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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission File Number: 0-7277

PIERRE FOODS, INC.
(Exact name of registrant as specified in its charter)

North Carolina
(State or other jurisdiction of incorporation or organization)

56-0945643
(I.R.S. Employer Identification No.)

9990 Princeton Road
Cincinnati, Ohio 45246
(Address of principal executive offices) (zip code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (3) has been subject to such filing requirements for the past 90 days.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

PIERRE FOODS, INC.

INDEX

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PIERRE FOODS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

See accompanying notes to unaudited consolidated financial statements.

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PIERRE FOODS, INC. AND SUBSIDIARIES

See accompanying notes to unaudited consolidated financial statements.

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PIERRE FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Retained Earnings

(Unaudited)

See accompanying notes to unaudited consolidated financial statements.

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See accompanying notes to unaudited consolidated financial statements.

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PIERRE FOODS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to unaudited consolidated financial statements.

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See accompanying notes to unaudited consolidated financial statements.

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PIERRE FOODS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)

1.  Basis of Presentation

     In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of June 1, 2002 and March 2, 2002, the results of operations for the thirteen weeks ended June 1, 2002 and June 2, 2001, and the cash flows of the Company for the thirteen weeks ended June 1, 2002 and June 2, 2001. Financial statements for the thirteen weeks ended June 2, 2001 have been reclassified, where applicable, to conform to financial statement presentation used for the thirteen weeks ended June 1, 2002. The thirteen week period ended June 1, 2002 is referred to as “first quarter 2003” and the thirteen week period ended June 2, 2001 is referred to as “first quarter 2002.”

     The Company reports the results of its operations using a 52-53 week basis. In line with this, each quarter of the fiscal year will contain 13 weeks except for the infrequent fiscal years with 53 weeks.

     The results of interim operations for first quarter 2003 are not necessarily indicative of the results to be expected for the full fiscal year. These interim unaudited consolidated financial statements should be read in conjunction with the Company’s March 2, 2002 audited consolidated financial statements and notes thereto.

2.  Inventories

     A summary of inventories, by major classifications, follows:

3.  Intangible Assets

     The Company adopted FASB Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets,” effective March 3, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption, which will occur during the Company’s second quarter ending August 31, 2002. Any impairment loss resulting from the transitional impairment test would be recorded as a cumulative effect of a change in accounting principle effective March 3, 2002. Accordingly, the financial statements for first quarter 2003 would be restated for any such impairment loss.

     The Company is currently assessing the impact of SFAS 142 on its financial position and results of operation. As a result, the assembled work force, with an amortized balance of $2,171,067 at June 1, 2002, was reclassified as goodwill. In addition, there are indications that the revised goodwill amount of $29,019,571 may be impaired. The

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reason for the potential impairment loss is the result of the change (effective March 3, 2002) in the evaluation criteria for goodwill from an undiscounted cash flow approach, which was previously utilized under the guidance in Accounting Principles Board Opinion No. 17, to the fair value approach which is stipulated in SFAS 142. The intangible asset established for trade name is deemed to have an indefinite life because the trade name is expected to generate cashflows indefinitely. Accordingly, as required by SFAS 142, amortization of both goodwill and tradename has been discontinued. The assessment of the impact of SFAS 142 will be completed by second quarter ending August 31, 2002.

     As of June 1, 2002, the Company had the following acquired intangible assets recorded:

     As required by SFAS 142, the results for first quarter 2002 have not been restated. The table below presents the effect on net loss and loss per share as if SFAS 142 had been in effect for first quarter 2002:

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4.  Long-Term Debt

     Effective May 29, 2002, the Company terminated its $25 million credit facility, and obtained a new five-year variable rate secured credit facility in an aggregate amount up to $50 million. The new facility includes a $16 million term loan subline, a $10 million capital expenditures subline and a $7 million letter of credit subfacility. The collateral for the facility includes substantially all of the Company’s assets. As of June 1, 2002, the Company had borrowings under this new facility of $.6 million and borrowing availability of approximately $18.2 million. As of June 2, 2001, the Company had borrowings under its former $25 million credit facility of $3.2 million and borrowing availability of approximately $18.4 million. In addition, at June 1, 2002 and June 2, 2001, the Company was in compliance with the financial covenants under each facility.

     The Company’s Chairman and Vice Chairman agreed to guarantee payment of the new $50 million facility in exchange for guarantee fees to be paid annually, equal to 1.5% each of the amount committed for lending under the facility. As of June 1, 2002, no payments had been made under these agreements.

5.  Comprehensive Income

     Total comprehensive loss is comprised solely of the net loss in fiscal 2003 and fiscal 2002. Comprehensive loss was $113,602 and $760,635 for first quarter 2003 and first quarter 2002, respectively.

6.  Supplemental cash flow disclosures — cash paid (received) during the period

7.  Recently Issued Accounting Guidance.

     In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142 (“SFAS 142”), Goodwill and Other Intangible Assets.” See Note 3 for discussion of the Company’s adoption of SFAS 142.

     In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143 (“SFAS 143”), “Accounting for Asset Retirement Obligations,” which is effective for the Company beginning March 3, 2002. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement cost. The adoption of SFAS 143 did not have a material impact on the Company’s financial position and results of operations.

     In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets,” which is effective for the Company’s fiscal year beginning March 3, 2002. SFAS 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. The adoption of SFAS 144 did not have a material impact on the Company’s financial position and results of operations.

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8.  Related Party Transactions

     Effective March 3, 2002, the Company entered into a one-year logistics agreement with PF Distribution, LLC (“PF Distribution”), owned 50% each by the Company’s Chairman and Vice Chairman. Under the agreement, PF Distribution will serve as an exclusive logistics agent for the Company, and will provide all warehousing, fulfillment and transportation services to the Company. In first quarter 2003, distribution expense recorded in selling, general and administrative expense was approximately $5.9 million, of which approximately $4.8 million had been paid to PF Distribution as of June 1, 2002.

9.  Subsequent Event

     A definitive proxy statement was filed with the Securities and Exchange Commission and mailed to shareholders on June 25, 2002, in connection with a special meeting of shareholders scheduled to be held on July 26, 2002, at which the shareholders will be asked to adopt and approve the Amended and Restated Agreement and Plan of Share Exchange dated as of December 20, 2001, and amended as of June 20, 2002.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

First Quarter 2003 Compared to First Quarter 2002

     Revenues, net. Net revenues increased by $10.9 million, or 21.5%. The increase in net revenues was due to the introduction of new products and to an increase in demand in all core customer channels. The significant new product line introduced was the Chop House burger line, marketed primarily to restaurants. This new line added significant volume to the lower margin customer channel. Of all core customer channels, which include restaurants, schools, vending and convenience stores, the restaurant channel had the greatest increase in demand.

     Cost of goods sold. Cost of goods sold increased by $7.0 million, or 21.0%. As a percentage of revenues, cost of goods sold decreased from 65.4% to 65.2%. This decrease primarily was due to a decrease in beef, pork and chicken raw material prices and improved production efficiencies, offset by a change in product mix to lower margin products. Production efficiencies were realized through process improvements, including equipment modifications and labor reduction, combined with an increase in production volume spread over a stable fixed overhead base.

     Selling, general and administrative. Selling, general and administrative expenses increased by $3.1 million, or 22.0%, primarily due to an increase in overhead costs to support the increase in sales volume. As a percentage of revenues, selling, general and administrative expenses increased from 28.2% to 28.3%.

     Depreciation and amortization. Depreciation and amortization expense decreased by $.6 million, or 37.5%, due primarily to the adoption of SFAS 142 in fiscal 2003 which discontinued amortization of goodwill and intangibles with indefinite lives.

     Other expense, net. The primary component of net other expense for first quarter 2003 and first quarter 2002 is interest expense. Interest expense consists primarily of interest on fixed rate long-term debt (see -— “Liquidity and Capital Resources” below). Net other expense remained constant at $3.2 million for each of fiscal years 2003 and 2002.

     Income tax benefit. The effective tax rate for first quarter 2003 was 32.2% compared to 50% for first quarter 2002. The decrease in the effective tax rate is due primarily to the effects of permanent timing differences and compensation deduction limitations in fiscal 2002.

Liquidity and Capital Resources

     Net cash used in operating activities was $1.3 million for first quarter 2003, as compared to $4.2 million for first quarter 2002. The primary components of the change in net cash used in operating activities were 1) an increase in inventory of $7.5 million due to the seasonal building of inventories which normally occurs during the late spring and early summer to service market channels that require heavy shipments in late summer and early fall; offset by 2) a decrease in accounts receivable by $3.0 million and 3) an increase in accrued interest by $3.1 million due to the timing of the Company’s semi-annual interest payment on the Senior Notes.

     Net cash used in investing activities was $1.9 million for first quarter 2003, compared to $.8 million for first quarter 2002, due to an increase in capital expenditures for plant improvements.

     Net cash used in financing activities was $1.3 million for first quarter 2003, compared to net cash provided by financing activities of $3.2 million for first quarter 2002. The decrease in cash provided by financing activities was

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due primarily to a decrease in borrowings under the revolving credit facility of $2.5 million for first quarter 2003 compared to first quarter 2002, and loan origination fees of $1.6 million incurred in first quarter 2003 that did not occur in first quarter 2002.

     Effective May 29, 2002, the Company terminated its $25 million credit facility. Also, effective May 29, 2002, the Company obtained a five-year variable-rate $50 million revolving credit facility from a new lender, which includes a $16 million term loan subline, a $10 million capital expenditures subline and a $7 million letter of credit subfacility. Funds available under this facility are available for working capital requirements, permitted investments and general corporate purposes. Borrowings under the facility bear interest at floating rates based upon the interest rate option selected from time to time by the Company and are secured by a first-priority security interest in substantially all of the Company’s assets. In addition, the Company is required to satisfy certain financial covenants regarding cash flow and capital expenditures.

     As of June 1, 2002, the Company had borrowings under this new facility of $.6 million and borrowing availability of approximately $18.2 million. As of June 2, 2001, the Company had borrowings under its former $25 million credit facility of approximately $3.2 million and borrowing availability of approximately $18.4 million. In addition, at June 1, 2002 and June 2, 2001, the Company was in compliance with the financial covenants under each of the facilities.

     The Company has budgeted approximately $11.2 million for capital expenditures for the remainder of fiscal 2003. These expenditures are primarily devoted to a plant expansion in order to maintain the current revenue growth trend. Additional expenditures are designated for routine food processing capital improvement projects and other miscellaneous expenditures. The Company believes that funds from operations and funds from the $50 million credit facility, as well as the Company’s ability to enter into capital or operating leases, will be adequate to finance these capital expenditures.

     If the Company continues its historical revenue growth trend as expected, 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, such as an increase in borrowing availability under the $50 million credit facility, the issuance of industrial revenue bonds or equity investment. The incurrence of additional long-term debt is governed and restricted by the Company’s existing debt instruments. Furthermore, there can be no assurance that additional long-term financing will be available on advantageous terms (or any terms) when needed by the Company.

     The Company anticipates continued sales growth in key market areas. As noted above, however, this growth will require future capital expansion projects to increase existing plant capacity to satisfy increased demand. Sales growth, improved operating performance and expanded plant capacity — none of which is assured — will be necessary for the Company to continue to service existing debt.

Logistics Agreement

     Effective March 3, 2002, the Company entered into a one-year logistics agreement with PF Distribution, LLC (“PF Distribution”), owned 50% each by the Company’s Chairman and Vice Chairman. Under the agreement, PF Distribution will serve as an exclusive logistics agent for the Company, and will provide all warehousing, fulfillment and transportation services to the Company. The cost of PF Distribution’s services is based on flat rates per pound, which are calculated based on weight and volume characteristics of products, inventory pounds maintained and inventory pounds shipped. Rates were determined based on historical costs and industry standards. In first quarter 2003, distribution expense recorded in selling, general and administrative expense was approximately $5.9 million, of which approximately $4.8 million had been paid to PF Distribution as of June 1, 2002.

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Seasonality

     Except for sales to school districts, which represent approximately 26% of total sales and which decline during the early spring and summer and early January, there is no significant seasonal variation in sales.

Management Buyout

     A definitive proxy statement was filed with the Securities and Exchange Commission on June 25, 2002, in connection with a special meeting of shareholders, at which the shareholders will be asked to adopt and approve the Amended and Restated Agreement and Plan of Share Exchange dated as of December 20, 2001, and amended as of June 20, 2002.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     As discussed in its annual report for the fiscal year ended March 2, 2002, the Company is exposed to market risks stemming from changes in interest rates, foreign exchange rates and commodity prices. Changes in these factors could cause fluctuations in the Company’s financial condition, results of operations and cash flows. The Company owned no derivative financial instruments or nonderivative financial instruments held for trading purposes at June 1, 2002 or March 2, 2002. Certain of the Company’s outstanding nonderivative financial instruments at June 1, 2002 are subject to interest rate risk, but not subject to foreign currency or commodity price risk.

     The Company’s major market risk exposure is potential loss arising from changing interest rates and its impact on long-term debt. The Company’s policy is to manage interest rate risk by maintaining a combination of fixed and variable rate financial instruments in amounts and with maturities that management considers appropriate. The risks associated with long-term debt at June 1, 2002 have not changed materially since March 2, 2002. All long-term debt outstanding at June 1, 2002, comprised of $115.0 million of Senior Notes, $.6 million of outstanding borrowings under the revolving credit facility and $5.9 million of obligation of special purpose entity, was accruing interest at fixed rates. In the future, should the Company borrow funds under its existing credit facility or other long-term financing sources, a rise in prevailing interest rates could have adverse effects on the Company’s financial condition and results of operations.

Cautionary Statement As To Forward Looking Information

     Certain statements made in this document are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from expected results. These risks and uncertainties include: substantial leverage and insufficient cash flow from operations; restrictions imposed by the Company’s debt instruments; management control; factors inhibiting takeover; limited secondary market for common stock; price volatility; restriction of payment of dividends; competitive considerations; government regulation; general risks of the food industry; adverse changes in food costs and availability of supplies; dependence on key personnel; potential labor disruptions and the effects of the pending management buyout. Shareholder approval of the management buyout is not assured. The Company’s failure to close that transaction for any reason could have material adverse effects on the Company and the markets for its securities. This list of risks and uncertainties is not exhaustive. Also, new risk factors emerge over time. Investors should not place undue reliance on the predictive value of forward-looking statements.

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PART II.  OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

	See the Index to Exhibits provided elsewhere in this report.

     (b)  Reports on Form 8-K

	None.

     (c)  Other Filings

	A definitive proxy statement was filed with the Securities and Exchange Commission on June 25, 2002, in connection with a special meeting of shareholders, at which the shareholders will be asked to adopt and approve the Amended and Restated Agreement and Plan of Share Exchange dated as of December 20, 2001, and amended as of June 20, 2002.

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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.

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INDEX TO EXHIBITS

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     The Company hereby agrees to provide to the Commission, upon request, copies of long-term debt instruments omitted from this report pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K under the Securities Act.

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