<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 5, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transaction period from to
-------------- -------------
COMMISSION FILE NUMBER: 0-7277
FRESH 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.)
3437 EAST MAIN STREET
CLAREMONT, NORTH CAROLINA 28610
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (828) 459-7626
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (3) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 16, 1998
----- -------------------------------
COMMON STOCK, $1.00 PAR VALUE 5,914,174
<PAGE> 2
FRESH FOODS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
September 5, 1998 and February 27, 1998.................................................. 1-2
Consolidated Condensed Statements of
Operations and Retained Earnings -
Fifteen Weeks Ended September 5, 1998
and Twelve Weeks Ended August 15, 1997................................................... 3
Consolidated Condensed Statements of
Operations and Retained Earnings -
Twenty-seven Weeks Ended September 5, 1998
and Twenty-four Weeks Ended August 15, 1997.............................................. 4
Consolidated Condensed Statements of Cash
Flows - Twenty-seven Weeks Ended September 5, 1998 and
Twenty-four Weeks Ended August 15, 1997.................................................. 5
Notes to Consolidated Condensed Financial
Statements............................................................................... 6-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations......................................... 10-15
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K................................................ 16
Signatures............................................................................... 17
Index to Exhibits........................................................................ 18
Exhibit 11 - Computation of Earnings per
Common and Common Equivalent Share................................................... 19
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRESH FOODS, INC. AND SUBSIDIARIES_____________________________________________
Consolidated Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 5, February 27,
ASSETS 1998 1998
- ------ --------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,442,491 $ 2,818,071
Marketable equity securities 247,581 206,706
Accounts receivable, net (includes related party
receivables of $214,050 and $181,367 at September 5,
1998 and February 27, 1998, respectively) 16,496,029 5,204,700
Notes receivable - current, net (includes related party
notes receivable of $1,004,447 and $526,592 at
September 5, 1998 and February 27, 1998, respectively) 1,674,098 1,150,906
Inventories 30,399,165 7,361,347
Income taxes refundable 1,087,717 872,157
Deferred income taxes 2,318,585 424,786
Prepaid expenses and other current assets 512,364 269,222
-------------- --------------
Total current assets 56,178,030 18,307,895
-------------- --------------
Property, plant and equipment, net 72,231,973 45,023,793
-------------- --------------
Other assets:
Properties held for sale 2,086,847 1,680,993
Excess of cost over fair value of net assets of
businesses acquired 32,155,210 2,906,366
Other intangible assets, net 51,177,901 829,500
Notes receivable (includes related party notes receivable of
$806,381 and $1,550,638 at September 5, 1998 and
February 27, 1998, respectively) 1,004,791 1,886,249
Deferred income taxes 685,458
Deferred loan origination fees 4,514,257 262,828
Other 115,589 72,717
-------------- --------------
Total other assets 91,054,595 8,324,111
-------------- --------------
Total assets $ 219,464,598 $ 71,655,799
============== ==============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial
statements.
1
<PAGE> 4
FRESH FOODS, INC. AND SUBSIDIARIES_____________________________________________
<TABLE>
<CAPTION>
(Unaudited)
September 5, February 27,
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1998
- ------------------------------------ -------------- ------------
<S> <C> <C>
Current liabilities:
Notes payable $ 5,105,144
Current installments of long-term debt $ 668,168 2,189,401
Trade accounts payable 7,773,523 6,605,893
Income taxes payable 102,558
Accrued insurance 1,384,590 614,846
Accrued interest 3,227,116 87,426
Accrued payroll and payroll taxes 3,437,323 1,960,534
Accrued promotions 2,417,999 12,000
Accrued taxes (other than income and payroll) 1,987,733 379,269
Other accrued liabilities 2,441,226 1,850,766
------------- ------------
Total current liabilities 23,440,236 18,805,279
Deferred income taxes 1,049,835
Long-term debt, excluding current installments 155,660,781 13,623,532
------------- ------------
Total liabilities 180,150,852 32,428,811
------------- ------------
Commitments and Contingencies (Note 9)
Shareholders' equity:
Preferred stock - par value $.10, authorized 2,500,000
shares; no shares issued
Common stock - par value $1, authorized 100,000,000
shares; issued 5,914,174 shares at September 5, 1998
and 5,898,449 shares at February 27, 1998 5,914,174 5,898,449
Capital in excess of par value 23,727,592 23,647,020
Other comprehensive income - unrealized gain on
securities available for sale 29,470 19,261
Retained earnings 9,642,510 9,662,258
------------- ------------
Total shareholders' equity 39,313,746 39,226,988
------------- ------------
Total liabilities and shareholders' equity $ 219,464,598 $ 71,655,799
============= ============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial
statements.
2
<PAGE> 5
FRESH FOODS, INC. AND SUBSIDIARIES_____________________________________________
Consolidated Condensed Statements of Operations and Retained Earnings
Fifteen Weeks Ended September 5, 1998 and Twelve Weeks Ended August 15, 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Operating revenues:
Food processing $ 47,887,216 $ 17,347,007
Restaurant operations and franchising (includes related party
transactions totaling $40,516 in 1998 and $70,523 in 1997) 29,956,138 22,421,796
------------ ------------
Total operating revenues 77,843,354 39,768,803
------------ ------------
Costs and expenses:
Cost of goods sold (includes related party transactions totaling
$124,738 in 1998 and $79,720 in 1997) 42,303,504 23,691,711
Restaurant operating expenses (includes related party transactions
totaling $783,497 in 1998 and $1,022,051 in 1997) 13,660,468 9,434,226
Selling, general and administrative expenses (includes related party
transactions totaling $1,123,034 in 1998 and $421,587 in 1997) 15,034,525 3,168,470
Depreciation and amortization 2,575,639 1,013,843
------------ ---------------
Total costs and expenses 73,574,136 37,308,250
------------ ---------------
Operating income 4,269,218 2,460,553
------------ ---------------
Other income (expense):
Other income (including interest) (includes related party
transactions totaling $45,503 in 1998 and $40,897 in 1997) 196,824 182,516
Net gain (loss) on dispositions and sales of assets (includes
related party transactions totaling $111,518 in 1997) (718,454) 66,533
Interest expense (includes related party transactions totaling
$5,021 in 1998 and $36,573 in 1997) (3,997,429) (416,130)
Other expense (includes related party transactions totaling
$1,031 in 1998 and $43,548 in 1997) (218,194) (115,300)
------------ ---------------
Net other expense (4,737,253) (282,381)
------------ ---------------
Earnings (loss) before income taxes and extraordinary item (468,035) 2,178,172
Income tax provision (benefit) (175,460) 823,710
------------ ---------------
Earnings (loss) before extraordinary item (292,575) 1,354,462
Extraordinary loss from early extinguishment of debt (net of
income tax benefit of $42,312) (66,181)
------------ ---------------
Net earnings (loss) $ (358,756) $ 1,354,462
============ ===============
Retained earnings:
Balance at beginning of period $ 10,001,266 $ 8,145,102
Net earnings (loss) (358,756) 1,354,462
------------ ---------------
Balance at end of period $ 9,642,510 $ 9,499,564
============ ===============
Earnings (loss) before extraordinary item - basic $ (0.05) $ 0.25
Extraordinary loss from early extinguishment of debt (0.01)
------------ ---------------
Net earnings (loss) per common share - basic $ (0.06) $ 0.25
============ ===============
Earnings (loss) before extraordinary item - diluted $ (0.05) $ 0.23
Extraordinary loss from early extinguishment of debt (0.01)
------------ ---------------
Net earnings (loss) per common share - diluted $ (0.06) $ 0.23
============ ===============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial
statements.
3
<PAGE> 6
FRESH FOODS, INC. AND SUBSIDIARIES_____________________________________________
Consolidated Condensed Statements of Operations and Retained Earnings
Twenty-seven Weeks Ended September 5, 1998 and
Twenty-four Weeks Ended August 15, 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Operating revenues:
Food processing $ 61,282,062 $ 32,647,175
Restaurant operations and franchising (includes related party
transactions totaling $65,812 in 1998 and $161,535 in 1997) 51,755,733 43,557,226
--------------- ---------------
Total operating revenues 113,037,795 76,204,401
--------------- ---------------
Costs and expenses:
Cost of goods sold (includes related party transactions totaling
$225,779 in 1998 and $209,118 in 1997) 62,531,431 45,170,692
Restaurant operating expenses (includes related party transactions
totaling $1,633,792 in 1998 and $1,733,442 in 1997) 23,460,464 18,454,192
Selling, general and administrative expenses (includes related party
transactions totaling $1,548,508 in 1998 and $853,456 in 1997) 17,800,444 6,084,423
Depreciation and amortization 3,701,973 2,029,607
--------------- ---------------
Total costs and expenses 107,494,312 71,738,914
--------------- ---------------
Operating income 5,543,483 4,465,487
--------------- ---------------
Other income (expense):
Other income (including interest) (includes related party
transactions totaling $86,840 in 1998 and $62,717 in 1997) 377,457 349,744
Net gain (loss) on dispositions and sales of assets (includes
related party transactions totaling $111,518 in 1997) (980,018) 20,486
Interest expense (includes related party transactions totaling
$29,709 in 1998 and $54,329 in 1997) (4,417,097) (830,526)
Other expense (includes related party transactions totaling
$43,479 in 1998 and $60,564 in 1997) (447,706) (204,960)
--------------- ---------------
Net other expense (5,467,364) (665,256)
--------------- ---------------
Earnings before income taxes and extraordinary item 76,119 3,800,231
Income tax provision 29,686 1,443,757
--------------- ---------------
Earnings before extraordinary item 46,433 2,356,474
Extraordinary loss from early extinguishment of debt (net of
income tax benefit of $42,312) (66,181)
--------------- ---------------
Net earnings (loss) $ (19,748) $ 2,356,474
=============== ===============
Retained earnings:
Balance at beginning of period $ 9,662,258 $ 7,143,090
Net earnings (loss) (19,748) 2,356,474
--------------- ---------------
Balance at end of period $ 9,642,510 $ 9,499,564
=============== ===============
Earnings before extraordinary item - basic $ 0.01 $ 0.42
Extraordinary loss from early extinguishment of debt (0.01)
--------------- ---------------
Net earnings (loss) per common share - basic $ -- $ 0.42
=============== ===============
Earnings before extraordinary item - diluted $ 0.01 $ 0.39
Extraordinary loss from early extinguishment of debt (0.01)
--------------- ---------------
Net earnings (loss) per common share - diluted $ -- $ 0.39
=============== ===============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial
statements.
4
<PAGE> 7
FRESH FOODS, INC. AND SUBSIDIARIES____________________________________________
Consolidated Condensed Statements of Cash Flows
Twenty-seven Weeks Ended September 5, 1998 and Twenty-four Weeks
Ended August 15, 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (19,748) $ 2,356,474
-------------- --------------
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Extraordinary loss from extinguishment of debt (before tax benefit
of $42,312) 108,493
Depreciation and amortization 3,701,973 2,029,607
Depreciation on properties leased to others 165,267 42,225
Increase (decrease) in deferred income taxes (158,506) 147,490
Provision for losses on receivables 21,156 24,633
Net (gain) loss on disposition and write-down of assets 980,018 (20,486)
Other non-cash adjustments to earnings 157,288 (27,763)
Changes in operating assets and liabilities (net of effect from
purchase of restaurant companies and Pierre) providing (using)
cash:
Marketable equity securities (40,875) (20,680)
Receivables (2,702,198) (3,640,258)
Inventories (2,309,307) (825,653)
Income taxes refundable, prepaid expenses and other (412,947) 152,961
Trade accounts payable and other accrued liabilities 2,614,811 3,259,908
-------------- --------------
Total adjustments 2,125,173 1,121,984
-------------- --------------
Net cash provided by operating activities 2,105,425 3,478,458
-------------- --------------
Cash flows from investing activities:
Purchase of net assets of Pierre Foods (123,297,285)
Proceeds from sales of assets to others 80,652 1,261,892
Proceeds from sales of assets to related parties 310,000
Decrease in related party notes receivables 266,402 179,452
Decrease in other notes receivable 126,813 364,213
Deposits, net of refunds (48,945) (27,632)
Capital expenditures to related parties (1,532,185) (792,851)
Capital expenditures - others (7,980,685) (4,327,520)
-------------- --------------
Net cash used in investing activities (132,385,233) (3,032,446)
-------------- --------------
Cash flows from financing activities:
Proceeds from issuance of senior notes 115,000,000
Net borrowing under revolving credit agreement 37,982,976
Proceeds from issuance of long-term debt 850,000
Principal payments on long-term debt (12,466,961) (2,419,237)
Net proceeds (repayments) under short-term borrowing
agreements (5,105,144) 636,149
Loan origination fees (4,581,393)
Repurchase of common stock (1,983,750)
Proceeds from exercise of stock options 74,750 96,200
-------------- --------------
Net cash provided by (used in) financing activities 130,904,228 (2,820,638)
-------------- --------------
Net increase (decrease) in cash and cash equivalents 624,420 (2,374,626)
Cash and cash equivalents at beginning of period 2,818,071 4,275,031
-------------- --------------
Cash and cash equivalents at end of period $ 3,442,491 $ 1,900,405
============== ==============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial
statements.
5
<PAGE> 8
FRESH FOODS, INC. AND SUBSIDIARIES_____________________________________________
Notes to Consolidated Condensed Financial Statements
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to
present fairly the financial position as of September 5, 1998 and February
27, 1998, the results of operations for the fiscal quarters ended
September 5, 1998 and August 15, 1997 and the cash flows for the
twenty-seven weeks ended September 5, 1998 and the twenty-four weeks ended
August 15, 1997. As a result of the change in the number of weeks in the
fiscal quarter ended September 5, 1998 as compared to the prior year
quarter ended August 15, 1997(described in Note 5)and the acquisition of
Pierre (described in Note 3), the two quarters are not comparable. The
audited financial statements for the fiscal year ended February 27, 1998
should be read in conjunction with these unaudited quarterly financial
statements.
2. The results of operations for the twenty-seven weeks ended September 5,
1998 are not necessarily indicative of the results to be expected for the
full year.
3. Financial statements for fiscal 1998 have been reclassified, where
applicable, to conform to financial statement presentation used in fiscal
1999. Amounts for the fiscal quarter and year to date ended August 15, 1997
have been restated to reflect the merger with Sagebrush,Inc. which was
completed on January 30, 1998 and accounted for as a pooling of interests
under Accounting Principles Board Opinion No.16. In addition, amounts for
the fiscal quarter and year to date ended September 5, 1998, include
results of operations for Pierre from the acquisition date of June 9, 1998
through September 5, 1998.
4. In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share", which was required to be adopted for both
interim and year-end financial statement periods ending December 15, 1997.
The Company adopted this new method of computing earnings per share and
restated earnings per share for all prior periods. The following is a
reconciliation between basic and diluted earnings (loss) per share before
extraordinary item:
<TABLE>
<CAPTION>
Earnings
(Loss) before
Extraordinary Per Share
Item Shares Amount
---- ------ ------
<S> <C> <C> <C>
Quarter Ended September 5, 1998
Loss per common share - basic $ (292,575) 5,907,892 $ (0.05)
Stock-based compensation awards
-------------- ------------- -----------
Loss per common share - diluted $ (292,575) 5,907,892 $ (0.05)
============== ============= ===========
Quarter Ended August 15, 1997
Earnings per common share - basic $ 1,354,462 5,524,582 $ 0.25
Stock-based compensation awards 487,921 (0.02)
-------------- ------------- -----------
Earnings per common share - diluted $ 1,354,462 6,012,503 $ 0.23
============== ============= ===========
Year to Date Ended September 5, 1998
Earnings per common share - basic $ 46,433 5,905,117 $ 0.01
Stock-based compensation awards 247,851
-------------- -------------- -----------
Earnings per common share - diluted $ 46,433 6,152,968 $ 0.01
============== ============== ===========
Year to Date Ended August 15, 1997
Earnings per common share - basic $ 2,356,474 5,579,875 $ 0.42
Stock-based compensation awards 461,820 (0.03)
-------------- -------------- -----------
Earnings per common share - diluted $ 2,356,474 6,041,695 $ 0.39
============== ============== ===========
</TABLE>
6
<PAGE> 9
5. The Company reports the results of its operations using a 52-53 week basis.
As a result of the Pierre Foods acquisition, described in Note 9, the
Company changed its interim fiscal periods to conform with standard food
processing industry interim periods. In line with this, each quarter of the
52 week fiscal year will contain 13 weeks except for the infrequent fiscal
years with 53 weeks. In order to adopt this interim calendar, the
Company's existing operations contain fifteen weeks in the quarter ended
September 5, 1998, as compared to twelve weeks in the quarter ended
August 15, 1997. The effect of the additional three weeks in 1998
increased revenue by $20,186,556, increased operating income by
$1,931,395, decreased net loss by $586,085 and decreased loss per basic
and diluted share by $.10 for both the quarter and year to date ended
September 5, 1998.
6. A summary of inventories, by major classifications, follows:
<TABLE>
<CAPTION>
September 5, February 27,
1998 1998
------------ ------------
<S> <C> <C>
Restaurants $ 802,682 $ 876,863
Food processing
Raw materials 6,336,186 2,786,547
Work in process 1,612,165 1,574,767
Finished goods 21,648,132 2,123,171
------------ ------------
Totals $ 30,399,165 $ 7,361,347
============ ============
</TABLE>
7. Supplemental cash flow disclosures - cash paid during the period ended:
<TABLE>
<CAPTION>
September 5, 1998 August 15, 1997
------------------ ------------------
<S> <C> <C>
Interest $ 1,084,255 $ 746,278
================== ==================
Income taxes $ 362,110 $ 744,026
================== ==================
</TABLE>
During the first quarter of fiscal 1998, the Company purchased fixed
assets, goodwill and inventories of certain commonly controlled
franchised units in exchange for cash, the assumption of current and
long-term liabilities, the issuance of long-term notes, and the
forgiveness of a note receivable. Also, as part of the same transaction,
the Company issued 98,750 shares of common stock in exchange for a
non-competition agreement. Specific amounts relating to items purchased
and consideration given are set forth in Note 8.
8. On March 1, 1997, the Company acquired fourteen franchised restaurants
from various corporations predominantly owned by a former executive
officer of the Company for a total purchase price of $3,767,500 payable as
follows: $500 in cash; $352,780 in assumed current liabilities; $476,720
in assumed long-term liabilities; $125,000 in forgiveness of a note
receivable from seller; $2,012,500 in common stock of the Company; and a
two year 5% promissory note in the amount of $800,000. As part of this
transaction, 223,611 shares of common stock were issued to the selling
corporations. In addition, costs associated with the acquisition totaling
$64,707 were capitalized as part of the transaction. The acquisition price
is allocated as follows: $1,203,413 to fixed assets, $2,477,481 to excess
of cost over fair value of net assets of businesses acquired and $151,313
to restaurant inventories.
In addition, existing lease agreements for eleven of the restaurant
properties were assigned to the Company. Also the Company signed new
lease agreements on the remaining three properties. The new leases are
classified as operating leases.
Also as part of this transaction, the former executive officer, who was
also the single largest franchisee of the Company, entered into a
fifteen-year non-competition agreement with the Company in exchange for
98,750 shares of common stock valued at $888,750 on the date of the
agreement. These shares are restricted securities and their resale is
subject to certain conditions.
7
<PAGE> 10
9. On June 9, 1998, the Company purchased certain of the net operating assets
of the Pierre Foods Division ("Pierre") of Hudson Foods, Inc. ("Hudson"),
a wholly owned subsidiary of Tyson Foods, for $122 million and assumed
certain of Hudson's liabilities, consisting principally of trade payables
and other accrued short-term liabilities. The acquisition was accounted
for using the purchase method of accounting. The purchase price, which
totaled $123.3 million including the capitalized costs of the
acquisition, has been allocated to the net underlying assets based on
preliminary estimates of fair values. The Company does not believe that
the final purchase price allocation will differ significantly from the
preliminary purchase price allocation recorded at September 5, 1998.
Excess purchase price over fair market value of the underlying assets of
$80,405,000 was allocated to goodwill and other intangible assets,
including tradenames and assembled workforce, and is being amortized on a
straight-line basis over lives ranging from fifteen to thirty years.
The purchase was financed by the proceeds of an institutional private
placement of $115.0 million aggregate principal amount of the Company's
10 3/4% Senior Notes Due 2006 (the "Senior Notes") and an initial
borrowing under a new five-year, $75.0 million, revolving bank credit
facility (the "Bank Facility"), with availability subject to a borrowing
base formula. In addition, borrowings under the Bank Facility were used
to extinguish all existing indebtedness of the Company for borrowed
money, with the exception of outstanding industrial revenue bonds and
certain capital lease obligations.
The Senior Notes are unsecured obligations of the Company,
unconditionally guaranteed on a senior unsecured basis by all existing
subsidiaries of the Company. Interest on the Senior Notes is payable on
June 1 and December 1 of each year, commencing December 1, 1998. The
Senior Notes mature on June 1, 2006, unless previously redeemed, and are
not subject to any sinking fund requirement. Subsequent to September 5,
1998, the Company commenced a registered offering of substantially
identical notes in exchange for the Senior Notes. The exchange offer
is scheduled to expire on November 2, 1998.
The Bank Facility provides for a revolving line of credit under which the
Company may borrow up to an amount equal to the lesser of $75.0 million
or a borrowing base (comprised of eligible accounts receivable,
inventory, machinery and equipment and real property). Borrowings under
the Bank Facility will bear interest at floating rates based upon the
interest rate option selected from time to time by the Company. The
borrowings are secured by a first priority security interest in
substantially all of the personal property of the Company and its
subsidiaries, together with all real property included in the borrowing
base.
On September 5, 1998, the Company completed a reorganization, consisting
of a series of stock and asset transfers, mergers and liquidations among
and involving the parent corporation and its subsidiaries, designed to
simplify the corporate structure. As a result of this reorganization,
Fresh Foods, Inc. is a holding company with no assets or operations other
than investments in its subsidiaries. All subsidiaries of Fresh Foods,
Inc. are wholly owned, directly or indirectly, by Fresh Foods, Inc., and
serve as subsidiary guarantors of the Bank Facility and Senior Notes and
as such have unconditionally guaranteed the notes on a joint and several
basis. In addition, all guarantors of the Bank Facility and Senior Notes
are subsidiaries of Fresh Foods, Inc.
As a result of the September 5, 1998 reorganization, separate financial
statements of the subsidiary guarantors are not presented because (a) the
subsidiary guarantors have jointly and severally guaranteed the Senior
Notes on a full and unconditional basis, (b) the aggregate assets,
liabilities, earnings and equity of the subsidiary guarantors are
substantially equivalent to the assets, liabilities, earnings and equity
of the parent on a consolidated basis and (c) management has determined
that such information is not material to investors.
The following unaudited pro forma consolidated results of operations
assume the Pierre acquisition occurred as of the beginning of each year:
8
<PAGE> 11
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
Twenty-seven Twenty-four
Weeks Ended Weeks Ended
September 5, 1998 August 15, 1997
----------------- ---------------
<S> <C> <C>
Total operating revenues $ 141,915 $ 126,308
Operating income 5,674 6,036
Loss before extraordinary item (2,097) (527)
Extraordinary loss (net of tax) (76) (117)
Net loss $ (2,173) $ (644)
Net loss per common share - basic:
Loss before extraordinary item $ (0.36) $ (0.10)
Extraordinary loss (0.01) (0.02)
----------- -----------
Net loss $ (0.37) $ (0.12)
=========== ===========
Net loss per common share - diluted:
Loss before extraordinary item $ (0.36) $ (0.10)
Extraordinary loss (0.01) (0.02)
----------- -----------
Net loss $ (0.37) $ (0.12)
=========== ===========
</TABLE>
10. Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" was issued in June 1997 and became effective for the
Company in the current fiscal year. SFAS No. 130 requires disclosure of
comprehensive income (which is defined as "the change in equity during a
period excluding changes resulting from investments by shareholders and
distributions to shareholders") and its components. Total comprehensive
income, comprised of net earnings and unrealized holding gains (losses)
on available-for-sale securities, was $(352,927)and $1,351,835 for the
quarters ended September 5, 1998 and August 15, 1997, and was $(9,539)
and $2,356,665 for the year to date periods ended September 5, 1998 and
August 15, 1998, respectively.
In June 1997, Statement of Financial Accounting Standards ("SFAS") No.
131, "Disclosures About Segments of an Enterprise and Related
Information," was issued. SFAS No. 131 redefines how operating segments
are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. The Company
will be required to adopt this new standard for fiscal 1999. The Company
has not yet completed its analysis of the effect of this new standard
on its financial statement disclosures.
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants (the "AICPA") issued
Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides guidance on the types of internal costs, including payroll and
interest costs, which should be capitalized relative to development of
software applications. The Company will be required to adopt this new
statement for fiscal 1999. The Company has evaluated this statement and
does not expect any material effect on the Company's financial
statements.
In April 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred.
The Company will be required to adopt this new statement for fiscal
1999. The Company is in the process of evaluating this statement and
based on preliminary review, expects the cumulative effect of this
statement to require a write-off of approximately $96,000 before any tax
benefit.
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's operations are classified into two business segments:
food processing operations, principally fully cooked meat and sandwich
production; and restaurant operations, comprised of the Sagebrush, Western
Steer, Prime Sirloin and Bennett's concepts. On June 9, 1998, the Company
completed its acquisition of Pierre Foods. The inclusion of Pierre's operations
and the additional three weeks of operations in the existing operations (see
Note 5) results in increases in every revenue and expense category compared
with prior year results for the comparable periods. Results for the fiscal
quarters and year to date ended September 5, 1998 and August 15, 1997, are
shown below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Year to Date Ended
-------------------- ------------------
(In millions) September 5, August 15, September 5, August 15,
1998 1997 1998 1997
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Revenues:
Food processing operations $ 47.8 $ 17.4 $ 61.3 $ 32.6
Restaurant operations 30.0 22.4 51.7 43.6
------------ ------------ ------------ ------------
Total 77.8 39.8 113.0 76.2
------------ ------------ ------------ ------------
Cost of goods sold:
Food processing operations 31.1 15.6 43.4 29.4
Restaurant operations 11.2 8.1 19.1 15.8
------------ ------------ ------------ ------------
Total 42.3 23.7 62.5 45.2
------------ ------------ ------------ ------------
Restaurant operating expenses 13.6 9.4 23.5 18.4
Selling, general and administrative 15.0 3.2 17.8 6.1
Depreciation and amortization 2.6 1.0 3.7 2.0
------------ ------------ ------------ ------------
Operating income 4.3 2.5 5.5 4.5
------------ ------------ ------------ ------------
Other expense (4.8) (.3) (5.4) (.7)
------------ ------------ ------------ ------------
Earnings (loss) before income taxes
and extraordinary item (.5) 2.2 .1 3.8
Income tax provision (benefit) (.2) .8 .0 1.4
------------ ------------ ------------ ------------
Earnings (loss) before extraordinary item (.3) 1.4 .1 2.4
Extraordinary loss (net of tax) (.1) (.1)
------------ ------------ ------------ ------------
Net earnings (loss) $ (.4) $ 1.4 $ .0 $ 2.4
============ ============ ============ ============
</TABLE>
Fiscal Quarter Ended September 5, 1998 Compared to Fiscal Quarter Ended
August 15, 1997
Revenues. Revenues increased by $38.0 million, or 95.7%. The net
effect of the Pierre acquisition accounted for $28.9 million of the sales
increase. The remaining increase of $9.1 million was the result of increases of
$7.6 million in restaurant revenues and $1.5 million in existing food processing
revenues. The increase in restaurant revenues was due to the additional three
weeks of sales of $6.6 million and to the opening, following the fiscal quarter
ended August 15, 1997, of fourteen Sagebrush restaurants, consisting of five
new restaurants and nine conversions. The revenue effect of these fourteen new
Sagebrush restaurants was offset somewhat by the closing of six non-Sagebrush
restaurants. The increase in food processing revenues resulted primarily from
the additional three weeks of sales of $2.0 million offset by declines in sales
of hams and ham products during such fiscal quarter.
10
<PAGE> 13
Cost of goods sold. Cost of goods sold increased by $18.6 million, or
78.6%. $14.6 million of the increase was the result of the Pierre acquisition.
Cost of goods sold in the restaurant segment increased by $3.1 million, or
38.3%, due to the operation of additional restaurants and the additional three
weeks in the fiscal quarter ended September 5, 1998. The remaining $0.9 million
increase in such cost in the food processing segment was attributable to the
additional three weeks of operations. Cost of goods sold in the food processing
segment decreased as a percentage of operating revenues of that segment from
89.7% to 65.1% due to the Company's acquisition of Pierre, which historically
had a higher gross margin percent than existing Company food processing
operations.
Restaurant operating expenses. Such expenses increased by $4.2
million, or 44.8%, as a result of the operation of additional restaurants and
the additional three weeks in the fiscal quarter ended September 5, 1998. As a
percentage of restaurant revenues, restaurant operating expenses increased from
42.0% to 45.6% due to the incurrence, in the current year, of pre-opening costs
associated with a larger number of new restaurants in 1998 compared to 1997.
Selling, general and administrative. Such expenses increased $11.8
million, or 374.5%. Expenses associated with the Pierre acquisition accounted
for $9.4 million of the increase, with most of the remainder the result of
integration costs and an additional three weeks of operations.
Depreciation and amortization. Depreciation and amortization increased
$1.6 million, or 154.0% due to the Pierre acquisition and the higher number of
restaurants in operation.
Operating income. Operating income increased by $1.8 million or 73.5%,
and decreased as a percentage of revenues from 6.2% to 5.5%, for the reasons
stated above.
Other expense. Net other expense increased by $4.5 million, or
1577.6%, due to (1) interest expense ($3.6 million) resulting from the
borrowings used to finance the Pierre acquisition ,(2) dispostions of certain
fixtures and equipment deemed worthless as a result of the acquisition and
integration of the Sagebrush operations and (3) dispositions of certain fixtures
and equipment as the result of conversions of restaurants to the Sagebrush
concept.
Earnings (loss) before income taxes and extraordinary item. Such
earnings decreased by $2.7 million, or 121.5% for reasons stated above.
Income tax provision (benefit). The effective tax rate for the fiscal
quarter ended September 5, 1998 was 37.5%, as compared to 37.8% for the prior
year comparable quarter.
Earnings (loss) before extraordinary item. Earnings before
extraordinary item decreased by $1.6 million, or 121.6%, for the reasons stated
above.
Extraordinary loss. Extraordinary loss, net of tax, is the result of a
$66,000 loss on write-off of loan fees due to early extinguishment of debt.
Net earnings (loss). Net earnings decreased by $1.8 million, or
126.5%, for the reasons stated above.
Year to Date Ended September 5, 1998 Compared to Year to Date Ended August 15,
1997
Revenues. Revenues increased by $36.8 million, or 48.3%. The net
effect of the Pierre acquisition accounted for $28.9 million of the sales
increase. The remaining increase of $7.9 million was the result of an increase
of $8.1 million in restaurant revenues and a decrease of $.2 million in
existing food processing revenues. The increase in restaurant revenues was due
to the opening of seventeen Sagebrush restaurants since the beginning of fiscal
1998, consisting of eight new restaurants and nine conversions, and to the
additional three weeks of sales of $6.6 million. The revenue effect of these
seventeen new Sagebrush restaurants was offset somewhat by the closing of six
non-Sagebrush restaurants. The decrease
11
<PAGE> 14
in food processing revenues resulted primarily from inventory management prior
to the consummation of the Pierre acquisition and declines in sales of hams and
ham products during such fiscal period, offset by the additional three weeks of
sales of $2.0 million.
Cost of goods sold. Cost of goods sold increased by $17.3 million, or
38.4%. $14.6 million of the increase was the result of the Pierre acquisition.
Cost of goods sold in the restaurant segment increased by $3.3 million, or
20.8%, due to the operation of additional restaurants and the additional three
weeks in the fiscal period ended September 5, 1998. The remaining $.6 million
decrease was attributable to the decline in sales in the non acquisition food
processing segment. Cost of goods sold in the food processing segment decreased
as a percentage of operating revenues of that segment from 90.2% to 70.8% due
to the Company's acquisition of Pierre, which historically had a higher gross
margin percent than existing Company food processing operations.
Restaurant operating expenses. Such expenses increased by $5.1
million, or 27.1%, as a result of the additional three weeks in the period
and to the operation of additional restaurants in the fiscal period ended
September 5,1998. As a percentage of restaurant revenues, restaurant operating
expenses increased from 42.4% to 45.3% due to the incurrence, in the current
year, of pre-opening costs associated with a larger number of new restaurants.
Selling, general and administrative. Such expenses increased $11.7
million, or 192.6%. Expenses associated with the Pierre acquisition accounted
for $9.4 million of the increase, with most of the remainder the result of
integration costs and the additional three weeks of operations.
Depreciation and amortization. Depreciation and amortization increased
$1.7 million, or 82.3% due to the Pierre acquisition and the higher number of
restaurants on operation.
Operating income. Operating income increased by $1.0 million or 24.1%,
and decreased as a percentage of revenues from 5.9% to 4.9%, for the reasons
stated above.
Other expense. Net other expense increased by $4.7 million, or 721.8%,
due to (1) interest expense ($3.6 million) resulting from the borrowings used
to finance the Pierre acquisition, (2) dispositions of certain fixtures and
equipment deemed worthless as a result of the acquisition and integration of the
Sagebrush operations, (3) dispositions of certain fixtures and equipment as the
result of conversions of restaurants to the Sagebrush concept and (4)
disposition of computer software that management had determined not to utilize
in the future due to the integration of Pierre into Fresh Foods.
Earnings before income taxes and extraordinary item. Such earnings
decreased by $3.7 million, or 98.0%, for the reasons stated above.
Income tax provision. The effective tax rate for the fiscal year to
date ended September 5, 1998 was 39.0%, as compared to 38.0% for the prior year
comparable period.
Earnings before extraordinary item. Net earnings before extraordinary
item decreased by $2.3 million, or 98.0%, for the reasons stated above.
Extraordinary loss. Extraordinary loss, net of tax, is the result of a
$66,000 loss on write-off of loan fees due to early extinguishment of debt.
Net earnings (loss). Net earnings decreased by $2.4 million, or
100.8%, for the reasons stated above.
LIQUIDITY AND CAPITAL RESOURCES
12
<PAGE> 15
The Company had working capital of $32.7 million at September 5, 1998,
as compared to a deficit of $497,000 at February 27, 1998. Most of the increase
in working capital was attributable to borrowings under the revolving line of
credit used to finance part of the Pierre acquisition, restaurant conversions
and construction, and operations. These borrowings are classified as long term
debt on the balance sheet.
The Company has traditionally financed its working capital needs
through a combination of cash flow from operations and bank borrowings and,
from time to time, sales of underutilized assets. During fiscal 1997, the
Company entered into an agreement with a bank to provide a $6.0 million
revolving credit facility, secured by a lien on inventory and receivables. The
Company also obtained construction loans from a bank in amounts of up to $1.0
million per restaurant to finance the construction of new restaurants.
Borrowings under these facilities were paid off with proceeds from the
revolving bank facility as part of the Pierre acquisition.
Funding for capital expenditures has been obtained primarily through
current earnings and revolving line of credit. Capital expenditures were $9.5
million for the fiscal year to date ended September 5, 1998, as compared to
$5.1 million for the comparable period of fiscal 1998. The primary reason for
the $4.4 million increase was the construction of three new Sagebrush
restaurant and the conversion of seven restaurants to the Sagebrush concept
during the current fiscal year.
On June 9, 1998, the Company completed the acquisition of Pierre. The
$122.0 million cash purchase price was financed by the proceeds of an
institutional private placement of $115.0 million aggregate principal amount of
the Company's 10 3/4% Senior Notes Due 2006 and an initial borrowing under a
new five-year, $75.0 million revolving Bank Facility, with availability subject
to a borrowing base formula. In addition, borrowings under the Bank Facility
were used to extinguish all existing debt of the Company, with the exception of
outstanding industrial revenue bonds and certain capital lease obligations (see
Note 9 to the unaudited consolidated condensed financial statements).
The Company anticipates that its cash requirements, including working
capital, capital expenditures and required principal and interest payments due
under the Bank Facility and interest payments due under the Senior Notes, which
represent significant liquidity requirements, will be met through a combination
of funds provided by operations, borrowings under the Bank Facility and,
depending upon stock market conditions and other factors, the net proceeds of a
possible offering of its common stock. In addition, from time to time the
Company expects to continue its practice of acquiring equipment with the
proceeds of secured bank loans or capital or operating leases subject to
certain limitations.
The Company has budgeted approximately $16.2 million for capital
expenditures in fiscal 1999, including expenditures for Pierre subsequent to
the acquisition of Pierre. These expenditures are expected to be devoted to (i)
restaurant conversions and the construction of three new Sagebrush restaurants
(approximately $11.2 million) and (ii) routine equipment upgrading and
maintenance (approximately $2.9 million).
The Bank Facility provides for a five-year revolving line of credit
under which the Company may borrow up to an amount (including standby letters
of credit up to $2.5 million) equal to the lesser of $75.0 million or a
borrowing base (comprised of eligible accounts receivable, inventory, machinery
and real property). The portion of the Bank Facility not used in connection
with consummation of the Pierre acquisition may be used for working capital
requirements, permitted acquisitions and general corporate purposes. Borrowings
under the Bank Facility bear interest at floating rates based upon the interest
rate option selected from time to time by the Company.
As of September 5, 1998, after giving effect to the Acquisition and
related financial transactions, the Company had approximately $38.0 million in
outstanding borrowings under the revolving line of credit and approximately
$17.9 million of additional availability under the Bank Facility.
13
<PAGE> 16
SEASONALITY
The Company considers its restaurant operations to be somewhat
seasonal in nature, with stronger sales during the Christmas season and spring,
weaker sales during the mid-summer and late winter. Except for sales to school
districts, which decline significantly during the summer and early January,
there is no seasonal variation in the Company's sales of food products. The
Company's food production is steady throughout the year.
INFLATION
The Company believes that inflation has not had a material impact on
its results of operations for any of the periods reported herein.
"YEAR 2000" ISSUES
The "Year 2000 Problem" arose because many existing computer programs
use only the last two digits to refer to a year. If not addressed, computer
programs that are date sensitive may not have the ability to properly recognize
dates in year 2000 and beyond. The result could be a temporary disruption of
operations and the processing of transactions. The Company has developed a four
phase approach to addressing this problem. Phase 1 was an analysis to identify
the impact and costs relating to Year 2000, both in computer information
systems and other equipment. Phase 2 was to create a comprehensive plan to
address and fix any problems identified. Phase 3 is the actual implementation
of the comprehensive plan and Phase 4 is addressing any unforeseen
complications or issues not previously addressed. The Company has completed
Phase 1 and Phase 2. Phase 3 is scheduled to be substantially complete by the
end of 1998, with continued testing of compliance throughout 1999.
Additionally, as part of Phase 3, the Company has sent "Year 2000"
questionnaires to vendors and other entities with which the Company conducts
business in order to assess whether they are year 2000 compliant or have
adequately addressed their system conversion requirements. The Company cannot
predict how many, if any, of the responses it receives may prove later to be
inaccurate or overly optimistic. As a result, the Company has begun developing,
as part of Phase 3, contingency plans to address unanticipated interruptions or
down time in both the Company's and third parties' systems and services. The
costs to implement the Company's plan through September 5, 1998 was $184,000 and
are being expensed as incurred. The estimated cost to complete Phase 3 is
$137,000. As of September 5, 1998 the Company is on schedule to complete Phase 3
as planned. The Company is continuing to closely monitor adherence to the
implementation plan and is currently satisfied that it will be adequately
completed in the scheduled time frame. If the Company encounters unforeseen
complications or issues not previously addressed in the comprehensive plan
(Phase 4), additional resources from internal and external sources would be
committed to complete the necessary conversions in the required time frame.
Since the use of these additional resources is considered unlikely, no
estimates as to the costs of them have been made at this time.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards ("SFAS") No.
131, "Disclosures About Segments of an Enterprise and Related Information," was
issued. SFAS No. 131 redefines how operating segments are determined and
requires disclosure of certain financial and descriptive information about a
company's operating segments. The Company will be required to adopt this new
standard for fiscal 1999. The Company has not yet completed its analysis of the
effect of this new standard on its financial statement disclosures.
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants (the "AICPA") issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance on the types of internal costs, including payroll and interest costs,
which should be capitalized relative to development of software applications.
The Company will be required to adopt this new
14
<PAGE> 17
statement for fiscal 1999. The Company has evaluated this statement and does not
expect any material effect on the Company's financial statements.
In April 1998, the Accounting Standards Executive Committee of the
AICPA issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. The Company will
be required to adopt this new statement, too, for fiscal 1999. The Company is
in the process of evaluating this statement and based on preliminary review,
expects the cumulative effect of this statement to require a write-off of
approximately $96,000 before any tax benefit.
CAUTIONARY STATEMENT AS TO FORWARD LOOKING INFORMATION
Statements contained in this report as to the Company's outlook for
sales, operations, capital expenditures and other amounts, including budgeted
amounts and projections of future financial or economic performance of the
Company, and statements of the Company's plans and objectives for future
operations, are "forward looking" statements provided in reliance upon the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Important factors that could cause actual results or events to differ
materially from those projected, estimated, assumed or anticipated in any such
forward looking statements include, among others, the substantial leverage of
the Company, restrictions to be imposed on the Company by the terms of its Bank
Facility and Senior Notes, risks relating to the Company's ability to execute
its business strategy following the Pierre acquisition, competitive
considerations, government regulation and general risks of the food industry,
the possibility of adverse changes in food costs, the availability of supplies,
the Company's dependence on key personnel, potential labor disruptions and
"Year 2000" issues.
15
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 25, 1998, the annual meeting of shareholders was held in
Cincinnati, Ohio to consider: the election of four Class I directors, one Class
II director and one Class III director; a proposal to amend the Company's
Bylaws to change the number of directors from 11 to a number not less than 7
nor more than 17 as determined by the Board of Directors; and a proposal to
amend the Company's 1997 Incentive Stock Option Plan to change the number of
shares authorized thereunder from 500,000 to 1,000,000. Results of the voting
are as follows:
<TABLE>
<CAPTION>
Election of directors: For Against Withheld/Abstain
<S> <C> <C> <C>
Richard F. Howard (Class I) 3,490,420 5,259
L. Dent Miller (Class I) 3,490,420 5,259
Norbert E. Woodhams (Class I) 3,490,420 5,259
E. Edwin Bradford (Class I) 3,490,420 5,259
Andrew F. Pudzer (Class II) 3,490,420 5,259
William P. Foley (Class III) 3,490,420 5,259
Proposal 1 - Amend Bylaws 3,488,636 6,709 334
Proposal 2 - Amend 1997 Incentive Stock Option Plan 3,038,521 430,099 27,059
</TABLE>
As a result of the voting, the Company's Bylaws and 1997 Incentive Stock Option
Plan were amended as proposed, and the entire slate of six individuals was
elected to the Board of Directors. The following directors continued in office
after this meeting: James R. Richardson, Jr. , David R. Clark, James M.
Templeton, Lewis C. Lanier, William R. McDonald and Bobby G. Holman.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8 - K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
----------- ----------- --------
<S> <C> <C>
11 Computation of Per Share Earnings 19
27 Financial Data Schedule
(for SEC use only)
</TABLE>
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on June 24, 1998, announcing the
consummation of the Pierre Acquisition.
A Current Report on Form 8-K was filed on September 11, 1998, announcing
a change in the Company's fiscal year.
16
<PAGE> 19
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.
FRESH FOODS, INC.
Date October 20, 1998 By: /s/ James C. Richardson, Jr.
---------------- --------------------------------------
James C. Richardson, Jr.
(Chief Executive Officer)
Date October 20, 1998 By: /s/ Noland M. Mewborn
---------------- --------------------------------------
Noland M. Mewborn
(Vice President of Finance and
Chief Accounting Officer)
17
<PAGE> 20
INDEX TO EXHIBITS
For inclusion in Quarterly Report on Form 10-Q Quarter Ended September 5, 1998
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
11 Computation of Per Share Earnings 19
27 Financial Data Schedule
(for SEC use only)
</TABLE>
18
<PAGE> 1
Exhibit 11
FRESH FOODS, INC. AND SUBSIDIARIES____________________________________________
Computation of Per Share Earnings
<TABLE>
<CAPTION>
Quarters Ended Year to Date Ended
-------------- ------------------
September 5, August 15, September 5, August 15,
1998 1997 1998 1997
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Computation of Earnings Per Common Share - Basic:
Earnings (loss) before extraordinary item $ (292,575) $ 1,354,462 $ 46,433 $ 2,356,474
Extraordinary loss from early extinguishment of debt (net
of income tax benefit of $43,312) (66,181) (66,181)
------------- ------------ ------------- ------------
Net earnings (loss) $ (358,756) $ 1,354,462 $ (19,748) $ 2,356,474
============== ============ ============= ============
Actual outstanding shares at beginning of period 5,902,824 5,518,484 5,898,449 5,326,948
Add (deduct) weighted average shares applicable to:
Common stock purchased (81,047)
Common stock issued 5,068 6,098 6,668 333,974
------------- ------------ ------------- ------------
Weighted average shares as adjusted 5,907,892 5,524,582 5,905,117 5,579,875
============= ============ ============= ============
Earnings (loss) before extraordinary item - basic $ (0.05) $ 0.25 $ 0.01 $ 0.42
Extraordinary loss from early extinguishment of debt (0.01) (0.01)
------------- ------------ ------------- ------------
Earnings (loss) per common share - basic $ (0.06) $ 0.25 $ -- $ 0.42
============= ============ ============= ============
Computation of Earnings Per Common Share - Diluted:
Earnings (loss) before extraordinary item $ (292,575) $ 1,354,462 $ 46,433 $ 2,356,474
Extraordinary loss from early extinguishment of debt (net
of income tax benefit of $42,312) (66,181) (66,181)
------------- ------------ ------------- ------------
Net earnings (loss) $ (358,756) $ 1,354,462 $ (19,748) $ 2,356,474
============= ============ ============= ============
Actual outstanding shares at beginning of period 5,902,824 5,518,484 5,898,449 5,326,948
Add (deduct) weighted average shares applicable to:
Common stock purchased (81,047)
Common stock issued 5,068 6,098 6,668 333,974
Common stock options exercised 316 5,776 3,281
Common stock options forfeited 68,847
Common stock options outstanding 487,605 173,228 458,539
------------- ------------ ------------- ------------
Weighted average shares as adjusted 5,907,892 6,012,503 6,152,968 6,041,695
============= ============ ============= ============
Earnings (loss) before extraordinary item - diluted $ (0.05) $ 0.23 $ 0.01 $ 0.39
Extraordinary loss from early extinguishment of debt (0.01) (0.01)
------------- ------------ ------------- ------------
Earnings (loss) per common share - diluted $ (0.06) $ 0.23 $ -- $ 0.39
============= ============ ============= ============
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the 1999
second quarter 10-Q for Fresh Foods, Inc. and is qualified in its entirety by
reference to such 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-06-1999
<PERIOD-END> SEP-05-1998
<CASH> 3,442,491
<SECURITIES> 247,581
<RECEIVABLES> 18,425,926
<ALLOWANCES> 458,257
<INVENTORY> 30,399,165
<CURRENT-ASSETS> 56,178,030
<PP&E> 100,158,239
<DEPRECIATION> 27,926,266
<TOTAL-ASSETS> 219,464,598
<CURRENT-LIABILITIES> 23,440,236
<BONDS> 155,660,781
0
0
<COMMON> 5,914,174
<OTHER-SE> 33,399,572
<TOTAL-LIABILITY-AND-EQUITY> 219,464,598
<SALES> 113,037,795
<TOTAL-REVENUES> 113,037,795
<CGS> 62,531,431
<TOTAL-COSTS> 85,991,895
<OTHER-EXPENSES> 3,701,973
<LOSS-PROVISION> 21,156
<INTEREST-EXPENSE> 4,417,097
<INCOME-PRETAX> 76,119
<INCOME-TAX> 29,686
<INCOME-CONTINUING> 46,433
<DISCONTINUED> 0
<EXTRAORDINARY> (66,181)
<CHANGES> 0
<NET-INCOME> (19,748)
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
