246,142		)
Other expense, net	(5,471,336		)	(9,029,105		)	(1,752,331		)
Other income, net	58,607			12,405
LOSS BEFORE INCOME TAX BENEFIT	(3,832,963		)	(8,549,840		)	(6,164,640		)
Other expense, net	(5,630,392		)	(5,233,737		)
INCOME TAX BENEFIT	2,278,407			2,831,071			2,021,385
INCOME BEFORE INCOME TAX PROVISION	4,157,234			2,600,102
NET LOSS	$	(1,554,556	)	$	(5,718,769	)	$	(4,143,255	)
INCOME TAX PROVISION	(1,606,989		)	(823,685		)
NET LOSS PER COMMON SHARE – BASIC AND DILUTED	$	(15.55	)	$	(57.19	)	$	(41.43	)
NET INCOME	$	2,550,245		$	1,776,417
WEIGHTED AVERAGE SHARES OUTSTANDING – BASIC AND DILUTED	100,000			100,000			100,000
NET INCOME PER COMMON SHARE – BASIC AND DILUTED	$	25.50		$	17.76
WEIGHTED AVERAGE SHARES OUTSTANDING — BASIC AND DILUTED	100,000			100,000

See accompanying notes to unaudited ~~condensed~~Condensed ~~consolidated~~Consolidated ~~financial~~Financial ~~statements~~Statements.

PIERRE FOODS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

	Successor Pierre						Predecessor Pierre
	For the			For the Period			For the Period
	Twenty-Six Weeks			July 1, 2004			March 7, 2004
	Thirty-Nine Weeks			July 1, 2004			March 7, 2004
	Ended			Through			Through
	September 3, 2005			September 4, 2004			June 30, 2004
	December 3, 2005			December 4, 2004			June 30, 2004
REVENUES	$	~~206~~322,~~914~~367,~~851~~502		$	75187,~~439~~407,~~415~~827		$	115,548,564
COSTS AND EXPENSES:
Cost of goods sold	~~152~~233,~~131~~232,~~692~~529			59139,~~432~~580,~~272~~046			87,025,521
Selling, general and administrative expenses (includes related party transactions totaling $67,934 and $138,047 for the twenty-six weeks ended September 3, 2005 and the twenty-six weeks ended September 4, 2004, respectively)	33,203,304			9,554,960			26,446,857
Selling, general and administrative expenses (includes related party transactions totaling $103,267 and $165,840 for the thirty-nine weeks ended December 3, 2005 and for the thirty-nine weeks ended December 4, 2004, respectively)	50,215,157			24,964,958			26,446,857
Loss on disposition of property, plant and equipment, net	—			—			339,921
Loss on disposal of property, plant and equipment, net	6,388			—			339,921
Depreciation and amortization	1523,~~486~~032,~~608~~555			514,~~972~~549,~~918~~719			1,544,903
Total costs and expenses	~~200~~306,~~821~~486,~~604~~629			74179,~~960~~094,~~150~~723			115,357,202
OPERATING INCOME	615,~~093~~880,~~247~~873			~~479~~8,~~265~~313,104			191,362
OTHER INCOME (EXPENSE):
Interest expense	(1016,~~951~~640,~~120~~118		)	(914,~~029~~275,~~105~~247		)	(6,537,519		)
Other income, net	3493,~~675~~281			—12,405			1,784
Other expense, net	(1016,~~916~~546,~~445~~837		)	(914,~~029~~262,~~105~~842		)	(6,535,735		)
LOSS BEFORE INCOME TAX BENEFIT	(4665,~~823,198~~964		)	(85,~~549~~949,~~840~~738		)	(6,344,373		)
INCOME TAX BENEFIT	21,~~656~~049,~~379~~390			2,~~831~~007,~~071~~386			2,080,338
NET LOSS	$	(2,166,819	)	$	(5,718,769	)	$	(4,264,035	)
NET INCOME/(LOSS)	$	383,426		$	(3,942,352	)	$	(4,264,035	)
NET LOSS PER COMMON SHARE – BASIC AND DILUTED	$	(21.67	)	$	(57.19	)	$	(42.64	)
NET INCOME/(LOSS) PER COMMON SHARE – BASIC AND DILUTED	$	3.83		$	(39.42	)	$	(42.64	)
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED	100,000			100,000			100,000
WEIGHTED AVERAGE SHARES OUTSTANDING — BASIC AND DILUTED	100,000			100,000			100,000

See accompanying notes to unaudited ~~condensed~~Condensed ~~consolidated~~Consolidated ~~financial~~Financial ~~statements~~Statements.

PIERRE FOODS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Shareholder’s Equity

For the ~~Twenty~~Thirty-~~Six~~Nine Weeks Ended ~~September~~ December 3, 2005

(Unaudited)

	Common			Total			~~Total~~
	Stock			Retained			Shareholder’s
	Class A			Deficit			Equity
BALANCE AT MARCH 5, 2005	$	150,351,972		$	(4,329,387	)	$	146,022,585
Net loss	—			(2,166,819		)	(2,166,819		)
Net income	—			383,426			383,426
Expenses paid on behalf of parent	(8493,~~450~~429		)	—			(8493,~~450~~429		)
BALANCE AT SEPTEMBER 3, 2005	$	150,267,522		$	(6,496,206	)	$	143,771,316
BALANCE AT DECEMBER 3, 2005	$	150,258,543		$	(3,945,961	)	$	146,312,582

See accompanying notes to unaudited ~~condensed~~Condensed ~~consolidated~~Consolidated ~~financial statements~~Financial Statements.

PIERRE FOODS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Successor Pierre						Predecessor Pierre
	For the			For the Period			For the Period
	Twenty-Six Weeks			July 1, 2004			March 7, 2004
	Thirty-Nine Weeks			July 1, 2004			March 7, 2004
	Ended			Through			Through
	September 3, 2005			September 4, 2004			June 30, 2004
	December 3, 2005			December 4, 2004			June 30, 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2,166,819	)	$	(5,718,769	)	$		(4,264,035	)
Net income/(loss)	$	383,426		$	(3,942,352	)	$	(4,264,035	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Depreciation and amortization	1523,~~486~~032,~~608~~555			514,~~972~~549,~~918~~720			1,544,903
Amortization of deferred loan origination fees	~~745~~1,~~544~~108,040			~~220~~612,~~888~~920			716,478
Change in deferred income taxes	(791,670		)	76918,~~044~~893			(2,080,338		)	)
Write-off of deferred loan origination fees	—			4,283,122			—
Loss on disposition of property, plant and equipment, net	—6,388			—			339,921
Decrease in other assets	—			—			296,694
Increase (decrease) in other long-term liabilities	(1917,~~041,632~~898		)	84205,~~115~~615			(94,477		)	)
Changes in operating assets and liabilities:
Receivables	~~(918~~915,~~193~~846		)	(9,~~721~~357,~~073~~006		)	5,660,719
Inventories	(41,~~346~~166,~~948~~280		)	12,~~592~~915,~~762~~543			(4,911,529		)	)
Refundable income taxes, prepaid expenses and other current assets	~~(438~~2,~~750~~313,411		)	(43,~~816~~843,~~006~~645		)	949,584
Trade accounts payable and other accrued liabilities	~~454~~2,~~686~~823,720			~~614~~2,~~359~~556,338			2,227,855
Total adjustments	927,~~149~~324,~~645~~112			(112,~~692~~841,~~871~~502		)	4,649,810
Net cash provided by (used in) operating activities	6,982,826			(7,411,640		)	385,775
Net cash provided by operating activities	27,707,538			8,899,150			385,775
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(34,~~984~~749,~~650~~684		)	(~~455~~1,~~416~~746,791		)	(2,084,160		)	)
Net cash used in investing activities	(34,~~984~~749,~~650~~684		)	(~~455~~1,~~416~~746,793		)	(2,084,160		)	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings (repayments) of revolving credit agreement	4(790,~~752,~~000		)	(18,492,886		)	7,712,901
Principal payments on long-term debt	(712,~~616~~732,~~053~~209		)	(~~414~~11,~~557~~101,957		)	(673,526		)	)
Loan origination fees	(4959,~~673~~843		)	(89,~~410~~737,~~987~~366		)	(3,371,999		)	)
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	(8493,~~450~~429		)	(99100,~~202~~064,~~584~~711		)	—
Net cash provided by (used in) financing activities	(213,~~998~~675,~~176~~481		)	5(7,~~693~~182,~~200~~706		)	3,667,376
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	—9,282,373			(230,~~173,856~~349		)	1,968,991
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	—			2,173,856			204,865
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	—9,282,373		$	—2,143,507		$	2,173,856

See accompanying notes to unaudited ~~condensed~~ consolidated financial statements.

PIERRE FOODS, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation and Acquisition

Pierre Foods, Inc. (the “Company” or “Pierre”) is a manufacturer and marketer of high-quality, differentiated processed food solutions, focusing on formed, pre-cooked protein products and hand-held convenience sandwiches. The Company’s products include beef, ~~poultry,~~ pork, poultry, cheese and bakery items. Pierre offers comprehensive food solutions to its customers, including proprietary product development, special ingredients and recipes, as well as custom packaging and marketing programs. Pierre’s pre-cooked proteins include flamebroiled burger patties, homestyle meatloaf, chicken strips and boneless, barbecued pork rib products. Pierre markets its pre-cooked protein products to a broad array of customers that includes restaurant chains, schools and other foodservice providers.

Basis of Presentation and Acquisition. On June 30, 2004, the shareholders of PF Management, Inc. (“PFMI”), the sole shareholder of the Company, sold their shares of stock in PFMI (the “Acquisition”) to Pierre Holding Corp. (“Holding”), an affiliate of Madison Dearborn Partners, LLC (“MDP”).

The unaudited Condensed ~~condensed~~Consolidated ~~consolidated~~Financial ~~financial~~Statements ~~statements~~ of Pierre and its subsidiaries ~~have~~ have been prepared in accordance with accounting principles generally accepted in in the United States of America (“GAAP”), as well as the instructions to Form 10-Q and Article 10 of Regulation S-X. These statements should be read in conjunction with the ~~consolidated~~Consolidated Financial ~~financial~~Statements ~~statements~~ and the notes thereto included in the Company’s Annual Report on Form 10-K filed on June 3, 2005 (“Form 10-K”) and the Company’s Annual Report on Form 10-K/A filed on January 3, 2006 (“Form 10-K/A”).

The ~~financial~~ financial information as of March 5, 2005 included in these financial statements has been derived from the Company’s audited ~~consolidated~~Consolidated ~~financial statements~~Financial Statements. In the opinion of the Company, the accompanying unaudited ~~condensed~~Condensed Consolidated ~~consolidated~~Financial ~~financial~~Statements ~~statements~~ contain all adjustments necessary to present fairly the financial position, the results of operations and the cash flows of the Company for the interim periods. The results of interim operations are not ~~necessarily~~ necessarily indicative of the results to be expected for the full fiscal year, and as noted above, should be read in conjunction with the ~~consolidated financial~~Consolidated ~~statements~~Financial Statements and the notes thereto included in the Company’s Form 10-K and the Company’s Form 10-K/A. The Company’s current accounting policies are consistent with those described in the notes to the Company’s March 5, 2005 audited ~~consolidated~~Consolidated ~~financial~~Financial ~~statements~~Statements.

Included in in this report are interim unaudited ~~condensed~~Condensed ~~consolidated~~Consolidated ~~financial statements~~Financial Statements that contain all adjustments necessary to present fairly the financial position as of ~~September~~ December 3, 2005, the results of operations for the thirteen week ~~period~~ periods ended ~~September~~ December 3, 2005 and ~~for~~December ~~the periods from June 6~~4, ~~2004~~ ~~through June 30,~~ 2004 ~~and July 1~~, ~~2004 through September 4, 2004,~~ the results of operations for the ~~twenty~~ thirty-~~six~~nine week period ended ~~September~~ December 3, 2005 and for the periods from March 7, 2004 through June 30, 2004 and July 1, 2004 through ~~September~~ December 4, 2004, the cash flows of the Company for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~ December 3, 2005 and for the periods from March 7, 2004 through June 30, 2004 and July 1, 2004 through ~~September~~ December 4, 2004 and the statement of shareholder’s equity for the ~~twenty~~ thirty-~~six~~nine week period ended ~~September~~ December 3, 2005. ~~The~~ The thirteen and ~~twenty~~thirty-~~six~~nine week periods ended ~~September~~ December 3, 2005 are ~~referred~~ referred to as “successor ~~second~~third quarter 2006” and “successor fiscal 2006”, respectively. The ~~periods~~thirteen ~~from~~weeks ~~June 6,~~ended ~~2004~~December ~~through June 30~~4, 2004 ~~and~~are referred to as “successor third quarter 2005”. The period from March 7, 2004 through June 30, 2004 ~~are~~is referred to as “predecessor ~~second quarter 2005” and “predecessor~~ fiscal 2005~~”, respectively~~.” The period from July 1, 2004 through ~~September~~ December 4, ~~2004~~2005 is referred to as “successor fiscal 2005.”. The ~~thirteen and twenty~~thirty-~~six~~ nine week ~~periods~~period ended ~~September~~ December 4, 2004 ~~are~~is referred to as “predecessor ~~second~~ ~~quarter 2005 and successor~~ fiscal 2005 ~~combined”~~ and ~~“predecessor fiscal 2005 and~~ successor fiscal 2005 combined,” ~~respectively~~. Financial statement presentation used for predecessor ~~second~~fiscal ~~quarter~~ 2005, ~~predecessor~~successor ~~fiscal~~third ~~2005~~quarter 2005, and successor fiscal 2005 have been reclassified, where applicable, to conform to financial statement presentation used for successor ~~second~~third quarter 2006 and ~~successor~~ successor fiscal 2006.

The fair value adjustments related to the Acquisition, which have been pushed down to the Company from Holding, primarily include adjustments in property, plant ~~and~~ and equipment, ~~inventory~~inventories, goodwill, other intangible assets and related deferred taxes.

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.

In connection with the Acquisition, the following occurred:

• The Company merged with Pierre Merger Corp., an affiliate of MDP, with the Company being the surviving corporation following the merger.

• The Company terminated its three-year variable-rate $40 million revolving credit facility and obtained a $190 million credit facility from a new lender which includes a six-year variable-rate $150 million term loan and a five-year variable rate $40 million revolving credit facility with a $10 million letter of credit subfacility. See Note 7, “Financing Arrangements,” to the Company’s Consolidated Financial Statements included in Form 10-K.

• The Company terminated its few remaining related party transactions (described in Note 10, “Related Party Transactions,” to the Condensed Consolidated Financial Statements), transferred miscellaneous assets to Messrs. Richardson and 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 and consent solicitation for the Company’s old notes outstanding prior to the Acquisition (the “Old Notes”). Holders of approximately $106.3 million, or approximately 92%, of the aggregate principal amount of the Company’s outstanding Old Notes tendered their Old Notes. The Company, 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 not tendered (approximately $8.7 million) was issued on June 30, 2004 and these Old Notes were redeemed on July 20, 2004.

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

• The Company’s President and Chief Executive Officer, Norbert E. Woodhams, and its Senior Vice President of Sales, Marketing and New Product Development, Robert C. Naylor, signed employment agreements committing them to continue working for the Company after the Acquisition. The stated term of employment for each executive is one year, but each agreement ~~will~~renews ~~renew~~ automatically and continuously year-to-year unless terminated.

• The management investors, the Company’s President and Chief Executive Officer, Norbert E. Woodhams, and its Senior Vice President of Sales, Marketing and New Product Development, Robert C. Naylor, invested approximately $4.9 million in a deferred compensation plan. This deferred compensation plan is funded through a rabbi trust that owns preferred stock of Holding with an aggregate liquidation value of approximately $5.4 6 million at ~~September~~ December 3, 2005.

• In addition to the base purchase price, the stock purchase agreement entitled the selling shareholders to earn-out cash payments, which included an additional aggregate amount of $13.0 million in the event that, 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 was payable ~~as of March 5~~, ~~2005,~~ as this EBITDA target was not met.

The following table presents unaudited pro forma information for predecessor second quarter 2005 and successor fiscal 2005 combined, as if the Acquisition had occurred on March 7, 2004 (the first day of fiscal 2005).

	Predecessor Second
	Quarter 2005 and
	Successor Fiscal 2005 Combined
	Actual			Pro Forma
Revenues	$	98,974,697		$	98,974,697
Net loss	$	(9,862,023	)	$	(10,377,473	)

The following table presents unaudited pro forma information for predecessor fiscal 2005 and successor fiscal 2005 combined, as if the Acquisition had occurred on March 7, 2004 (the first day of fiscal 2005).

	Predecessor Fiscal
	Predecessor Fiscal 2005 and
	2005 and Successor
	Successor Fiscal 2005 Combined
	Fiscal 2005 Combined
	Actual			Pro Forma
Revenues	$	~~190~~302,~~987~~956,~~979~~391		$	~~190~~302,~~979~~947,~~375~~787
Net loss	$	(98,~~982~~206,~~804~~387	)	$	(1311,~~189~~413,~~585~~168	)

These unaudited pro forma results, based on assumptions deemed appropriate by the Company’s management, have been prepared for informational purposes only and are not necessarily indicative of the amounts that would have resulted if the Company had been acquired by MDP on March 7, 2004.

Included in these pro forma results are certain predecessor fees that the Company does not expect to incur in the future. These include professional fees, primarily related to the Acquisition. For predecessor ~~second quarter 2005 and successor~~ fiscal 2005 ~~combined~~ and ~~for predecessor fiscal 2005 and~~ successor fiscal 2005 combined, these fees amounted to $~~336,488 and $~~2,591,989~~, respectively~~. No such fees existed for ~~successor~~ ~~second quarter 2006 and~~ successor fiscal 2006.

Other predecessor expenses included in these pro forma results that are no longer expected to be incurred include outside Board of Director fees, community relations and donations to ~~our~~Pierre’s former shareholder’s alma mater. For predecessor ~~second~~ ~~quarter 2005 and successor~~ fiscal 2005 ~~combined~~ and ~~for predecessor~~successor fiscal 2005 ~~and successor fiscal 2005~~ combined, these fees amounted to $~~122,825 and $~~600,653~~, respectively~~.

Also included in the pro forma results for predecessor ~~second~~fiscal ~~quarter~~2005 and successor fiscal 2005 combined are certain Acquisition expenses related to the sale of the Company to MDP. These transaction expenses ~~include~~ include professional fees of $957,000 for ~~the~~ predecessor ~~second~~fiscal ~~quarter~~2005 and successor fiscal 2005 combined. Other predecessor ~~second~~fiscal 2005 ~~quarter~~and successor fiscal 2005 combined transaction expenses relating to the previous shareholders’ adviser amounted to $780,952. A termination payoff of the ~~endorsement~~ endorsement between the Company and Crawford Race Cars, LLC also resulted in expense in predecessor ~~the~~fiscal ~~predecessor~~2005 ~~second~~and ~~quarter~~successor fiscal 2005 combined amounting to $318,000 that is not expected to be incurred in the future.

The ~~unaudited~~ unaudited pro forma ~~condensed~~Condensed ~~consolidated~~Consolidated ~~financial~~Financial ~~statements~~Statements reflect the ~~Acquisition~~ Acquisition of the Company in accordance with Statement of Financial Accounting ~~Standard~~ Standard No. 141 (“SFAS 141”) —”Business Combinations” and Statement of ~~Financial~~ Financial Accounting Standard No. 142 (“SFAS 142”) —”Goodwill and Other ~~Intangible~~ Intangible Assets”.

The Acquisition was recorded under the purchase method of accounting. The purchase price was allocated to assets acquired and liabilities assumed based on the estimated fair market value at the date of Acquisition. The allocation of the purchase price was 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 obtained outside appraisals of acquired assets and liabilities in successor fiscal 2005. Deferred tax liabilities have been finalized based on the final allocation of the purchase price and the determination of the tax basis of the assets and liabilities acquired.

2. Stock-Based Compensation

On June 30, 2004, Holding adopted a stock option plan, pursuant to which the Board of Directors of Holding may grant options to purchase an aggregate of 163,778 shares of common stock of Holding (the “Options”). Such options may be granted to directors, employees and consultants of Holding and its subsidiaries, including the Company. Holding granted no new Options during successor third quarter 2006. On July 5, 2005, during successor fiscal 2006, Holding granted 3,960 Options to two members of management of the Company. At December 3, 2005, Options to purchase a total of 131,357 shares of common stock of Holding had been issued to members of management of the Company and 32,421 were reserved for future issuance. All outstanding Options were granted at $10 per share and expire ten years from the date of grant. A portion of each outstanding Option vests daily on a pro-rata basis over a five-year period from the date of grant and the remaining portion of each outstanding Option vests seven years from the date of grant, subject to accelerated vesting based on the achievement of certain performance measures.

~~grant~~The ~~options to~~Company ~~purchase~~treats ~~an aggregate of 163,778 shares of common stock of Holding (~~the “Options~~”). Such~~ ~~options~~as ~~may~~stock-based beemployee ~~granted~~compensation tofor ~~directors,~~ employees ~~and consultants~~ of ~~Holding and its subsidiaries, including~~ the Company. OnAs ~~July 5,~~permitted ~~2005~~under GAAP, ~~during successor~~the ~~second~~Company ~~quarter~~accounts ~~2006,~~for ~~Holding~~the ~~granted 3,960~~ Options tounder ~~two~~the ~~members~~recognition ofand ~~management~~measurement principles of ~~the~~Accounting ~~Company. At~~Principles ~~September 3, 2005,~~Board ~~Options~~Opinion toNo. ~~purchase a total of 131~~25,~~357~~ ~~shares~~“Accounting offor ~~common stock of Holding~~Stock ~~had~~Issued ~~been issued~~ to ~~members~~Employees” of(“APB ~~management~~25”), ofand ~~the~~related ~~Company~~Interpretations ~~and~~using ~~32,421 were~~the ~~reserved~~intrinsic ~~for~~value ~~future issuance~~method. ~~All~~Accordingly, no ~~outstanding~~compensation ~~Options~~expense ~~were~~has ~~granted~~been atrecognized ~~$10~~for ~~per~~the ~~share~~Options ~~and~~in ~~expire~~its ~~ten~~Condensed Consolidated ~~years~~Financial ~~from~~Statements ~~the date~~ of ~~grant~~Operations. AHad ~~portion~~compensation ofexpense ~~each outstanding~~for ~~Option~~the ~~vests~~Options ~~daily~~been determined onin aaccordance ~~pro-rata~~with ~~basis~~the ~~over~~minimum avalue ~~five-year~~approach ~~period~~as ~~from~~defined by ~~the~~Statement ~~date~~ of ~~grant~~Financial ~~and~~Accounting ~~the~~Standards ~~remaining~~(“SFAS”) ~~portion~~No. of123, ~~each~~“Accounting ~~outstanding Option vests~~for ~~seven~~Stock-Based ~~years~~Compensation” ~~from~~(“SFAS 123”), the ~~date~~Company’s ofnet ~~grant,~~income/(loss) ~~subject~~and income/(loss) toper ~~accelerated~~share ~~vesting~~would ~~based~~have onbeen the ~~achievement~~ ~~of certain performance measures.~~following:

The Company treats the Options as stock-based employee compensation for employees of the Company. As permitted under GAAP, the Company accounts for the Options under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related Interpretations using the intrinsic value method. Accordingly, no compensation expense has been recognized for the Options in its condensed consolidated statements of operations. Had compensation expense for the Options been determined in accordance with the minimum value approach as defined by Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), the Company’s net loss and loss per share would have been the following :

	Successor Pierre
	Thirteen Weeks Ended December 3, 2005			Thirty-Nine Weeks Ended December 3, 2005			Thirteen Weeks Ended December 4, 2004			For the Period from July 1, 2004 through December 4, 2004
Net income/(loss) as reported	$	2,550,245		$	383,426		$	1,776,417		$	(3,942,352	)
Minimum value of stock- based compensation net of tax	(8,972		)	(26,620		)	(9,540		)	(14,326		)
Net income/(loss) pro forma	$	2,541,273		$	356,806		$	1,766,877		$	(3,956,678	)

Basic and diluted income/(loss) per share, as reported	$	25.50		$	3.83		$	17.76		$	(39.42	)
Basic and diluted income/(loss) per share, pro forma	$	25.41		$	3.57		$	17.67		$	(39.57	)

	Successor Pierre Thirteen Weeks Ended September 3, 2005			Successor Pierre Twenty-Six Weeks Ended September 3, 2005			Successor Pierre For the Period from July 1, 2004 through September 4, 2004
Net loss as reported	$	(1,554,556	)	$	(2,166,819	)	$	(5,718,769	)
Minimum value of stock-based compensation net of tax	(8,891		)	(17,648		)	(4,785		)
Net loss pro forma	$	(1,563,447	)	$	(2,184,467	)	$	(5,723,554	)
Basic and diluted loss per share, as reported	$	(15.55	)	$	(21.67	)	$	(57.19	)
Basic and diluted loss per share, pro forma	$	(15.63	)	$	(21.84	)	$	(57.24	)

The Company engaged an independent third party to perform a valuation analysis of the Options. The estimated total stock-based employee compensation expense was determined using the Black-Scholes-Merton option pricing model with the following weighted average assumptions:

The Company engaged an independent third party to perform a valuation analysis of the employee stock options. The estimated total stock-based employee compensation expense was determined using the Black-Scholes-Merton option pricing 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 issued Statement of Financial Accounting Standards No. 123 (Revision 2004), “Share-Based Payment” (“SFAS 123R”), which is effective for the first annual reporting period beginning after December 15, 2005 for non-public companies (as defined in SFAS 123R). The new statement requires compensation expense associated with share-based payments to employees to be recognized in the financial statements based on their fair values. Upon the adoption of SFAS 123R, the Company will be required to apply the provisions of the statement prospectively for any newly issued, modified or settled award after the date of initial adoption, as well as to the unvested portion of awards granted prior to adoption of the standard. As the Company currently uses the intrinsic value method to value the Options, the fair value assigned to any newly issued, modified or settled awards after the adoption of SFAS 123R is expected to be significantly greater due to the differences in valuation methods.

3. Inventories

A summary of inventories, by major classifications, follows:

	September 3, 2005		March 5, 2005
	December 3, 2005		March 5, 2005
Manufacturing supplies	$	1,~~694~~749,~~541~~256	$	1,684,290
Raw materials	7,~~413~~651,~~081~~656		6,530,663
Finished goods	4037,~~680~~207,~~590~~542		37,226,388
Work in process	6,~~960~~050		6,883
Total	$	4946,~~795~~614,~~172~~504	$	45,448,224

4. Long-Term Debt

Long-term debt is comprised of the following:

	September 3, 2005		March 5, 2005
	December 3, 2005		March 5, 2005
9.875% Senior Notes, interest payable on January 15 and July 15 of each year, maturing on July 15, 2012	$	125,000,000	$	125,000,000
$150 million term loan, with floating interest rates maturing 2010	~~129~~124,125,000		136,500,000
Revolving line of credit, maximum borrowings of $40 million with floating interest rates, maturing 2009	~~5,542,000~~—		790,000
0.0% to 7.55% capitalized lease obligations maturing through 2011	1943,~~049,318~~727		1,290,371
Total long-term debt	~~260~~250,~~716~~068,~~318~~727		263,580,371
Less current installments	~~301~~242,~~959~~834		421,713
Long-term debt less current installments	$	~~260~~249,~~414~~825,~~359~~893	$	263,158,658

On March 8, 2004, following a consent solicitation in which consents of holders of $112.4 million in aggregate principal amount of the Company’s then outstanding Old Notes, representing 97.74% of the outstanding Old Notes, consented to a Fourth Supplemental Indenture between the Company and U.S. Bank National Association, as trustee (the “Trustee”). The Company entered into the Fourth Supplemental Indenture with the Trustee. Among other things, the Fourth Supplemental Indenture increased the annual interest rate on the Old Notes from 10.75% to 12.25% through March 31, 2005 and 13.25% thereafter, and required the payment of a cash consent fee of $3.5 million (3% of the principal amount of Old Notes held by each consenting noteholder); required the termination of all related party transactions, except for certain specifically-permitted transactions (see Note 10, “Related Party Transactions” to the Condensed Consolidated Financial Statements); provided for the assumption by the Company of approximately $15.3 million of subordinated debt of PFMI and waived any and all defaults of the Indenture existing as of March 8, 2004.

Concurrently with the execution of the Fourth Supplemental Indenture, the Company took title to an aircraft transferred from a 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 related party note receivable against the debt assumed from PFMI; cancelled the balances owed by the Company to certain related parties, as follows: $0.5 million owed to Columbia Hill Aviation (“CHA”); $3.5 million owed to PF Purchasing; $0.5 million owed to PF Distribution; and assumed the operating leases of PF Distribution in connection with the Fourth Supplemental Indenture. We refer to these transactions as the “Restructuring”.

On June 30, 2004, the shareholders of PFMI closed the sale of their shares of stock of PFMI to Holding (see Note 1, “Basis of Presentation and Acquisition,” to the Condensed Consolidated Financial Statements). Effective June 30, 2004, the Company terminated its three-year variable-rate $40 million revolving credit facility. Existing debt issuance costs related 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 the amount of $0.4 million were charged to interest expense.

Also ~~effective~~ effective June 30, 2004, the Company obtained a $190 million credit ~~facility~~ facility from a new lender which includes a six-year variable-rate $150 million term loan, a five-year variable rate $40 million revolving credit facility and a $10 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 rates for base rate borrowings under the new revolving credit facility and the new term loan at December 3, 2005 were 8.75% (prime of 7.00% plus 1.75%) and 8.50% (prime of 7.00% plus 1.50%), respectively. Actual interest rates are lowered by the use of LIBOR tranches as appropriate. Repayment of borrowings under the term loan was initially $375,000 per quarter, which began on September 4, 2004, with a balloon payment of $141.4 million due on June 5, 2010. However, in addition to paying all scheduled quarterly payments totaling $8.6 million for the term of the loan, the Company made

~~assets. The~~prepayments ~~interest~~on ~~rates for base rate borrowings under~~ the ~~new revolving credit facility and the new~~ term loan attotaling September 3, 2005 were 8.25% (prime of 6.50% plus 1.75%) and 8.00% (prime of 6.50% plus 1.50%), respectively. Actual interest rates are lowered by the use of libor tranches as appropriate. Repayment of borrowings under the term loan was initially $~~375,000 per quarter, which began on September~~ 4~~, 2004, with a balloon payment of $141~~.4 9 million ~~due~~during onsuccessor ~~June 5,~~fiscal ~~2010~~2005. ~~However,~~Prepayments ~~in addition to paying all scheduled quarterly payments~~ totaling $85.60 million ~~for~~and ~~the term of the loan, the Company made prepayments on the term loan totaling~~ $412.9 4 million ~~during successor fiscal 2005. No prepayments on the term loan~~ were made during successor ~~second~~third quarter 2006~~. Prepayments~~ onand ~~the term loan totaling $7.4 million were made during~~ successor fiscal 2006, respectively. The remaining outstanding balance of $~~129~~124.1 million as of ~~September~~ December 3, 2005 is due on June 5, 2010.

As of ~~September~~ December 3, 2005, the Company had no outstanding borrowings under its revolving credit facility ~~totaling $5.5 million~~ and had borrowing availability of approximately $2834.84 million. The maturity date of the $40 million revolving credit facility is June 30, 2009. In addition, the Company is required to satisfy certain financial covenants regarding cash flow and capital expenditures. As of ~~September~~ December 3, 2005, the Company is in compliance with all financial covenants.

Also in conjunction with the Acquisition, the Company issued $125.0 million of 9⁷/₈% Senior Subordinated Notes due 2012 (the “New Notes”). The proceeds of the New Notes, together with the equity contributions from MDP and certain members of management and borrowings under the Company’s new senior credit facility, were used to finance the Acquisition of the Company and to repay outstanding indebtedness, including paying off debt of PFMI assumed by the Company under the Fourth Supplemental Indenture (except capital leases), paying for the Old Notes tendered in connection with the tender offer described in Note 1, “Basis of Presentation and Acquisition” to the Condensed Consolidated Financial Statements and redeeming the Old Notes not tendered.

5. Goodwill and Other Intangible Assets

In ~~conjunction~~ conjunction with the Acquisition, the Company engaged an independent party to perform valuations for financial reporting purposes on the Company’s goodwill and other intangibles. Assets identified through this valuation process included goodwill, formulas, customer relationships, licensing agreements and certain ~~trade~~ ~~names~~tradenames and trademarks.

In ~~accordance~~ accordance with SFAS 142, the Company tests recorded goodwill and other intangible assets with indefinite lives for impairment at least annually. All other intangible assets with finite lives are amortized over their estimated economic or estimated useful lives. In addition, all other intangible assets ~~are~~ are reviewed for impairment in accordance with SFAS 144. Based on the Company’s review and the review performed by third parties, no impairment existed at ~~September~~ December 3, 2005 or March 5, 2005.

The Company’s amortizable other intangible assets are amortized using accelerated amortization methods that match the expected benefit derived from the assets. The accelerated amortization methods allocate amortization expense in proportion to each year’s expected revenues to the total expected revenues over the estimated economic or estimated useful lives of the assets.

The gross carrying value of goodwill and the gross carrying value and accumulated amortization of other intangible assets are as follows:

	As of September 3, 2005							As of March 5, 2005
	As of December 3, 2005							As of March 5, 2005
	Useful	Gross				Net		Gross				Net
	Life	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	(years)	Amount		Amortization		Amount		Amount		Amortization		Amount
Amortizable intangible assets:
Formulas	15	$	95,000,000	$	1721,~~530~~105,~~407~~494	$	7773,~~469~~894,~~593~~506	$	95,000,000	$	10,380,233	$	84,619,767
Tradename and trademarks	12-20	20,100,000		2,421,557		17,678,443		20,100,000		1,409,337		18,690,663
Tradename and Trademarks	12-20	20,100,000		2,927,667		17,172,333		20,100,000		1,409,337		18,690,663
Customer Relationships	12	28,500,000		78,~~539~~883,~~816~~827		2019,~~960~~616,~~184~~173		28,500,000		4,851,794		23,648,206
Licensing Agreements	10	12,100,000		12,~~874~~294,~~668~~220		109,~~225~~805,~~332~~780		12,100,000		1,035,564		11,064,436
Total amortizable intangible assets		$	155,700,000	$	2935,~~366~~211,~~448~~208	$	~~126~~120,~~333~~488,~~552~~792	$	155,700,000	$	17,676,928	$	138,023,072

	As of September 3, 2005			As of March 5, 2005
	As of December 3, 2005			As of March 5, 2005
	Gross			Gross
	Gross Carrying		Accumulated	Gross Carrying		Accumulated
	Carrying		Accumulated	Carrying		Accumulated
	Amount		Amortization	Amount		Amortization
Unamortizable intangible assets:
Tradename	$	20,200,000	—	$	20,200,000	—
Goodwill	186,535,050		—	186,535,050		—
Total unamortizable intangible assets	$	206,735,050	—	$	206,735,050	—

The future amortization of other intangible assets (in thousands) for the next five fiscal years is estimated to be as follows:

	2007		2008		2009		2010		2011
Formulas	$	12,671	$	11,165	$	9,761	$	8,468	$	7,030
Tradename and Trademarks	~~1,919~~$	1,919	~~1,821~~$	1,821	~~1,732~~$	1,732	~~1,646~~$	1,646	~~1,539~~$	1,539
Customer Relationships	~~4,011~~$	4,011	~~3,358~~$	3,358	~~2,874~~$	2,874	~~2,391~~$	2,391	~~1,869~~$	1,869
Licensing Agreements	~~1,569~~$	1,569	~~1,495~~$	1,495	~~1,426~~$	1,426	~~1,361~~$	1,361	~~1,239~~$	1,239

6. Commitments and Contingencies

The ~~Company~~ Company provided a letter of credit in the amount of $5.5 million and $4.5 million at December ~~September~~ 3, 2005 and March 5, 2005, respectively, to its insurance carrier for the underwriting of certain performance bonds. This letter of credit expires in ~~successor~~ fiscal ~~2006~~2007. The Company also provides secured letters of credit to its insurance carriers for outstanding and potential worker’s compensation and general liability claims. Letters of credit for these claims totaled $~~110,000~~0.1 million at both ~~September~~ December 3, 2005 and March 5, 2005. In addition, the Company provides secured letters of credit to a limited number of suppliers. The Company had no letters of credit for suppliers at ~~September~~ December 3, 2005 ~~and~~or March 5, 2005.

The following tables summarize our ~~contractual~~commitments and contractual obligations ~~and~~by ~~commitments~~fiscal year as of ~~September~~ December 3, 2005.

	Commitments by Fiscal Year
	Total		Less than 1 Year		1 -– 3 Years		3-5 Years		More than 5 Years
Letters of credit	$	5,610,000	$	5,610,000	$	—	$	—	$	—
Purchase commitments for capital projects	12,~~950~~910,000		12,~~950~~910,000		—		—		—
Purchase commitments for electricity	~~428~~225,~~400~~000		~~428~~225,~~400~~000		—		—		—
Purchase commitments for raw materials	~~919~~299,~~093~~400		~~919~~299,~~093~~400		—		—		—
Purchase commitments for natural gas	~~605~~640,~~674~~400		~~605~~640,~~674~~400		—		—		—
Total	$	9,513,167	$	9,513,167	$	—	$	—	$	—
Purchase commitments for miscellaneous	79,786		79,786		—		—		—
Total	$	9,764,586	$	9,764,586	$	—	$	—	$	—

Contractual Obligations by Fiscal Year

Total

Less than 1 Year

1 – 3 Years

3-5 Years

More than 5 Years

Long-term debt

~~259~~249,~~667~~125,000

—

~~134~~124,~~667~~125,000

125,000,000

Capital lease obligations

1943,~~049,318~~727

~~301~~242,~~958~~834

~~380~~376,~~990~~656

~~350~~324,~~997~~237

~~15,373~~—

Operating lease obligations

65,~~138~~527,277

3,~~493~~549,~~387~~468

21,~~426~~730,~~128~~515

~~205~~221,~~637~~374

1325,~~125~~920

Total

~~266~~255,~~854~~596,~~595~~004

3,~~795~~792,~~345~~302

2,~~807~~107,~~118~~171

~~135~~124,~~223~~670,~~634~~611

125,~~028~~025,~~498~~920

Also in conjunction with the Acquisition, the Company and the selling shareholders entered into a tax sharing and indemnification agreement containing certain representations and warranties of the selling shareholders with respect to taxes. The agreement provides that any net operating loss carryforwards ~~(“NOLs”)~~ attributable to expenses relating to the sale of the Company (“Deal Related NOLs”) and certain other deal related expenses, will be for the benefit of the ~~selling~~ selling shareholders. As of the date of ~~the~~ the Acquisition, these Deal Related NOLs ~~totaled~~and other deal related expenses totaled approximately $24.2 million and $6.6 million, respectively. Accordingly, the Company is required to pay to to the selling shareholders the amount of any tax benefit attributable to such Deal Related NOLs and other deal related expenses, except that the first $4.0 million of such tax benefits shall be paid into an escrow account that will secure the selling shareholders indemnification obligations under the tax sharing and indemnification agreement. The Company is required to make payments to the selling shareholders or the escrow account for tax benefits derived from such utilization 20 days after the filing of the tax return that utilizes such Deal Related NOLs or other deal related expenses.

In conjunction with the Acquisition, the Company ~~had~~ recorded a net long-term liability to the ~~former~~ selling shareholders totaling $10.3 million for the estimated obligations under the tax sharing and indemnification agreement. As of ~~September~~ December 3, 2005, based on the federal income tax return filed November 15, 2005 (for the tax year ended February 26, 2005), the Company has utilized $58.16 million of the ~~aforementioned~~Deal Related NOLs and $1.7 million in other deal related expenses. As of December 3, 2005, the Company has submitted payment based on the tax benefit, net of other tax assessments due to the Company from the selling shareholders, to an escrow account for a total of $1.3 million. An additional $3.6 million will be submitted to the escrow account during successor fourth quarter 2006 for Deal Related NOLs utilized in connection with the tax returns filed November 15, 2005 for the tax year ended February 26, 2005. As of ~~September~~December 3, 2005, the Company has a net long-term liability to the ~~former~~selling shareholders totaling $8.9 million. This amount is excluded from the table above due to the uncertainty of when such utilization of the Deal Related NOLs ~~will~~ will occur.

~~The~~For ~~Company expects to realize $1.7 million of deal related expenses, decreasing taxable income for~~ the tax year ended February 26, 2005, ~~of which~~ the ~~related tax benefit to the~~ Company ~~of $0.7 must be reimbursed to the selling~~ ~~shareholders. In~~utilized ~~addition, the Company expects to utilize~~ approximately $153.3 million of non-deal related NOLs in ~~the~~its tax return ~~due~~ ~~for~~filed ~~the~~November ~~tax year ended February 26~~15, 2005. The non-deal related NOLs ~~enable~~enabled the Company to defer cash tax payments required by the ~~tax~~ tax sharing and indemnification agreement of approximately $51.52 million attributable to this tax period. ~~However, the Company will be required to reimburse the selling shareholders or the escrow account for the entire amount 20 days subsequent to the filing of its tax return in November 2006.~~

AsFor the tax year ending February 25, 2006, as a result of the current year ~~calculated~~estimated ~~losses~~taxable income for ~~tax purposes during~~ successor fiscal 2006, ~~the~~ the Company was able to defer cash tax payments of approximately $3.4.2 million ~~for both successor second quarter 2006 and successor fiscal 2006~~. The Company expects ~~such~~a portion of such deferred amounts to be paid out 20pursuant ~~days~~to the tax sharing and indemnification agreement subsequent to the filing of its tax return in November 2007.

7. Comprehensive Income

Total comprehensive income/(loss ) is comprised solely of net income/(loss) in successor ~~second~~third quarter 2006, successor ~~fiscal~~ ~~2005~~fiscal 2006, ~~predecessor~~successor ~~second~~third quarter 2005, successor fiscal 2005 and predecessor fiscal 2005.

8. Supplemental Cash Flow Disclosures - —Cash Refunded/(Paid) During the Period and Non-Cash Transactions

	Successor Pierre						Predecessor Pierre
	For the			For the Period			For the Period
	Twenty-Six Weeks			July 1, 2004			March 7, 2004
	Thirty-Nine Weeks			July 1, 2004			March 7, 2004
	Ended			Through			Through
	September 3, 2005			September 4, 2004			June 30, 2004
	December 3, 2005			December 4, 2004			June 30, 2004
Cash paid during the period for:
Cash refunded/(paid) during the period for:
Interest	$	10(12,~~148~~365,~~868~~136	)	$	3(5,~~162~~082,~~636~~683	)	$	(7,915,332	~~7,915,332~~	)
Income taxes refunds, net of payments	$	2,542,473		$	—		$		—
Income taxes, net	$	2,436,988		$	(52,973	)	$	—
Non-cash transactions:
Assumption of PF Management debt	$	—		$	—		$		14,274,050
Assumption of PFMI debt	$	—		$	—		$	14,274,050
Assumption of deferred tax liability for airplane	$	—		$	—		$	1,576,000	~~1,576,000~~
Cancellation of note receivable	$	—		$	—		$	993,247	~~993,247~~
Cancellation of accrual to PF Purchasing	$	—		$	—		$	3,479,007	~~3,479,007~~
Cancellation of accrual to PF Distribution	$	—		$	—		$	535,251	~~535,251~~
Other	$	—		$	—		$	174,874	~~174,874~~
Acquisition transactions
Acquisition transactions:
Elimination of Predecessor Pierre capital and retained earnings	$	—		$	4,883,415		$	—	—
Cancellation of receivable from former owner	$	—		$	5,000,000		$	—	—
Distribution of plant, property and equipment	$	—		$	8,476,079		$	—	—
Distribution of other current assets	$	—		$	9,255		$	—	—
Equity from Parent	$	—		$	~~244~~250,~~779~~087,~~225~~097		$
Deferred tax liability	$	—		$	4754,~~328~~464,~~427~~900		$	—	—
Tax sharing liability to previous shareholders	$	—		$	10,317,601		$	—	—
Valuation of goodwill and other intangibles	$	—		$	~~311~~323,~~182~~626,~~069~~414		$	—	—
Valuation of inventory	$	—		$	2,020,948		$		—
Valuation of inventories	$	—		$	2,020,948		$	—
Valuation of plant, property and equipment	$	—		$	4,438,984		$	—	—
Other transactions
Capital lease addition	$	—10,565		$	—142,395		$	1,013,300	~~1,013,300~~

9. Recently Issued Accounting Guidance

In November 2004, the Financial Accounting Standards Board (the “FASB”) issued SFAS 151, “Inventory Costs—an amendment of ARB No. 43, Chapter 4” (“SFAS 151”). FAS ~~SFAS~~ 151 amends ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges. In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The Company will ~~adopt~~ adopt the provisions of SFAS 151, effective March 5, 2006 for its fiscal 2007 ~~consolidated~~ consolidated financial statements. Management is currently evaluating the impact the adoption of the provisions of SFAS 151 will have on the Company’s ~~consolidated~~Consolidated ~~financial~~Financial ~~statements~~Statements.

In May 2005, FASB issued SFAS 154, “Accounting Changes and Error Corrections”. The Statement requires retroactive application of a voluntary change in accounting principle to prior period financial statements unless it is impracticable. SFAS 154 also requires that a change in method of depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a change in accounting estimate that is affected by a change in accounting principle. SFAS 154 replaces APB Opinion 20, “Accounting Changes”, and SFAS 3, “Reporting Accounting Changes in Interim Financial Statements”. The Company will adopt the provisions of SFAS 154, effective March 5, 2006 for ~~its~~ its fiscal 2007 ~~consolidated~~Consolidated ~~financial~~Financial ~~statements~~Statements. Management currently believes that adoption of the provisions of SFAS 154 will not have a material impact on the Company’s ~~consolidated~~ ~~financial~~Consolidated ~~statements~~Financial Statements.

10. Related Party Transactions

Successor Pierre

At ~~September~~ December 3, 2005, there were no significant changes in related party transactions from those described at March 5, 2005 in the Company’s Form 10-K.

Predecessor Pierre

As ~~described~~ described in Note 4, “Long-Term Debt” to the Condensed Consolidated Financial Statements, on March 8, 2004, following a consent solicitation in which a majority of the holders of the Company’s outstanding Old Notes consented to a Fourth Supplemental Indenture between the Company and the Trustee, the Company entered into the Fourth Supplemental Indenture with the Trustee. Among other things, the Fourth Supplemental Indenture limited future related party transactions and required the termination of all related party transactions, except for certain specifically-permitted transactions.

The following related party transactions were specifically permitted under the terms of the Fourth Supplemental Indenture:

Notes consented to a Fourth Supplemental Indenture between the Company and the Trustee, the Company entered into the Fourth Supplemental Indenture with the Trustee. Among other things, the Fourth Supplemental Indenture limited future related party transactions and required the termination of all related party transactions, except for certain specifically-permitted transactions.

The following related party transactions were specifically permitted under the terms of the Fourth Supplemental Indenture:

• Columbia Hill Land Company, LLC, owned 50% by each of James C. Richardson and David R. Clark, the Company’s then Chairman and Vice-Chairman, respectively, leased office space to the Company in Hickory, North Carolina, pursuant to a ten-year lease that commenced in September 1998. Rents paid under the lease were approximately $29,000 for both predecessor fiscal 2005 and successor fiscal 2005.

• On March 8, 2004 the Company took title to an aircraft that was transferred from CHA, owned 100% by PFMI, subject to existing purchase money debt. The aircraft was originally leased by the Company from CHA beginning in the fourth quarter of fiscal 2002. Effective March 1, 2002, the original lease was cancelled and replaced with a non-exclusive lease agreement. Pursuant to this new lease, the Company was obligated to make 16 quarterly lease payments of $471,500 each for the right to use the aircraft for up to 115 flight hours per quarter, based on availability. Under this lease agreement, CHA was responsible for all expenses incurred in the operation of the use of the aircraft, except that the Company provided its own flight crew.

All other related party transactions that were in effect at March 6, 2004 were terminated as of March 8, 2004 pursuant to the terms of the Fourth Supplemental Indenture. As a result of the termination of these related party transactions, subsequent to March 8, 2004, the Company has performed its purchasing and distribution services internally.

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 PF Purchasing cancelled	3,479,007
Assumption of deferred tax liability for aircraft	(1,576,000		)
Note receivable cancelled	(993,247		)
Accrued liabilities to PF Distribution 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 of members’ equity of CHA.

On June 30, 2004, in conjunction with the sale by the shareholders of PFMI of their shares of stock of PFMI to Holding, all predecessor Pierre related party transactions were terminated as described in Note 1, “Basis of Presentation and Acquisition” to the Condensed Consolidated Financial Statements.

11. Legal Proceedings and Contingencies

On August 19, 2003, as a result of complaints from neighboring businesses, the Company received a Notice of Violation (“NOV”) from the Hamilton County Department of Environmental Services (“HCDOES”) relating to operations at its Cincinnati, Ohio plant facility. The NOV alleged that the Company violated its permits by exceeding the visual emission (“VE”) specification of 20% opacity. The Company received additional NOV’s for ~~opacity violations on October 22, 2003 and November 26, 2003, all of which were the result of complaints from neighboring businesses.~~

Subsequent to the original NOV received in August of 2003, the Company began investigating and testing various emission reduction technologies. The Company found a solution that enabled operations to continue with less smoke output and completed the upgrade during early 2004. HCDOES inspected the upgrade in April 2004 and determined that the Company had returned to compliance with the opacity limit. In connection with the upgrade, the Company was required to submit a revised Permit to Install (“PTI”) application.

Recently, pursuant to its regulatory authority, HCDOES requested a Method 5 Stack Test be performed to assess the Company’s compliance with its emissions limits. The Company contacted HCDOES, requesting the scheduled stack emission compliance test be postponed while a series of engineering stack tests were performed at both controlled and uncontrolled emission test points in order to evaluate the magnitude of the emissions based on current production data and to estimate new emissions factors by product line. HCDOES agreed to this approach and granted permission to delay the standard Method 5 Stack Test originally

~~requested~~opacity ~~until~~violations ~~the~~on ~~Company~~October 22, ~~performs~~2003 aand ~~series~~November 26, 2003, all of ~~engineering~~which ~~tests~~were ~~utilizing~~the aresult ~~third~~of ~~party~~complaints ~~service~~from neighboring ~~provider~~businesses.

~~The~~Subsequent ~~Company~~to ~~contracted~~the ~~with~~original aNOV ~~third~~received ~~party~~in ~~firm~~August toof ~~perform~~2003, the ~~testing~~Company ~~and evaluation. This~~began ~~firm performed~~investigating ~~preliminary~~and testing invarious ~~early~~emission ~~September 2005,~~reduction ~~which~~technologies. The ~~indicated~~Company found a solution that enabled ~~violations~~operations ofto ~~emission~~continue ~~levels~~with ~~may~~less ~~have~~smoke ~~occurred,~~output and ~~retested~~completed ~~September 28, 2005~~the ~~through~~upgrade ~~September 30,~~during early ~~2005~~2004. HCDOES inspected the upgrade ~~The~~in ~~Company~~April ~~anticipates~~of ~~receiving~~2004 ~~the~~and ~~results~~determined ofthat the ~~retest~~Company inhad returned to compliance with the ~~near~~opacity ~~future~~limit. ~~The~~In ~~results~~connection with ~~will~~the ~~allow~~upgrade, the Company ~~to evaluate~~was ~~the~~required ~~Facility’s~~to ~~current~~submit ~~and~~a ~~historical~~revised ~~potential~~Permit ~~and~~to Install ~~actual~~(“PTI”) ~~emissions~~application.

Recently, pursuant to its regulatory authority, HCDOES requested a Method 5 Stack Test be performed to assess the Company’s compliance with its emissions limits. The Company contacted HCDOES, requesting the scheduled stack emission compliance test be postponed while the Company’s independent consulting firm conducted an emissions audit program consisting of a series of engineering stack tests that were performed at both controlled and uncontrolled emission test points in order to evaluate the magnitude of the emissions based on current production data and to estimate new emissions factors by product line. HCDOES agreed to this approach and granted permission to delay the standard Method 5 Stack Test originally requested while the Company conducted its emissions audit program.

The Company contracted with an independent environmental consulting firm to perform the audit and evaluation. As part of the overall audit, this firm performed preliminary testing in early September 2005, which indicated that violations of emission levels may have occurred, and retested September 28, 2005 through September 30, 2005. The firm conducted additional tests during October 27, 2005 through November 8, 2005. The Company anticipates receiving the complete results of the audit in the near future. The results will allow the Company to evaluate the facility’s current and historical potential and actual emissions. The Company intends to meet with the local air permitting authority in February, 2006, to discuss the results of the emissions audit program.

The Company is cooperating with the authorities in all aspects of these matters. In addition, the Company consulted with its outside legal counsel to assist them in resolving these matters and estimate the potential fines and penalties that may be assessed in the future. If the Company is deemed non-compliant, additional expenditures for further testing, permits, equipment upgrades and legal expense may be required.

The Company continuously evaluates contingencies based upon the best available information. The Company believes it has recorded appropriate liabilities to the extent necessary in cases where the outcome of such liabilities is considered probable and reasonably estimable, and that its assessment of contingencies is reasonable. To the extent that resolution of contingencies results in amounts that vary from management’s estimates, future earnings will be charged or credited accordingly.

As part of its ongoing operations in the food manufacturing industry, the Company is subject to extensive federal, state, and local regulations and its food processing facilities and food products are subject to frequent inspection, audits and inquiries by the United States Department of Agriculture, the Food and Drug Administration and various local health and agricultural agencies and by federal, state and local agencies responsible for the enforcement of environmental laws and regulations. The Company is also involved in various legal actions arising in the normal course of business. These matters are continuously being evaluated and, in some cases, are being contested by the Company and the outcome is not predictable. Consequently, an estimate of the possible loss or range of loss associated with these actions cannot be made. Although occasional adverse outcomes (or settlements) may occur and could possibly have an adverse effect on the results of operations in any one accounting period, the Company believes that the final disposition of such matters will not have a material adverse affect on the Company’s consolidated financial position.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

Successor ~~Second~~Third Quarter 2006 Compared to ~~Predecessor~~Successor ~~Second~~Third Quarter 2005 ~~and Successor Fiscal 2005 Combined~~

AsRevenues, anet. Net revenues ~~result~~increased ofby ~~the~~$3.5 ~~Acquisition~~million ~~as described~~ in ~~Note~~successor 1,third ~~“Basis~~quarter of2006 ~~Presentation~~compared ~~and Acquisition,”~~ to ~~the Condensed Consolidated Financial Statements and elsewhere~~successor inthird ~~this~~quarter ~~report~~2005, ~~the~~or ~~following results of operations comparisons demonstrate a significant difference between compared periods~~3.1%. ~~The~~This increase ~~Acquisition on June 30, 2004~~ was ~~accounted~~ ~~for~~primarily ~~under~~due ~~the~~to ~~purchase~~sales ~~method~~volume ofgrowth ~~accounting resulting~~ in anmost ~~increase in the basis~~ of the Company’s ~~assets.~~ ~~Due~~end-market tosegments ~~the~~and ~~change~~higher inmargin ~~basis,~~product ~~the~~sales. This ~~Company’s~~increase ~~results~~was ofpartially ~~operations~~offset ~~and~~by ~~those~~decreased ofsales ~~the~~to ~~Company’s~~a ~~predecessor~~large ~~are~~National ~~not~~Accounts ~~considered~~customer ~~comparable~~($3. ~~The~~9 ~~Company’s~~million ~~results~~less ofthan successor ~~operations~~third ~~include amortization~~quarter ~~related~~2005). Sales to this ~~the~~customer ~~identifiable~~were ~~intangible~~impacted, ~~assets~~in ~~and~~part, ~~interest~~by ~~expense related~~higher togasoline ~~the~~prices, ~~borrowings~~which ~~incurred~~impact store intraffic, ~~connection~~coupled with ~~the~~promotional ~~Acquisition~~activity towards sandwiches that do not include our products.

~~Revenues,~~Cost ~~net~~of goods sold. ~~Net revenues~~Cost of goods sold increased by $01.2 0 million in successor ~~second~~third quarter 2006 compared to ~~predecessor~~successor ~~second~~third quarter 2005 ~~and successor fiscal 2005 combined~~, or 01.2%. ~~The reduction in revenue growth in the~~ ~~successor~~This ~~second~~increase ~~quarter~~was ~~2006~~primarily ~~relative~~due to ~~the~~(1) ~~growth~~an ~~experienced~~increase in ~~previous periods~~costs ~~was~~as ~~primarily~~ a result of ~~decreased~~of ~~sales~~increased net revenues due to ~~several~~volume ~~large~~growth ~~National~~and ~~Accounts~~an ~~customers~~increase ~~($6.9 million). The~~in ~~decreased~~mix ~~National~~to lower ~~Accounts~~cost, ~~sales~~higher ~~were~~margin ~~offset~~products byand ~~strong~~(2) ~~revenue~~an ~~growth~~increase in ~~the~~costs ~~Company’s~~as ~~other~~a result of ~~end-market~~manufacturing ~~segments~~efficiencies ~~and~~related byto ~~the~~changes ~~net~~in ~~impact~~sales ofmix; ~~price~~offset ~~increases~~by ~~implemented~~(3) ~~during~~ the net ~~prior~~impact ~~year~~of recent decreases in ~~response~~prices topaid ~~higher~~for raw material ~~prices~~proteins and formulation mix ($2. ~~Sales~~3 ~~for~~million) ~~these~~and ~~National~~(4) ~~Accounts~~a ~~customers continue~~favorable toimpact beas ~~negatively~~a ~~impacted~~result byof ~~higher~~a ~~gasoline~~$0.4 million ~~prices~~purchase ~~and~~accounting adjustment on beginning inventory in the ~~related~~prior year ~~effect~~comparable onperiod ~~consumers’~~made ~~discretionary~~in ~~spending~~connection with the Acquisition.

~~Cost~~As a percentage of ~~goods~~revenues, ~~sold. Cost~~cost of goods sold decreased by $5from 71.6 ~~million~~% ~~in successor second quarter 2006 compared~~ to ~~predecessor second quarter 2005 and successor fiscal 2005 combined~~70.2%, ora decrease 7.of 1.4%. This decrease was primarily due to (1) ~~an increase~~ inthe ~~mix~~net toimpact ~~lower~~of ~~cost,~~decreases ~~higher~~in ~~margin~~prices ~~products;~~paid ~~(2) start-up~~for ~~costs~~raw ~~incurred~~material inproteins ~~predecessor~~and ~~second~~formulation ~~quarter~~mix ~~2005~~(approximately ~~and~~1.2%); ~~successor~~(2) ~~fiscal~~a ~~2005~~decrease ~~combined~~in ~~associated~~costs ~~with~~as a ~~National~~result ~~Accounts~~of ~~restaurant~~an ~~chain~~increase ~~customer~~in ~~that~~mix ~~were~~to ~~not incurred~~lower ~~during~~cost, ~~successor~~higher ~~second~~margin ~~quarter 2006~~ products (~~$1.8~~approximately ~~million~~0.6%); and (3) ~~the~~ a favorable impact as a result of a purchase accounting adjustment on beginning inventory ~~(as a result of the Acquisition)~~ in the prior year comparable period ~~that did not occur~~ ~~during~~made ~~successor~~in ~~second~~connection ~~quarter~~with ~~2006~~the Acquisition (~~$1.5~~approximately ~~million~~0.4%); offset by (4) ~~net~~ an ~~increased~~increase ~~raw~~in ~~material~~costs ~~protein~~as ~~prices and unfavorable formulation mix ($1.4 million). As~~ a ~~percentage~~result of ~~revenues, cost~~manufacturing ofefficiencies ~~goods~~related ~~sold~~to ~~decreased~~changes in ~~from~~sales 80mix.~~2% to 74.4%.~~

The ~~primary~~ primary materials used in the Company’s food processing operations include ~~boneless~~ boneless beef, ~~chicken~~pork, ~~pork~~chicken, flour, yeast, seasonings, cheese, breading, soy ~~proteins,~~ proteins and packaging supplies. Meat proteins are generally purchased under 7-day payment terms. Historically, wethe ~~have~~Company has not hedged in the futures markets, and over time, ~~our~~its raw material costs have fluctuated with movement in the relevant commodity markets. Additionally, wethe ~~have~~Company has contracts with formulaic pricing that require ~~allow~~the usCompany to immediately pass along commodity price ~~increases~~ variances. The $12.4 million net ~~increased~~ decreased raw material protein prices included $21.0 million related to these formulaic contracts, ~~offset by~~ and $01.64 million raw material protein price decreases related to other non-contracted sales.

Approximately 4043.90% of total sales for successor ~~second~~third quarter 2006 were protected from commodity exposure, of which 3634.25% were attributable to cost-plus contracts, while the other 48.75% were related to the USDA Commodity Reprocessing Program, which also insulates usthe Company from raw material price fluctuations. For ~~predecessor~~successor ~~second~~third quarter 2005 ~~and successor fiscal 2005 combined~~, approximately 4743.4% of total sales were protected from commodity exposure, of which 4434.19% were attributable to cost-plus contracts, while the other 38.35% were related to the USDA Commodity Reprocessing Program. ~~This decrease in insulated sales from commodity exposure is directly related to the decrease in National Accounts sales.~~

The ~~following~~ following table represents the ~~(increases)/~~decreases in the weighted average prices the Company paid for beef, pork, chicken and cheese excluding formulation mix and contracts with formulaic pricing during ~~the~~ successor ~~second~~ third quarter 2006 compared to ~~the predecessor second quarter 2005 and~~ successor ~~fiscal~~third ~~2005~~quarter ~~combined~~2005.

	(Increase)/Decrease
	Successor Third Quarter 2006
	Compared to
	Successor Third Quarter 2005
Beef	0.6	%
Pork	20.0	%
Chicken	10.9	%
Cheese	4.1	%
Aggregate	6.5	%

Selling, general and administrative. Selling, general and administrative expenses increased by $1.6 million in successor third quarter 2006 compared to successor third quarter 2005, or 10.4%. As a percentage of revenues, selling, general and administrative expenses increased from 13.8% to 14.7%. This increase was primarily due to (1) an increase in storage expense of $0.6 million as a result of increased inventories built to maintain customer service levels for customer requirements and product line expansion; (2) an increase of $1.1 million in freight due to higher fuel prices and an increase in the mix of products shipped by the Company versus products picked up by customers, as a result of decreased sales for a large National Accounts customer; (3) an increase of $0.5 million in selling expense related to product line expansion; (4) an increase of $0.5 million in administrative costs and (5) an increase in sales mix to lower cost, higher margin end-markets with greater selling burden rates; partially offset by (6) a decrease in incentive compensation.

	(Increase)/Decrease
	Successor Second Quarter 2006
	Compared to
	Predecessor Second Quarter 2005
	And
	Successor Fiscal 2005 Combined
Beef	(6.8	)%
Pork	13.8	%
Chicken	43.3	%
Cheese	10.5	%
Aggregate	9.3	%

Depreciation and amortization. Depreciation and amortization expense decreased in successor third quarter 2006 compared to successor third quarter 2005 by $1.0 million. This is primarily due to the accelerated amortization method used for certain intangible assets.

~~Selling,~~Other ~~general and administrative~~expense. ~~Selling,~~ Other ~~general~~expense ~~and~~consists ~~administrative~~primarily ~~expenses decreased~~of ~~by $1.0 million in successor second quarter 2006 compared to~~interest ~~predecessor~~on ~~second~~fixed ~~quarter 2005~~ and ~~successor~~variable ~~fiscal~~rate ~~2005~~long-term ~~combined,~~debt orand ~~5.8%.~~interest ~~As a~~on ~~percentage~~the ofrevolving ~~revenues~~loan, ~~selling, general and administrative expenses~~ ~~decreased~~both ~~from 17.3% to 16.3%. This decrease was primarily due to (1) the elimination~~ of ~~expenses~~which ~~related~~were toentered ~~the~~into ~~previous~~in ~~shareholders~~connection aswith ~~a result of~~ the ~~Acquisition~~ ~~of $3~~Acquisition.6 Other ~~million;~~expense ~~offset~~increased ~~by (2) an increase~~ in ~~selling~~successor ~~expenses~~third ~~primarily~~quarter ~~due~~2006 tocompared ~~product~~with ~~line~~successor ~~expansion~~third ~~($0.7~~quarter ~~million);~~2005 ~~(3) higher~~by ~~costs for the storage of increased inventory (~~$0.64 million);, ~~(4) an increase in~~or ~~incentive compensation ($0~~7.56%. This ~~million); (5) an~~ increase inis ~~freight~~primarily ~~charges~~ due to ~~an increase in the mix of products shipped by the Company versus~~ ~~products picked up by customers and higher fuel surcharges impacted by~~ the ~~price~~ ~~of crude oil ($0.3 million); and (6) an~~ increase in ~~sales~~floating ~~mix~~interest ~~to lower cost, higher margin end-markets with greater selling burden~~ rates ~~($0.5 million). Expenses~~related ~~associated~~to ~~with~~ the ~~previous~~ ~~shareholders~~Company’s interm ~~predecessor second quarter 2005 and successor fiscal~~loan, ~~2005~~offset ~~combined~~by ~~that~~decreased ~~are~~borrowings ~~not~~as ~~present~~a inresult ~~successor~~of ~~second~~partial ~~quarter~~repayment ~~2006~~of ~~and are not expected to be incurred in~~ the ~~future include the following:~~term loan.

	Predecessor
	Second Quarter
	2005 and
	Successor Fiscal
(in millions)	2005 Combined
Compensation expense (a)	$	0.3
Travel and entertainment (b)	0.3
Aircraft expense (c)	0.4
Professional fees (d)	0.3
Previous shareholders’ other expenses (e)	0.1
Previous shareholders’ transaction fees (f)	1.0
Consulting services (g)	0.8
Endorsement termination (h)	0.3
Other (i)	0.1
Total	$	3.6

Income taxes. The effective tax rate for successor third quarter 2006 was 38.7% compared to 31.7% for successor third quarter 2005. The increase in the effective tax rate is primarily due to the Company’s profitability and expected pre-tax income in the current year relative to the impact of permanent differences, offset partially by the impact of new Ohio tax laws enacted June 30, 2005. These new laws include the phase-out of Ohio franchise tax and Ohio personal property tax and the phase-in of a gross receipts tax referred to as the Commercial Activity Tax (“CAT”).

Compensation expense (a) relates to personnel who were terminated in connection with the sale of the Company and will not be replaced. Travel and entertainment (b) relates to expenses incurred by personnel who were terminated and will not be replaced as a result of the Acquisition. Aircraft expense (c) relates to the leasing of an aircraft owned by CHA, formerly a subsidiary of PFMI, which was retained by the selling shareholders. The professional fees (d) primarily are related to the Acquisition. The previous shareholders’ other expenses (e) relate to outside board of director fees, community relations, and contributions made to the former owner’s alma mater. The previous shareholders’ transaction fees (f) include legal, accounting, and tax consulting fees related to the Acquisition. The consulting services (g) consist of the fee paid to the selling shareholders’ adviser for his role in the Acquisition. The endorsement termination (h) relates to the contract between the Company and Crawford Race Cars, LLC. Other (i) includes employee travel and other expenses incurred in connection with the financing of the Acquisition.

Depreciation and amortization. Depreciation and amortization expense increased in successor second quarter 2006 compared to predecessor second quarter 2005 and successor fiscal 2005 combined by $1.3 million. This is primarily due to the amortization related to the allocation of the Acquisition purchase price to other intangible assets that was present for the entire successor second quarter 2006. For the prior year comparable period, such amortization of intangible assets only occurred subsequent to the Acquisition during successor fiscal 2005. In addition, depreciation expense increased as a result of the allocation of the Acquisition purchase price and re-valuation of property, plant and equipment as a result of purchase accounting due to the Acquisition.

Other expense. Other expense consists primarily of interest on fixed and variable rate long-term debt and interest on the revolving loan, both of which were entered into in connection with the Acquisition. Interest expense decreased in successor second quarter 2006 compared with predecessor second quarter 2005 and successor fiscal 2005 combined by $5.3 million, or 49.3%. This decrease is primarily due to expenses incurred during predecessor second quarter 2005 and successor fiscal 2005 combined as a result of the Acquisition, including: (1) $4.3 million for the write-off of deferred loan origination fees; (2) $0.6 million for the repayment of the Old Notes and (3) $0.5 million for the repayment of the Company’s former revolving credit facility.

Income taxes. The effective tax rate for successor second quarter 2006 was 59.4% compared to 33.0% for predecessor second quarter 2005 and successor fiscal 2005 combined. The increase in the effective tax rate is primarily due to the impact of new Ohio tax laws enacted June 30, 2005. These new laws include the phase-out of Ohio franchise tax and Ohio personal property tax and the phase-in of a gross receipts tax referred to as the Commercial Activity Tax (“CAT”). As a result of the enactment, the Company reduced its deferred tax liability based on the phase-out of franchise tax and recorded an additional valuation allowance based on Ohio investment tax credits that are expected to expire prior to utilization. Excluding the one-time impact of this enactment, the effective tax rate for successor second quarter 2006 would have been 38.8%. The increase in the effective tax rate excluding the impact of the Ohio law changes is primarily due to the Company’s profitability and expected pre-tax income in the current year.

Successor Fiscal 2006 Compared to Predecessor Fiscal 2005 and Successor Fiscal 2005 Combined

~~Revenues,~~As ~~net. Net~~a result of ~~revenues~~the ~~increased~~Acquisition byas ~~$15.9 million~~described in ~~successor~~Note ~~fiscal~~1, ~~2006~~“Basis ~~compared~~of toPresentation and ~~predecessor~~Acquisition,” ~~fiscal~~to ~~2005~~the ~~and~~Condensed ~~successor~~Consolidated ~~fiscal~~Financial ~~2005~~Statements ~~combined~~and elsewhere in this report, orthe ~~8.3%.~~following ~~This increase~~results isof ~~primarily~~operations ~~due~~comparisons todemonstrate ~~(1) strong~~a significant ~~growth~~difference inbetween ~~most~~compared ofperiods. The ~~the~~Acquisition ~~Company’s~~on June 30, 2004 was ~~end-market~~accounted ~~segments~~for ~~and~~under ~~(2)~~ the ~~impact~~purchase method of ~~price~~accounting ~~increases~~resulting ~~implemented~~in an increase ~~during~~in the ~~prior~~basis ~~year~~of inthe ~~response~~Company’s assets. Due to ~~higher~~the ~~raw~~change ~~material~~in ~~prices~~basis, ~~offset~~the byCompany’s ~~(3) decreased~~results of operations and ~~sales~~those toof ~~several~~the ~~large~~Company’s ~~National~~predecessor ~~Accounts~~are ~~customers~~not ~~($4.7~~considered ~~million)~~comparable. ~~Sales~~The ~~for~~Company’s ~~these~~results ~~National~~of ~~Accounts~~operations ~~customers continue~~include amortization related to bethe ~~negatively~~identifiable ~~impacted~~intangible byassets ~~higher~~and ~~gasoline~~interest ~~prices~~expense related ~~and~~to the ~~related~~borrowings ~~effect~~incurred ~~on consumers’~~in ~~discretionary~~connection ~~spending~~with the Acquisition.

~~Cost~~Revenues, ~~of goods sold~~net. ~~Cost of~~ Net ~~goods~~revenues ~~sold~~ increased by $519.7 4 million in successor fiscal 2006 compared to predecessor fiscal 2005 and successor fiscal 2005 combined, or 36.94%. This increase was primarily due to ~~(1) higher net~~sales ~~raw~~volume ~~material~~growth ~~protein~~in ~~prices~~most ~~and~~of ~~unfavorable formulation mix related to~~ the ~~increase~~Company’s inend-market ~~protein~~segments ~~prices~~and ~~($7.1~~higher ~~million);~~margin ~~(2) increased~~product ~~costs as a result of increased net revenues due to substantial volume growth ($3~~sales.8 This ~~million)~~increase ~~and~~was ~~(3) increased incentive~~partially ~~compensation expense ($0.4 million);~~ offset by ~~(4) start-up~~ ~~costs~~decreased ~~incurred~~sales into ~~predecessor~~two ~~fiscal~~large ~~2005 and successor fiscal 2005 combined associated with a~~ National Accounts ~~restaurant chain~~ customer ~~that were not incurred during successor fiscal 2006~~ ($37.24 million); ~~(5) the~~less ~~impact of a~~than ~~purchase accounting adjustment on beginning inventory (as a result of the Acquisition) in the prior year comparable period that did not occur during~~ successor fiscal ~~2006 ($1.5 million~~2005). Sales ~~and~~to ~~(6) other favorability~~these ~~primarily~~customers ~~related~~were toimpacted, ~~production~~in ~~downtime~~part, ~~for~~by ~~equipment~~higher ~~replacement~~gasoline ~~incurred~~prices, ~~in predecessor~~which ~~fiscal~~impact ~~2005~~store traffic, ~~and~~coupled ~~successor~~with ~~fiscal~~promotional ~~2005~~activity ~~combined~~towards sandwiches that ~~was~~do not ~~incurred~~include ~~during~~our ~~successor fiscal 2006~~products. ~~As a percentage of revenues, cost of goods sold decreased from 76.7% to 73.5%.~~

~~The~~Cost of goods sold. Cost of goods sold ~~primary~~increased ~~materials~~by ~~used~~$6.6 million in ~~the~~successor ~~Company’s~~fiscal ~~food~~2006 ~~processing~~compared ~~operations~~to ~~include~~predecessor ~~boneless~~fiscal ~~beef,~~2005 ~~chicken,~~and ~~pork,~~successor ~~flour,~~fiscal ~~yeast,~~2005 ~~seasonings~~combined, ~~cheese,~~or ~~breading,~~2.9%. This ~~soy~~increase was primarily due to (1) an ~~proteins,~~increase ~~and~~in ~~packaging~~costs ~~supplies~~$6.6 ~~Meat~~million ~~proteins~~as ~~are~~a ~~generally~~result ~~purchased~~of ~~under~~increased ~~7-day~~net revenues due to ~~payment~~volume ~~terms. Historically,~~growth weand ~~have~~an ~~not hedged~~increase in ~~the~~mix ~~futures~~to ~~markets~~lower cost, ~~and~~higher ~~over~~margin ~~time,~~products; ~~our~~(2) an increase ~~raw~~in ~~material~~ costs ~~have fluctuated~~as ~~with~~a ~~movement~~result inof ~~the~~manufacturing ~~relevant~~efficiencies ~~commodity~~related ~~markets. Additionally,~~to wechanges in ~~have~~sales ~~contracts~~mix ~~with formulaic~~and ~~pricing~~(3) the ~~that~~net ~~allow~~impact usof toincreases ~~immediately~~in ~~pass~~prices ~~along~~paid ~~commodity~~for ~~price~~raw ~~increases. The~~material proteins and formulation mix ($73.13 million); ~~net~~offset by (4) a ~~increased~~favorable ~~raw~~impact ~~material~~as ~~protein~~a ~~prices~~result ~~included~~of a $61.39 million ~~related~~purchase toaccounting ~~these~~adjustment ~~formulaic~~on ~~contracts~~beginning inventory in the prior year comparable period made in connection with the Acquisition and by(5) start-up costs of $03.81 million ~~raw~~incurred ~~material~~in predecessor ~~protein~~fiscal ~~price~~2005 ~~increases~~and successor fiscal 2005 combined associated with a ~~related~~National toAccounts ~~other~~customer ~~non-contracted~~that ~~sales~~were not incurred during successor fiscal 2006.

~~Approximately~~As a ~~42.6%~~percentage of ~~total~~revenues, ~~sales~~cost ~~for~~of ~~successor~~goods ~~fiscal~~sold ~~2006~~decreased ~~were~~from ~~protected~~74.8% ~~from~~to ~~commodity exposure~~72.3%, a decrease of ~~which 38.~~2.5%. This ~~were~~decrease ~~attributable~~was primarily due to ~~cost~~(1) start-~~plus~~up ~~contracts,~~costs ~~while~~incurred ~~the~~in predecessor fiscal 2005 and ~~other~~successor ~~4.4%~~fiscal 2005 combined associated with a National Accounts customer that were ~~related~~not toincurred ~~the~~during ~~USDA~~successor ~~Commodity~~fiscal ~~Reprocessing~~2006 ~~Program,~~(approximately ~~which~~1.0%); ~~also~~(2) a ~~insulates~~decrease usin ~~from~~costs ~~raw~~as ~~material~~a ~~price~~result ~~fluctuations. For~~of ~~predecessor~~an ~~fiscal~~increase ~~2005~~in ~~and~~mix ~~successor fiscal~~to ~~2005~~lower ~~combined~~cost, higher margin products (approximately 430.29%) ofand ~~total~~(3) ~~sales~~a ~~were~~favorable ~~protected~~impact ~~from commodity~~as ~~exposure,~~a result of a ~~which~~purchase ~~40.2%~~accounting ~~were~~adjustment ~~attributable~~on tobeginning ~~cost-plus~~inventory ~~contracts, while~~in the ~~other~~prior ~~3.0%~~year comparable ~~were~~period ~~related~~made toin connection with the ~~USDA~~Acquisition; ~~Commodity~~offset ~~Reprocessing~~by ~~Program. This~~(4) ~~decrease~~an increase in ~~insulated~~costs ~~sales~~as ~~from commodity~~a ~~exposure~~result isof ~~directly~~manufacturing efficiencies related to changes in sales mix and (5) the ~~decrease~~net impact of increases in ~~National~~prices ~~Accounts~~paid for raw ~~sales~~material proteins and formulation mix.

The primary materials used in the Company’s food processing operations include boneless beef, pork, chicken, flour, yeast, seasonings, cheese, breading, soy proteins, and packaging supplies. Meat proteins are generally purchased under 7-day payment terms. Historically, the Company has not hedged in the futures markets, and over time, the Company’s raw material costs have fluctuated with movement in the relevant commodity markets. Additionally, the Company has contracts with formulaic pricing that require the Company to immediately pass along commodity price variances. The $5.3 million net increased raw material protein prices included $5.2 million related to these formulaic contracts and $0.1 million raw material protein price increases related to other non-contracted sales.

Approximately 43.1% of total sales for successor fiscal 2006 were protected from commodity exposure, of which 37.2% were attributable to cost-plus contracts, while the other 5.9% were related to the USDA Commodity Reprocessing Program, which also insulates the Company from raw material price fluctuations. For predecessor fiscal 2005 and successor fiscal 2005 combined, approximately 43.5% of total sales were protected from commodity exposure, of which 38.5% were attributable to cost-plus contracts, while the other 5.0% were related to the USDA Commodity Reprocessing Program.

The following table represents the (increases)/decreases in the weighted average prices the Company paid for beef, pork, chicken and cheese excluding unfavorable formulation mix and contracts with formulaic pricing during successor fiscal 2006 compared to predecessor fiscal 2005 and successor fiscal 2005 combined:

	(Increase)/Decrease
	Successor Fiscal 2006
	Compared to
	Predecessor Fiscal 2005
	and
	Successor Fiscal 2005 Combined
Beef	(9.4	)%
Pork	10.8	%
Chicken	37.2	%
Cheese	4.8	%
Aggregate	5.2	%

Selling, general and administrative. Selling, general and administrative expenses decreased by $1.2 million, or 2.3%. As a percentage of revenues, selling, general and administrative expenses decreased from 17.0% to 15.6%. This decrease was primarily due to (1) the elimination of expenses related to the previous shareholders and non-recurring transaction fees as a result of the Acquisition of $8.8 million; offset by (2) an increase in sales volume and an increase in sales mix to lower cost, higher margin end-markets with greater selling burden rates; (3) an increase in storage expense of $1.5 million as a result of increased inventories built to maintain customer service levels for customer requirements and product line expansion; (4) an increase of $2.4 million in freight due to higher fuel prices and an increase in the mix of products shipped by the Company versus products picked up by customers, as a result of decreased sales for a large National Accounts customer; (5) an increase of $1.5 million in selling expenses primarily due to product line expansion and (6) an increase of $0.7 million in administrative costs. Expenses associated with the previous shareholders in predecessor fiscal 2005 and successor fiscal 2005 combined that are not present in successor fiscal 2006 and are not expected to be incurred in the future include the following:

(dollars in millions)	Predecessor Fiscal 2005 and Successor Fiscal 2005 Combined
Compensation expense (a)	$	1.2
Travel and entertainment (b)	1.0
Office expense(c)	0.2
Aircraft expense (d)	0.8
Compass Outfitters (e)	0.1
Professional fees (f)	2.6
Previous shareholders’ other expenses (g)	0.7
Previous shareholders’ transaction fees (h)	1.0
Consulting services (i)	0.8
Endorsement termination (j)	0.3
Other (k)	0.1
Total	$	8.8

	(Increase)/Decrease
	Successor Fiscal 2006
	Compared to
	Predecessor Fiscal 2005
	And
	Successor Fiscal 2005 Combined
Beef	(16.9	)%
Pork	(0.4	)%
Chicken	44.0	%
Cheese	1.9	%
Aggregate	3.2	%

Compensation expense (a) relates to personnel who were terminated in connection with the sale of the Company and will not be replaced. Travel and entertainment (b) relates to expenses incurred by personnel who were terminated and will not be replaced as a result of the sale of the Company. Office Expense (c) relates to rent expense, maintenance and other occupancy costs associated with the lease of an office building from a related party that was terminated in connection with the sale of the Company. Aircraft expense (d) relates to the leasing of an aircraft owned by CHA, formerly a subsidiary of PFMI, which was retained by the selling shareholders. Compass Outfitters (e) relates to an asset that was retained by the selling shareholders. The professional fees (f) primarily are related to the Acquisition. The previous shareholders’ other expenses (g) relate to outside board of director fees, community relations, and contributions made to the former owners alma mater. The previous shareholders’ transaction fees (h) include legal, accounting, and tax consulting fees related to the Acquisition. The consulting services (i) consist of the fee paid to the selling shareholders’ adviser for his role in the transaction. The endorsement termination (j) relates to the contract between the Company and Crawford Race Cars, LLC. Other (k) includes employee travel and other expenses incurred as a result of the debt placement for the Acquisition.

~~Selling,~~Depreciation ~~general~~ and ~~administrative~~Amortization. ~~Selling,~~ Depreciation ~~general~~ and amortization ~~administrative~~expense ~~expenses~~increased ~~decreased~~ by $26.89 million~~, or 7~~.~~8%. As a percentage of revenues, selling, general and administrative expenses decreased from 18.9% to 16.0%.~~ This ~~decrease~~is ~~was~~ primarily due to ~~(1)~~ the ~~elimination of expenses~~ amortization related to the ~~previous shareholders~~allocation ~~as a result~~ of the Acquisition ofpurchase ~~$8.8~~price ~~million; offset by (2) an increase in incentive compensation ($1.5 million); (3) an increase in sales volume and an increase in sales mix~~ to ~~lower~~other ~~cost, higher margin~~intangible ~~end-markets~~assets ~~with~~that ~~greater~~was ~~selling~~present ~~burden~~for ~~rates~~the ~~($1.5~~entire ~~million);~~successor ~~(4) an increase~~fiscal ~~in selling expenses primarily due to product line expansion ($1~~2006.~~0 million);~~ For ~~(5) higher costs for~~ the ~~storage~~prior ofyear ~~increased~~comparable ~~inventory~~period, ~~($0.7~~such ~~million)~~amortization ~~and~~of ~~higher~~intangible ~~freight~~assets ~~charges~~only ~~due~~occurred subsequent to ~~an increase in~~ the ~~mix of products~~Acquisition ~~shipped~~during bysuccessor ~~the~~fiscal ~~Company versus products picked up by customers and fuel surcharges impacted by the price of crude oil ($0~~2005.~~7 million); (6) an~~ In ~~increase~~addition, indepreciation ~~selling and distribution~~ expense ~~due to~~ increased ~~sales~~as ~~volume and (7)~~ a ~~non-cash~~ ~~deferred~~result ~~compensation~~of ~~charge~~the ~~related~~allocation toof ~~management’s investment in~~ the Acquisition~~. Expenses~~ ~~associated~~purchase ~~with the~~price ~~previous~~and ~~shareholders~~re-valuation inof ~~predecessor~~property, ~~fiscal~~plant ~~2005~~ and ~~successor~~equipment ~~fiscal 2005~~as ~~combined~~a ~~that~~result ~~are~~of ~~not~~purchase ~~present~~accounting indue ~~successor fiscal 2006 and are not expected~~ to be ~~incurred in~~ the ~~future include the following:~~ Acquisition.

(dollars in millions)	Predecessor Fiscal 2005 And Successor Fiscal 2005 Combined
Compensation expense (a)	$	1.2
Travel and entertainment (b)	1.0
Office expense(c)	0.8
Aircraft expense (d)	0.2
Compass Outfitters (e)	0.1
Professional fees (f)	2.6
Previous shareholders’ other expenses (g)	0.7
Previous shareholders’ transaction fees (h)	1.0
Consulting services (i)	0.8
Endorsement termination (j)	0.3
Other (k)	0.1
Total	$	8.8

Compensation expense (a) relates to personnel who were terminated in connection with the sale of the Company and will not be replaced. Travel and entertainment (b) relates to expenses incurred by personnel who were terminated and will not be replaced as a result of the sale of the Company. Office Expense (c) relates to rent expense, maintenance and other occupancy costs associated with the lease of an office building from a related party that was terminated in connection with the sale of the Company. Aircraft expense (d) relates to the leasing of an aircraft owned by CHA, formerly a subsidiary of PF Management, which was retained by the selling shareholders. Compass Outfitters (e) relates to an asset that was retained by the selling shareholders. The professional fees (f) primarily are related to the Acquisition. The previous shareholders’ other expenses (g) relate to outside board of director fees, community relations, and contributions made to the former owners alma mater. The previous shareholders’ transaction fees (h) include legal, accounting, and tax consulting fees related to the Acquisition. The consulting services (i) consist of the fee paid to the selling shareholders’ adviser for his role in the transaction. The endorsement termination (j) relates to the contract between the Company and Crawford Race Cars, LLC. Other (k) includes employee travel and other expenses incurred as a result of the debt placement for the Acquisition.

Depreciation and Amortization. Depreciation and amortization expense increased by $8.0 million. This is primarily due to the amortization related to the allocation of the Acquisition purchase price to other intangible assets that was present for the entire successor second fiscal 2006. For the prior year comparable period, such amortization of intangible assets only occurred subsequent to the Acquisition during successor fiscal 2005. In addition, depreciation expense increased as a result of the allocation of the Acquisition purchase price and re-valuation of property, plant and equipment as a result of purchase accounting due to the Acquisition.

Loss on Disposal of Assets. The loss on disposal of assets decreased by $0.3 million. The decrease is due to the recording of losses in the prior year related to affiliated companies as a consequence of the Restructuring.

Other Expense. Other ~~expense~~ expense consists primarily of interest on fixed and variable rate long-term debt and interest on athe revolving loan, both of which were entered into in ~~connection~~ connection with the Acquisition. Other expense decreased by $4.63 million, or 29or 20.94%. This decrease is primarily due to to expenses incurred during predecessor fiscal 2005 and successor fiscal 2005 combined as a result of the Acquisition, including: (1) $4.3 million for ~~the~~ the write-off of deferred loan origination fees; (2) $0.6 million for the ~~repayment~~ repayment of the Old Notes and (3) $0.5 million for the repayment of the Company’s former revolving credit facility. This decrease was offset by increased debt and related interest expense as a result of the Acquisition, in addition to an increase in floating interest rates related to the Company’s term loan.

Income taxes. ~~The~~ The effective tax rate for successor fiscal 2006 was 55157.16% compared to 33.03% for predecessor fiscal 2005 and successor fiscal 2005 combined. The increase in the effective tax rate is primarily due to the impact of new Ohio tax laws enacted June 30, 2005. These new laws include the phase-out of Ohio franchise tax and Ohio personal property tax and the phase-in of a gross receipts tax referred to as the Commercial Activity Tax (“CAT”). As a result of the enactment, the Company reduced its deferred tax liability based on the phase-out of franchise tax and recorded an additional valuation allowance based on Ohio investment tax credits that are expected to expire prior to utilization. Excluding the one-time impact of this enactment, the effective tax rate for successor fiscal 2006 would have been 38.7%. The increase in the effective tax rate excluding the impact of the Ohio law changes is primarily due to the Company’s profitability and expected pre-tax income in the current year relative to the impact of permanent differences.

Liquidity and Capital Resources

Net ~~cash~~ cash provided by operating activities for successor fiscal 2006 was $727.07 million compared to net cash ~~used~~provided inby operating activities of $79.03 million for predecessor fiscal 2005 and successor fiscal 2005 combined. The ~~primary~~increase ~~components~~in ~~of the~~ net cash provided by operating activities ~~for~~was ~~successor~~primarily ~~fiscal~~due ~~2006~~to ~~were:~~the ~~(1) depreciation and~~Company’s ~~amortization~~increased ofprofitability during ~~intangible~~successor ~~assets~~fiscal of2006, ~~$15.5~~in ~~million,~~addition ofto ~~which~~(1) a ~~$3.8~~decrease ~~million~~in accounts ~~relates~~receivable toduring ~~depreciation~~successor offiscal ~~fixed~~2006 ~~assets~~compared ~~and~~with ~~$11.7~~an ~~million~~increase ~~relates~~during tothe ~~amortization~~prior ofyear ~~intangible~~comparable ~~assets~~period; (2) ~~amortization of deferred loan fees totaling $0.7 million and (3)~~ a decrease in ~~trade~~ ~~accounts~~refundable ~~payable~~income ~~and other accrued liabilities of $0.5 million~~taxes, ~~primarily~~ ~~due~~prepaid toexpense aand ~~decrease~~other incurrent ~~trade~~assets ~~accounts~~during ~~payable~~successor ~~offset~~fiscal by2006 compared to an increase in ~~accrued compensation~~the ~~expense~~prior ~~and~~year ~~accrued~~comparable ~~promotional~~period ~~expenses;~~and ~~offset by~~ (4) an increase in inventories ~~inventory~~during ofsuccessor ~~$4.3~~fiscal ~~million~~2006 ~~due~~that towas ansubstantially ~~inventory~~less ~~build~~than ~~to satisfy~~the ~~customer~~increase ~~needs~~in ~~and~~the ~~meet~~prior ~~requirements~~year ~~for~~comparable ~~scheduled~~period; ~~equipment~~offset ~~maintenance;~~by (5) ~~a decrease in other long-term liabilities of $1.0 million; (6)~~ an increase in ~~receivables of $0.9 million, primarily as a result of the increase~~ in ~~trade~~ accounts ~~receivables;~~payable ~~(7) a~~and ~~change~~other inaccrued ~~deferred~~liabilities ~~income~~during ~~taxes~~successor offiscal ~~$0.8~~2006 ~~million~~that aswas asignificantly ~~result~~less ofthan the ~~enactment of new Ohio tax laws as of June 30, 2005 and (8) an~~ increase in ~~refundable income taxes, prepaid expense and other current assets of $0.4 million primarily due to~~ the ~~tax~~prior ~~benefit~~year ~~recorded~~comparable ~~as a result of losses in successor fiscal 2006~~period.

~~Net~~ The primary components of the net cash ~~used~~provided inby ~~investing~~operating activities for successor fiscal 2006 ~~was~~were (1) depreciation and amortization of intangible assets of $423.0 million, ~~compared~~of towhich $25.5 million ~~for~~relates ~~predecessor~~to ~~fiscal~~depreciation of ~~2005~~fixed assets and $17.5 million relates to amortization of intangible assets; ~~successor~~(2) ~~fiscal~~an ~~2005~~increase ~~combined. Net~~in ~~cash~~trade accounts payable and other accrued liabilities of $2.8 ~~used~~million; (3) a decrease in ~~investing~~refundable ~~activities~~income ~~consists~~taxes, prepaid expenses and other current assets of ~~capital~~$2.3 ~~expenditures~~million, ~~for~~primarily ~~both~~due to the tax provision recorded as a result of the income in successor ~~fiscal~~third quarter 2006, ~~and~~reducing ~~predecessor~~previously recorded ~~fiscal~~tax ~~2005~~benefits; ~~successor~~(4) ~~fiscal~~amortization ~~2005~~of deferred loan fees totaling $1.1 ~~combined~~million and (5) a decrease in receivables of $0.9 million, ~~which~~primarily ~~consisted~~as a result of ~~various~~the ~~plant~~decrease ~~improvements~~in ~~and~~trade ~~routine~~accounts ~~capital~~receivables; offset by (6) an increase ~~expenditures~~in inventories of $1.2 million due to an inventory build to satisfy customer needs and meet requirements for scheduled equipment maintenance; (7) a decrease in other long-term liabilities

Net cash used in financing activities for successor fiscal 2006 was $3.0 million compared to net cash provided by financing activities of $9.4 million for predecessor fiscal 2005 and successor fiscal 2005 combined. Net cash used in financing activities for successor fiscal 2006 was due primarily to: (1) principal payments on long-term debt of $7.6 million; offset by (2) net borrowings under the revolving credit agreement of $4.8 million.23

Astotaling ~~of September 3,~~$0.9 ~~2005~~million, ~~the~~primarily ~~Company~~as ~~had~~a noresult ~~cash~~of ~~and~~the ~~cash~~payment ~~equivalents~~to onprevious ~~hand,~~shareholders ~~outstanding~~as ~~borrowings~~required ~~under~~by ~~its~~the ~~revolving~~tax ~~credit~~sharing ~~facility~~agreement, ~~totaling~~partially ~~$5.5~~offset ~~million~~by ~~and borrowing~~an ~~availability~~increase ofin liability ~~approximately~~for ~~$28.8 million. Also~~deferred ascompensation ofand ~~September 3,~~(8) ~~2005,~~a ~~the Company~~change ~~had~~in ~~borrowings~~deferred ~~under~~income ~~its term loan~~ taxes of $~~129~~0.18 million ~~and~~as ~~$125.0~~a ~~million~~ result of the ~~New~~enactment ~~Notes~~of ~~outstanding~~new Ohio tax laws as of June 30, 2005.

~~The Company~~Net ~~has~~cash ~~budgeted~~used ~~approximately~~in investing activities for successor fiscal 2006 was $84.5 7 million ~~for~~compared ~~capital~~to ~~expenditures~~$3.8 million for ~~the~~ ~~remainder~~predecessor offiscal 2005 and successor fiscal ~~2006~~2005 combined. ~~These~~Net cash ~~expenditures~~used ~~include~~in ainvesting ~~provision~~activities ~~for~~consists ~~capacity~~of ~~expansion,~~capital ~~system~~expenditures ~~upgrades~~for both successor fiscal 2006 and predecessor fiscal 2005 successor fiscal 2005 ~~routine~~combined, ~~food~~which ~~processing~~consisted ~~capital~~of ~~improvement~~various plant improvements and routine capital expenditures.

24Net cash used in financing activities for successor fiscal 2006 and for predecessor fiscal 2005 and successor fiscal 2005 combined was $13.7 million and $3.5 million, respectively. Net cash used in financing activities for successor fiscal 2006 was due primarily to: (1) principal payments on long-term debt of $12.7 million and (2) net repayments under the revolving credit agreement of $0.8 million.

~~projects~~As ~~and~~of ~~other~~December ~~miscellaneous~~3, ~~expenditures~~2005, ~~within~~ the Company’s ~~existing~~had ~~facilities. The~~cash ~~Company~~and ~~believes~~cash ~~that~~equivalents ~~funds~~on ~~from~~hand totaling $9.3 ~~operations~~million, ~~and~~no ~~funds~~borrowings ~~from~~under its ~~new $40 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. As described in Note 11, “Legal Proceedings~~ and ~~Contingencies,” to the Condensed Consolidated Financial Statements, if the HCDOES~~borrowing ~~determines~~availability ~~that~~of ~~the~~approximately ~~Company is non-compliant with emissions requirements, the Company may potentially be required to install additional control equipment~~$34.4 million. ~~The~~Also ~~Company is unable to estimate the cost of such upgrades to existing equipment~~ as of ~~September~~December 3, ~~2005. Should~~ ~~such capital expenditures be required~~2005, the Company had ~~would~~borrowings ~~likely~~under ~~adjust~~its ~~the~~term ~~remaining~~loan ~~capital~~of ~~budget~~$124.1 ~~for fiscal~~million ~~2006~~and orNew ~~delay~~Notes ~~previously~~outstanding of ~~budgeted~~$125.0 ~~capital expenditures~~million.

The Company has budgeted approximately $7.8 million for capital expenditures for the remainder of fiscal 2006. These expenditures include a provision for capacity expansion, system upgrades and routine food processing capital improvement projects and other miscellaneous expenditures within the Company’s existing facilities. The Company believes that funds from operations and funds from its new $40 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. As described in Note 11, “Legal Proceedings and Contingencies,” to the Condensed Consolidated Financial Statements, if the HCDOES determines that the Company is non-compliant with emissions requirements, the Company may potentially be required to install additional control equipment. The Company is unable to estimate the cost of such upgrades to existing equipment as of December 3, 2005. Should such capital expenditures be required, the Company would likely adjust the capital budget for fiscal 2007 or delay previously budgeted capital expenditures.

If the Company continues its historical revenue growth trend as expected, then the Company will be required to raise and invest additional capital for additional plant expansion projects to provide operating capacity to satisfy increased demand. Management believes that future cash requirements for these plant expansion projects would need to be met through other long-term financing sources. 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.

On March 8, 2004, following a consent solicitation in which consents of holders of $112.4 million in aggregate principal amount of the Company’s then outstanding Old Notes, representing 97.74% of the outstanding Old Notes, consented to a Fourth Supplemental Indenture between the Company and U.S. Bank National Association, as trustee (the “Trustee”). The Company entered into the Fourth Supplemental Indenture with the Trustee. Among other things, the Fourth Supplemental Indenture increased the annual interest rate on the Old Notes from 10.75% to 12.25% through March 31, 2005 and 13.25% thereafter and required the payment of a cash consent fee of $3.5 million (3% of the principal amount of Old Notes held by each consenting noteholder); required the termination of all related party transactions, except for certain specifically-permitted transactions (see Note 10, “Related Party Transactions” to the Condensed Consolidated Financial Statements); provided for the assumption by the Company of approximately $15.3 million of subordinated debt of PFMI and waived any and all defaults of the Indenture existing as of March 8, 2004.

Concurrently with the execution of the Fourth Supplemental Indenture, the Company took title to an aircraft transferred from a 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 related party note receivable against the debt assumed from PFMI; cancelled the balances owed by the Company to certain related parties, as follows: $0.5 million owed to CHA; $3.5 million owed to PF Purchasing; $0.5 million owed to PF Distribution; and assumed the operating leases of PF Distribution in connection with the Fourth Supplemental Indenture. We refer to these transactions as the “Restructuring”.

Also ~~effective~~ effective June 30, 2004, the Company obtained a $190 million credit ~~facility~~ facility from a new lender which includes a six-year variable-rate $150 million term loan, a five-year variable rate $40 million revolving credit facility and a $10 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 rates for base rate borrowings under the new revolving credit facility and the new term loan at December ~~September~~ 3, 2005 were 8.2575% (prime of 67.5000% plus 1.75%) and 8.0050% (prime of 6 7.5000% plus 1.50%), respectively. Actual ~~interest~~ interest rates are lowered by the use of ~~libor~~LIBOR tranches as appropriate. Repayment of borrowings under the term loan was initially $375,000 per quarter, which began on September 4, 2004, with a balloon payment of $141.4 million due on June 5, 2010. However, in addition to paying all scheduled quarterly payments totaling $8.6 million for the term of the loan, the Company made prepayments on the term loan totaling $4.9 million during successor fiscal 2005. NoPrepayments ~~prepayments~~totaling on$5.0 ~~the~~million and ~~term~~$12.4 ~~loan~~million were made during successor ~~second~~third quarter 2006~~. Prepayments~~ onand ~~the term loan totaling $7.4 million were made during~~ successor fiscal 2006, respectively. The remaining ~~outstanding~~ outstanding balance of $~~129~~124.1 million as of ~~September~~ December 3, 2005 is due on June 5, 2010.

As of ~~September~~ December 3, 2005, the Company had ~~outstanding~~no borrowings under its revolving credit facility ~~totaling $5.5 million~~ and had borrowing availability of approximately $2834.84 million. The maturity date of the $40 million revolving credit facility is June 30, 2009. In addition, the Company is required to satisfy certain financial covenants regarding cash flow and capital expenditures. As of ~~September~~ December 3, 2005, the Company is in compliance with all financial covenants.

Also in conjunction with the Acquisition, the Company issued the New Notes. The proceeds of the New Notes, together with the equity contributions from MDP and certain members of management and borrowings under the Company’s new senior credit facility, were used to finance the Acquisition of the Company and to repay outstanding indebtedness, including paying off debt of PFMI assumed by the Company under the Fourth Supplemental Indenture (except capital leases), paying for the Old Notes tendered in connection with the tender offer described in Note 1, “Basis of Presentation and Acquisition” to the Condensed Consolidated Financial Statements and redeeming the Old Notes not tendered.

Also in conjunction with the Acquisition, the Company and the selling shareholders entered into a tax sharing and indemnification agreement containing certain representations and warranties of the selling shareholders with respect to taxes. The agreement provides that any net operating loss carryforwards ~~(“NOLs”)~~ attributable to expenses relating to the sale of the Company (“Deal Related NOLs”) and certain other deal related expenses, will be for the benefit of the selling shareholders. As of the date of the Acquisition, these Deal Related NOLs and other deal related expenses totaled approximately $24.2 million and $6.6 million, respectively. Accordingly, the Company is required to pay to the selling shareholders the amount of any tax benefit attributable to such Deal Related NOLs and other deal related expenses, except that the first $4.0 million of such tax benefits shall be paid into an escrow account that will secure the selling shareholders ~~indemnification~~ indemnification obligations under the tax sharing and indemnification agreement. The Company is required to make payments to the selling shareholders or the escrow account for tax benefits derived from such utilization 20 days after the filing of the tax return that utilizes such Deal Related NOLs or other deal related expenses.

In conjunction with the Acquisition, the Company ~~had~~ recorded a net long-term liability to the ~~former~~ selling shareholders totaling $10.3 million for the estimated obligations under the tax sharing and indemnification agreement. As of ~~September~~ December 3, 2005, based on the federal income tax return filed November 15, 2005 (for the tax year ended February 26, 2005), the Company has utilized $58.16 million of the ~~aforementioned~~Deal Related NOLs and $1.7 million in other deal related expenses. As of December 3, 2005, the Company has submitted payment based on the tax benefit, net of other tax assessments due to the Company from the selling shareholders, to an escrow account for a total of $1.3 million. AsAn ofadditional ~~September~~ $3,.6 ~~2005,~~million ~~the~~will ~~Company~~be ~~has~~submitted ato ~~net~~the ~~long-term~~escrow ~~liability~~account toduring ~~the~~successor ~~former~~fourth ~~shareholders~~quarter ~~totaling $8.9~~2006 ~~million. This~~for ~~amount~~Deal isRelated ~~excluded~~NOLs ~~from~~ utilized in connection with the ~~table~~tax ~~above~~returns ~~due~~filed November to15, 2005 for the ~~uncertainty~~tax ofyear ~~when~~ended ~~such~~February ~~utilization~~26, 2005. As of December 3, 2005, the ~~NOLs~~Company has a net ~~will~~long-term ~~occur.~~liability to the selling

The Company expects to realize $1.7 million of deal related expenses, decreasing taxable income for the tax year ended February 26, 2005, of which the related tax benefit to the Company of $0.7 must be reimbursed to the selling shareholders. In addition, the Company expects to utilize approximately $15.3 million of NOLs in the tax return due for the tax year ended February 26, 2005. The NOLs enable the Company to defer cash tax payments required by the tax sharing agreement of approximately $5.5 million attributable to this tax period. However, the Company will be required to reimburse the selling shareholders or the escrow account for the entire amount 20 days subsequent to the filing of its tax return in November 2006.25

Asshareholders ~~a result of the~~totaling ~~current year calculated losses for tax purposes during successor fiscal 2006, the Company was able to defer cash tax payments of approximately~~ $38.49 million ~~for both successor second quarter 2006 and successor fiscal 2006~~. ~~The~~This ~~Company~~amount ~~expects~~is ~~such~~excluded from ~~deferred~~the ~~amounts~~table ~~to be~~above ~~paid~~due ~~out~~to 20the ~~days~~uncertainty ~~subsequent~~of towhen ~~the~~such ~~filing~~utilization of ~~its~~the Deal ~~tax~~Related ~~return~~NOLs inwill ~~November 2007~~occur.

For the tax year ended February 26, 2005, the Company utilized approximately $3.3 million of non-deal related NOLs in its tax return filed November 15, 2005. The non-deal related NOLs enabled the Company to defer cash tax payments required by the tax sharing and indemnification agreement of approximately $1.2 million attributable to this tax period.

For the tax year ending February 25, 2006, as a result of the current year estimated taxable income for successor fiscal 2006, the Company was able to defer cash tax payments of approximately $4.2 million. The Company expects a portion of such deferred amounts to be paid out pursuant to the tax sharing and indemnification agreement subsequent to the filing of its tax return in November 2007.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP 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 liabilities (see also Promotions below).

Goodwill and Other Intangible Assets. In conjunction with the Acquisition, the Company engaged an independent party to perform valuations for financial reporting purposes of the Company’s goodwill and other intangibles. Assets identified through this valuation process included goodwill, formulas, customer relationships, licensing agreements and certain trade names and trademarks.

valuation process included goodwill, formulas, customer relationships, licensing agreements and certain trade names and trademarks.

In accordance with SFAS 142—”Goodwill and Other Intangible Assets,” the Company tests recorded goodwill and intangibles with indefinite lives for impairment at least annually. All other intangible assets with finite lives are amortized over their estimated economic or estimated useful lives. In addition, all other intangible assets are reviewed for impairment in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” As of March 5, 2005, the Company performed the annual impairment review of goodwill and indefinite-lived intangible assets and also assessed whether the indefinite-lived intangible assets continue to have indefinite lives. The Company engaged an independent party to perform valuations to assist in the impairment review. There were not any impairment charges as a result of this review.

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

Promotions. Promotional expenses associated with rebates, marketing promotions and special pricing arrangements are recorded as a reduction of revenues or selling expense at the time the sale is recorded. Certain of these expenses are estimated based on historical trends, expected future payments to be made under these programs and expected future customer deductions to be taken under these programs. The Company believes the estimates recorded in the financial statements are reasonable estimates of the Company’s liability under the programs.

Concentration of Credit Risk and Significant Customers. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade receivables. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company encounters a certain amount of credit risk as a result of a concentration of receivables among a few significant customers. Sales to the Company’s largest customer were approximately 24% and 28% of revenues for successor second quarter 2006 and predecessor second quarter 2005 and successor fiscal 2005 combined, respectively. Sales to the Company’s largest customer were approximately 24% and 28% of revenues for successor fiscal 2006 and predecessor fiscal 2005 and successor fiscal 2005 combined, respectively. Accounts receivable at September 3, 2005 and March 5, 2005 included receivables from the Company’s largest customer totaling $3.2 million and $4.4 million, respectively.26

~~Stock-Based~~and ~~Compensation. The~~expected ~~Company~~future ~~treats the options to purchase~~customer ~~shares~~deductions ~~of common stock of Holding issued~~ to ~~employees~~be oftaken ~~the Company (“Options”) as stock-based compensation for employees of the Company. As permitted~~ under ~~GAAP,~~these ~~the Company accounts for the Options under the recognition and measurement principles of Accounting Principles Board Opinion No~~programs. ~~25, “Accounting for Stock Issued to Employees”~~ ~~(“APB~~The ~~25”),~~Company ~~and~~believes ~~related Interpretations using~~ the ~~intrinsic~~estimates ~~value~~recorded ~~method. Accordingly,~~in nothe ~~compensation~~financial ~~expense has been~~statements ~~recognized~~are ~~for~~reasonable ~~the~~estimates ~~stock~~of ~~option plan in~~ the Company’s ~~condensed~~liability ~~consolidated statements~~under ofthe ~~operations~~programs.

Concentration of Credit Risk and Significant Customers. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade receivables. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company encounters a certain amount of credit risk as a result of a concentration of receivables among a few significant customers. Sales to the Company’s largest customer were approximately 18% and 22% of revenues for successor third quarter 2006 and successor third quarter 2005, respectively. Sales to the Company’s largest customer were approximately 22% and 26% of revenues for successor fiscal 2006 and predecessor fiscal 2005 and successor fiscal 2005 combined, respectively. Accounts receivable at December 3, 2005 and March 5, 2005 included receivables from the Company’s largest customer totaling $3.4 million and $4.4 million, respectively.

Stock-Based Compensation. The Company treats the options to purchase shares of common stock of Holding issued to employees of the Company (“Options”) as stock-based compensation for employees of the Company. As permitted under GAAP, the Company accounts for the Options under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related Interpretations using the intrinsic value method. Accordingly, no compensation expense has been recognized for the stock option plan in the Company’s Condensed Consolidated Financial Statements of Operations.

New Accounting Pronouncements. In November 2004, the Financial Accounting Standards Board (the “FASB”) issued SFAS 151, “Inventory Costs—an amendment of ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 amends ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges. In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The Company will adopt the provisions of SFAS 151, effective March 5, 2006 for its fiscal 2007 consolidated financial statements. Management is currently evaluating the impact the adoption of the provisions of SFAS 151 will have on the Company’s consolidated financial statements.

In May 2005, FASB issued SFAS 154, “Accounting Changes and Error Corrections”. The Statement requires retroactive application of a voluntary change in accounting principle to prior period financial statements unless it is impracticable. The Statement also requires that a change in method of depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a change in accounting estimate that is affected by a change in accounting principle. The Statement replaces APB Opinion 20, “Accounting Changes”, and SFAS 3, “Reporting Accounting Changes in Interim Financial Statements”. The Company will adopt the provisions of SFAS 154, effective March 5, 2006 for its fiscal 2007 consolidated financial statements. Management currently believes that adoption of the provisions of SFAS 154 will not have a material impact on the Company’s consolidated financial statements.

Seasonality

Except for sales to school districts, which represent approximately 18% of the Company’s total sales annually and which decline significantly during summer, late November and December, there is no other significant seasonal variation in the Company’s sales.

Effect of Natural Disasters

During the quarter ended September 3, 2005, Hurricane Katrina caused significant damage to parts of the Southeastern and Midwestern United States. Additionally, during mid-September 2005, Hurricane Rita caused further damage, though to a lesser extent than Hurricane Katrina. The ~~impact~~Company’s ofmanagement believes these hurricanes had an adverse affect on the Company’s sales, distribution expense and bad debt expense (as a result of uncollectible receivables) during successor third quarter 2006, and may ~~adversely~~have an adverse affect ~~third~~during fourth quarter ~~fiscal~~ 2006 ~~operating profits~~. ~~The~~ While the Company’s management is unable to ~~estimate~~fully quantify the ~~materiality~~effect toof these hurricanes, the overall impact on the Company’s business and financial condition, ~~but~~is ~~will~~not expected ~~continue~~ to ~~evaluate~~be ~~the impact of the hurricanes~~material.

Cautionary Statement As To Forward Looking Information

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements about the business, operations, financial results and future prospects of the Company. Forward-looking statements relate to future events or future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms or other comparable terminology. These statements may involve risks and uncertainties related to, among other things:

• changes in economic and business conditions in the world;

• potential impact of hurricanes and other natural disasters on sales, raw material costs, fuel costs, insurance costs and bad debt expense resulting from uncollectible accounts receivables;

• increased global tensions, market ~~disruption~~ disruption resulting from a terrorist or other ~~attach~~attack and any armed conflict involving the United States;

• adverse changes in food costs and availability of supplies or costs of distribution;

• the Company’s level of indebtedness;

• restrictions imposed by the Company’s debt instruments;

• increased competitive activity;

• government regulatory actions, including those relating to federal and state environmental laws;

• dependence on significant customers;

• consolidation of the Company’s customers;

• general risks of the food industry, including risk of contamination, mislabeling of food products, a decline in meat consumption and outbreak of disease among cattle, chicken or pigs;

• adverse change in the Company’s Cincinnati, Ohio or Claremont, North Carolina facilities;

• dependence on key personnel; and

• potential labor disruptions or union organization activities.

The Company is not under any duty to update any forward-looking statements after the date of this report to conform such statements to actual results or to changes in the Company’s expectations. All forward-looking statements contained in this report and any subsequently filed reports are expressly qualified in their entirety by these cautionary statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As ~~discussed~~ discussed in the Company’s Annual Report on Form 10-K, the Company is exposed to market risk 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~~ December 3, 2005 or March 5, 2005. Certain of the Company’s outstanding nonderivative financial instruments at ~~September~~ December 3, 2005 are subject to interest rate risk, but not subject to foreign currency or commodity price risk. In successor fiscal 2006, the average price the Company paid for beef, pork, chicken and cheese ~~(increased)/~~decreased approximately 0 2.39%, 2326.43%, (3 0.98%) and 6.14%, respectively, compared to the prices paid during the fourth quarter of the fiscal year ended March 5, 2005. The Company manages commodity price risk through purchase orders, non-cancelable contracts and by passing on such cost increases to customers. There was no significant change in market risk during successor fiscal 2006.

The Company’s major market risk exposure is potential loss arising from changing ~~interest~~ 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~~ December 3, 2005 have not changed materially since March 5, 2005. Of the long-term debt outstanding at ~~September~~December 3, 2005, the $125.0 million of New Notes accrue interest at a fixed interest rate, while the $~~129~~124.1 million outstanding borrowings under the term loan facility and the revolving credit facility accrue interest at a variable interest ~~rate~~rates. At ~~September~~ December 3, 2005, there were no outstanding borrowings under the revolving credit ~~facility totaling~~ $5facility.~~5 million.~~ A rise in prevailing ~~interest~~ interest rates could have adverse effects on the Company’s financial condition ~~and~~ and results of operations. A 25 basis ~~point~~ point increase in the reference rates for the Company’s average variable rate ~~debt~~ debt outstanding during successor ~~second~~third quarter 2006 and successor fiscal 2006 ~~would~~ would have ~~increased~~decreased net ~~loss~~income for that period by approximately $8380,~~225~~500 and $~~168~~248,~~270~~800, respectively.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company performed an evaluation, under the supervision and with the participation of its management ~~including~~ including the president and chief executive officer and the principal ~~accounting~~financial officer, of of the effectiveness of its disclosure controls and procedures. (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on that evaluation, the Company’s management, including the president and chief executive officer and principal ~~accounting~~ financial officer, concluded that as of December 3, 2005 the Company’s disclosure ~~controls~~ controls and procedures were effective for the purposes of ensuring that information required to be disclosed in reports that the Company files or submits under the Exchange Act has been recorded, processed, summarized and reported in accordance with the rules and forms of the Securities and Exchange Commission. There were no changes in the internal control over financial reporting that occurred during the quarter ended ~~September~~ December 3, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 5. OTHER INFORMATION

On January 10, 2006, the Board of Directors of the Company adopted a Code of Ethics, which is applicable to all officers, directors and employees of the Company. The portion of such Code of Ethics that constitutes a Code of Ethics as defined in Item 406 of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended, is attached to this report as Exhibit 14.

ITEM 6. EXHIBITS

(a) Exhibits

(a) Exhibits

14		Code of Ethics

31.1		Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer

31.2		Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer

32		Section 1350 Certifications of the Chief Executive Officer and the Principal Financial Officer

31.1 Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer

31.2 Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer

32 Section 1350 Certifications of the Chief Executive Officer and the Principal Financial Officer

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. /s/ Norbert E. Woodhams By: Norbert E. Woodhams President and Chief Executive Officer Dated: ~~October~~January 1817, ~~2005~~2006 /s/ Joseph W. Meyers By: Joseph W. Meyers Vice President, Finance Dated: ~~October~~January 1817, ~~2005~~2006

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