<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 4, 1999
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.)
361 SECOND STREET, NW
HICKORY, NORTH CAROLINA 28603
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (828) 304-0027
-------------------------------------------------------------
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (3) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 1, 1999
----- ------------------------------
COMMON STOCK, no par value 5,810,004
<PAGE> 2
FRESH FOODS, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets -
September 4, 1999 and March 6, 1999.................................... 1 - 2
Consolidated Statements of
Operations and Retained Earnings -
Thirteen Weeks Ended September 4, 1999
and Fifteen Weeks Ended September 5, 1998............................. 3 - 4
Consolidated Statements of
Operations and Retained Earnings -
Twenty-Six Weeks Ended September 4, 1999
and Twenty-Seven Weeks Ended September 5, 1998........................ 5 - 6
Consolidated Statements of Cash
Flows - Twenty-Six Weeks Ended September 4, 1999 and
Twenty-Seven Weeks Ended September 5, 1998............................ 7
Notes to Consolidated Financial
Statements............................................................ 8 - 12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations......................13 - 19
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K............................. 20
Signatures............................................................ 21
Index to Exhibits..................................................... 22
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRESH FOODS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
September 4, March 6,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,815,397 $ 1,664,398
Accounts receivable, net (includes related party receivables of
$284,041 and $326,147 at September 4, 1999 and March 6, 1999,
respectively) 18,324,847 18,565,152
Notes receivable, net (includes related party notes
receivable of $1,198,492 and $986,457 at September 4, 1999 and
March 6, 1999, respectively) 1,198,492 1,122,268
Inventories 40,293,218 30,430,482
Income taxes receivable 3,153,147 --
Deferred income taxes 3,398,986 2,722,095
Prepaid expenses and other current assets (includes related party
prepaid expenses of $251,354 at September 4, 1999) 1,468,827 988,023
------------ ------------
Total current assets 69,652,914 55,492,418
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET 71,493,161 74,999,394
------------ ------------
OTHER ASSETS:
Properties held for sale 1,298,507 2,086,847
Trade name, net 42,503,636 43,242,636
Excess of cost over fair value of net assets of
businesses acquired, net 31,924,983 32,623,400
Other intangible assets, net 3,393,992 3,520,053
Notes receivable (includes related party notes receivable of $985,050
and $313,274 at September 4, 1999 and March 6, 1999, respectively) 1,040,257 367,494
Deferred loan origination fees, net 4,108,685 4,524,753
Other 122,870 132,028
------------ ------------
Total other assets 84,392,930 86,497,211
------------ ------------
Total assets $225,539,005 $216,989,023
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 4
FRESH FOODS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Unaudited)
September 4, March 6,
1999 1999
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt $ 314,234 $ 673,752
Trade accounts payable (includes related party payables of $8,924
and $92,370 at September 4, 1999 and March 6, 1999, respectively) 7,265,994 11,255,920
Income taxes payable -- 151,366
Accrued insurance 882,303 1,155,942
Accrued interest 3,367,678 3,533,771
Accrued payroll and payroll taxes 3,708,068 4,941,033
Accrued marketing and advertising (includes related party payables
of $4,212 at September 4, 1999) 1,827,499 1,420,580
Accrued taxes (other than income and payroll) 1,292,884 1,176,888
Other accrued liabilities (includes related party accrued
liabilities of $185,000 at March 6, 1999) 2,768,797 3,351,366
------------ ------------
Total current liabilities 21,427,457 27,660,618
LONG TERM DEBT, less current installments 161,225,827 146,265,928
DEFERRED INCOME TAXES 2,619,709 1,910,468
SHAREHOLDERS' EQUITY:
Preferred stock - par value $.10 authorized 2,500,000 shares; no -- --
shares issued
Common stock - no par value, authorized 100,000,000 shares; issued and
outstanding September 4, 1999 - 5,810,004 shares and March 6,
1999 - 5,807,049 shares 5,810,004 5,807,049
Additional paid in capital 23,328,383 23,251,845
Retained earnings 11,127,625 12,093,115
------------ ------------
Total shareholders' equity 40,266,012 41,152,009
------------ ------------
Total liabilities and shareholders' equity $225,539,005 $216,989,023
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE> 5
FRESH FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings
Thirteen Weeks Ended September 4, 1999 and Fifteen Weeks Ended September 5, 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
REVENUES:
Food processing $ 40,964,363 $ 46,104,288
Ham curing 655,680 1,782,928
------------ ------------
Total operating revenues 41,620,043 47,887,216
------------ ------------
COSTS AND EXPENSES:
Cost of goods sold (includes related party transactions totaling
$225,426 in 1998) 24,176,211 31,087,028
Selling, general and administrative expenses (includes related party
transactions totaling $949,760 and $1,078,416 in 1999 and 1998,
respectively) 14,060,158 13,545,569
Depreciation and amortization 1,561,512 1,611,503
------------ ------------
Total costs and expenses 39,797,881 46,244,100
------------ ------------
OPERATING INCOME 1,822,162 1,643,116
------------ ------------
OTHER INCOME (EXPENSE):
Net loss on sale of Mom `n' Pop's Country Ham, LLC (2,826,096) --
Net loss on disposition of property, plant and equipment (32,740) (720,499)
Interest expense (4,100,077) (3,994,623)
Other income - (including interest) (includes related party transactions
totaling $26,828 and $45,503 in 1999 and 1998, respectively) 39,299 305,451
------------ ------------
Other expense, net (6,919,614) (4,409,671)
------------ ------------
LOSS BEFORE INCOME TAXES, DISCONTINUED OPERATIONS
AND EXTRAORDINARY ITEM (5,097,452) (2,766,555)
INCOME TAX BENEFIT 2,063,659 1,100,281
------------ ------------
LOSS BEFORE DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM (3,033,793) (1,666,274)
INCOME FROM DISCONTINUED RESTAURANT SEGMENT (NET OF INCOME TAXES OF $876,256
AND $924,822 IN 1999 AND 1998, RESPECTIVELY) 1,287,338 1,373,699
------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (1,746,455) (292,575)
EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT (NET OF INCOME TAX
BENEFIT OF $35,633 AND $42,312 IN 1999 AND 1998, RESPECTIVELY) (52,350) (66,181)
------------ ------------
NET LOSS $ (1,798,805) $ (358,756)
============ ============
</TABLE>
3
<PAGE> 6
<TABLE>
<S> <C> <C>
RETAINED EARNINGS:
Balance at beginning of period 12,926,430 10,001,266
Net loss (1,798,805) (358,756)
------------- -------------
Balance at end of period $ 11,127,625 $ 9,642,510
============= =============
INCOME (LOSS) PER SHARE - BASIC AND DILUTED
Loss per share before discontinued operations and extraordinary item $ (0.52) $ (0.28)
Income per share from discontinued restaurant segment, net 0.22 0.23
Loss per share from early extinguishment of debt, net (0.01) (0.01)
------------- -------------
Net loss per share $ (0.31) $ (0.06)
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 7
FRESH FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings
Twenty-six Weeks Ended September 4, 1999 and
Twenty-seven Weeks Ended September 5, 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
REVENUES:
Food processing $ 83,978,713 $ 58,206,818
Ham curing 2,096,052 3,075,244
------------ ------------
Total operating revenues 86,074,765 61,282,062
------------ ------------
COSTS AND EXPENSES:
Cost of goods sold (includes related party transactions totaling
$34,322 and $347,087 in 1999 and 1998, respectively) 50,882,854 43,392,114
Selling, general and administrative expenses (includes related party
transactions totaling $1,602,923 and $1,412,256 in 1999 and 1998,
respectively) 27,066,524 15,144,568
Depreciation and amortization 3,072,941 2,023,536
------------ ------------
Total costs and expenses 81,022,319 60,560,218
------------ ------------
OPERATING INCOME 5,052,446 721,844
------------ ------------
OTHER INCOME (EXPENSE):
Net loss on sale of Mom `n' Pop's Country Ham, LLC (2,826,096) --
Net loss on disposition of property, plant and equipment (32,740) (981,825)
Interest expense (7,949,282) (4,405,704)
Other income (expense) - (including interest) (includes related party
transactions totaling $44,990 and $86,840 in 1999 and 1998,
respectively) (29,954) 258,753
------------ ------------
Other expense, net (10,838,072) (5,128,776)
------------ ------------
LOSS BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM (5,785,626) (4,406,932)
INCOME TAX BENEFIT 2,343,365 1,718,704
------------ ------------
LOSS BEFORE DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM (3,442,261) (2,688,228)
INCOME FROM DISCONTINUED RESTAURANT SEGMENT (NET OF INCOME TAXES
OF $1,721,502 AND $1,748,390 IN 1999 AND 1998, RESPECTIVELY) 2,529,121 2,734,661
------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (913,140) 46,433
EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT (NET OF INCOME TAX
BENEFIT OF $35,633 AND $42,312 IN 1999 AND 1998, RESPECTIVELY) (52,350) (66,181)
------------ ------------
NET LOSS $ (965,490) $ (19,748)
============ ============
</TABLE>
5
<PAGE> 8
<TABLE>
<S> <C> <C>
RETAINED EARNINGS:
Balance at beginning of period 12,093,115 9,662,258
Net loss (965,490) (19,748)
------------ ------------
Balance at end of period $ 11,127,625 $ 9,642,510
============ ============
INCOME (LOSS) PER SHARE - BASIC AND DILUTED
Loss per share before discontinued operations and extraordinary item $ (0.59) $ (0.45)
Income per share from discontinued restaurant segment, net 0.43 0.46
Loss per share from early extinguishment of debt, net (0.01) (0.01)
------------ ------------
Net loss per share $ (0.17) $ (0.00)
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 9
FRESH FOODS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Twenty-six Weeks Ended September 4, 1999 and
Twenty-seven Weeks Ended September 5, 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (965,490) $ (19,748)
------------- -------------
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities, net of business acquisition and disposition:
Extraordinary loss from early extinguishment of debt (before tax
benefit of $35,633 and $42,312 in 1999 and 1998, respectively) 87,983 108,493
Depreciation and amortization 4,946,238 3,701,973
Depreciation on properties leased to others 68,125 165,267
Deferred income taxes 32,350 (158,506)
Net loss on sale of Mom `n' Pop's Country Ham, LLC 2,826,096 --
Net loss on disposition of property, plant and equipment 32,740 981,825
Other non-cash adjustments to earnings 212,059 155,481
Changes in operating assets and liabilities:
Receivables (413,567) (2,681,042)
Inventories (10,952,317) (2,309,307)
Income taxes receivable, prepaid expenses and other
current assets (3,638,315) (453,822)
Trade accounts payable, income taxes payable
and accrued liabilities (6,024,775) 2,614,811
------------- -------------
Total adjustments (12,823,383) 2,125,173
------------- -------------
Net cash provided by (used in) operating activities (13,788,873) 2,105,425
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of net assets of Pierre Foods -- (123,297,285)
Proceeds from sales of property, plant and equipment 2,085,657 80,652
Decrease in related party notes receivables 111,189 266,402
Decrease in other notes receivable 134,824 126,813
Capital expenditures to related parties (316,233) (1,532,185)
Capital expenditures - other (2,169,102) (7,980,685)
Payments for non-compete and consulting agreements (490,178) --
Other investing activities, net 9,158 (48,945)
------------- -------------
Net cash used in investing activities (634,685) (132,385,233)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior notes -- 115,000,000
Net borrowings under revolving credit agreement 16,907,910 37,982,976
Principal payments on long-term debt (2,262,428) (12,466,961)
Repayments under short-term borrowing agreements -- (5,105,144)
Loan origination fees (77,425) (4,581,393)
Proceeds from exercise of stock options 6,500 74,750
------------- -------------
Net cash provided by financing activities 14,574,557 130,904,228
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 150,999 624,420
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,664,398 2,818,071
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,815,397 $ 3,442,491
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE> 10
FRESH FOODS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
the financial position as of September 4, 1999 and March 6, 1999, the
results of operations for the thirteen weeks and twenty-six weeks ended
September 4, 1999 and the fifteen weeks and twenty-seven weeks ended
September 5, 1998, and the cash flows for the twenty-six weeks ended
September 4, 1999 and the twenty-seven weeks ended September 5, 1998.
Financial statements for the fiscal year ended March 6, 1999 ("fiscal
1999") have been reclassified, where applicable, to conform to financial
statement presentation used in the fiscal year ended March 4, 2000 ("fiscal
2000").
The Company reports the results of its operations using a 52-53 week basis.
During fiscal 1999 the Company changed its interim fiscal periods to
conform to 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. Due to the change in interim
fiscal periods during fiscal 1999, current quarter results reflect 13 weeks
of operations and current year-to-date results reflect 26 weeks of
operations, compared with 15 weeks and 27 weeks for the respective periods
during fiscal 1999. The effect of the additional two weeks in the fiscal
quarter ended September 5, 1998 increased revenue by $1,343,000, decreased
operating income by $44,000, and increased net income by $131,000. The
effect of the additional one week in the year to date ended September 5,
1998 is not material.
2. The results of operations for the thirteen weeks and twenty-six ended
September 4, 1999 are not necessarily indicative of the results to be
expected for the full year. These interim unaudited consolidated financial
statements should be read in conjunction with the Company's March 6, 1999
audited consolidated financial statements.
3. A summary of inventories, by major classifications, follows:
<TABLE>
<CAPTION>
September 4, March 6,
1999 1999
--------------- ---------------
<S> <C> <C>
Manufacturing supplies $ 2,683,868 $ 1,299,177
Raw materials 2,796,940 4,553,087
Work in process 400 1,008,315
Finished goods 34,040,182 22,776,027
Restaurant food and supplies 771,828 793,876
--------------- ----------------
Total $ 40,293,218 $ 30,430,482
=============== ===============
</TABLE>
4. Weighted average shares outstanding used in the calculation of basic
income (loss) per share reflect the issuance of common stock under existing
stock option and award programs. Weighted average shares outstanding for
both basic and diluted income (loss) per share were 5,809,837 and 5,907,892
for the quarters ending September 4, 1999 and September 5, 1998,
respectively; and 5,809,205 and 5,905,117 for the year-to-date periods
ending September 4, 1999 and September 5, 1998, respectively.
8
<PAGE> 11
5. Supplemental cash flow disclosures - cash paid during the period:
<TABLE>
<CAPTION>
Twenty-six Twenty-seven
Weeks Ended Weeks Ended
September 4, 1999 September 5, 1998
----------------- -----------------
<S> <C> <C>
Interest $ 7,655,265 $ 1,084,255
====================== =====================
Income taxes $ 2,614,677 $ 362,110
====================== =====================
</TABLE>
During the second quarter of fiscal 2000, the Company received an 8%,
$985,050 note due December 31, 1999, related to the sale of Mom `n' Pop's
Country Ham, LLC (Note 10).
6. 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. The following unaudited pro
forma consolidated results of operations assume the Pierre acquisition
occurred as of the beginning of fiscal 1999:
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Twenty-seven
Weeks Ended
September 5, 1998
-----------------
<S> <C>
Revenues $ 90,159
========
Operating income 830
--------
Loss before discontinued operations and extraordinary item (5,067)
Income from discontinued restaurant segment, net 2,735
Extraordinary loss from early extinguishment of debt, net (76)
--------
Net loss $ (2,408)
========
Basic loss per share
Loss before discontinued operations and extraordinary item $ (0.86)
Discontinued restaurant segment, net 0.46
Extraordinary loss from early extinguishment of debt, net (0.01)
--------
Net loss $ (0.41)
========
</TABLE>
7. Total comprehensive loss was comprised solely of the net loss in fiscal
2000 and the net loss and unrealized holding gains on available-for-sale
securities in fiscal 1999. Comprehensive loss was $(1,798,805) and
$(352,927) for the quarters ended September 4, 1999 and September 5, 1998,
respectively; and $(965,490) and $(9,539) for the year to date periods
ended September 4, 1999 and September 5, 1998, respectively.
9
<PAGE> 12
8. The following tables set forth revenue and operating profit by segment.
<TABLE>
<CAPTION>
Thirteen Weeks Ended September 4, 1999
----------------------------------------------------
Food Ham
Processing Curing Total
------------ ----------- -----------
<S> <C> <C> <C>
Revenues from external customers $ 40,964,363 $ 655,680 $41,620,043
Segment operating expenses 36,097,367 890,232 36,987,599
------------ ----------- -----------
Segment profit (loss) 4,866,996 (234,552) 4,632,444
Corporate expenses 2,810,282
Interest expense 4,100,077
Other non-operating expense 2,819,537
-----------
Loss before income taxes, discontinued
operations and extraordinary item $(5,097,452)
===========
Fifteen Weeks Ended September 5, 1998
----------------------------------------------------
Food Ham
Processing Curing Total
------------ ----------- -----------
Revenues from external customers $ 46,104,288 $ 1,782,928 $47,887,216
Segment operating expenses 41,076,560 1,675,693 42,752,253
------------ ----------- -----------
Segment profit 5,027,728 107,235 5,134,963
Corporate expenses 3,491,847
Interest expense 3,994,623
Other non-operating expense 415,048
-----------
Loss before income taxes, discontinued
operations and extraordinary item $(2,766,555)
===========
Twenty-six Weeks Ended September 4, 1999
----------------------------------------------------
Food Ham
Processing Curing Total
------------ ----------- -----------
Revenues from external customers $ 83,978,713 $ 2,096,052 $86,074,765
Segment operating expenses 74,118,221 2,343,137 76,461,358
------------ ----------- -----------
Segment profit (loss) 9,860,492 (247,085) 9,613,407
Corporate expenses 4,560,961
Interest expense 7,949,282
Other non-operating expense 2,888,790
-----------
Loss before income taxes, discontinued
operations and extraordinary item $(5,785,626)
===========
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
Twenty-seven Weeks Ended September 5, 1998
----------------------------------------------------
Food Ham
Processing Curing Total
------------ ----------- -----------
<S> <C> <C> <C>
Revenues from external customers $ 58,206,818 $ 3,075,244 $61,282,062
Segment operating expenses 52,685,472 3,143,101 55,828,573
------------ ----------- -----------
Segment profit (loss) 5,521,346 (67,857) 5,453,489
Corporate expenses 4,731,645
Interest expense 4,405,704
Other non-operating expense 723,072
-----------
Loss before income taxes, discontinued
operations and extraordinary item $(4,406,932)
===========
</TABLE>
There were no material changes in total assets for the food processing
segment from the amounts disclosed in the annual report for the fiscal year
ended March 6, 1999. Total assets for the ham curing segment decreased
$3,350,858 as a result of the sale of the ham curing segment, discussed in
Note 10.
9. In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued.
SFAS No. 133 requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at
fair value. The Company will be required to adopt this new Statement for
the fiscal year ending March 2, 2002. Management is currently evaluating
the impact of this Statement.
10. On August 6, 1999, the Company completed the sale of Mom `n' Pop's Country
Ham, LLC to the management group of that subsidiary for $995,000. Under the
terms of the sale agreement, the Company received cash of $9,950 and an 8%,
$985,050 note, due December 31, 1999. In addition, the Company agreed to
provide an 8%, $500,000 unsecured working capital line of credit through
December 31, 1999. As part of the sales transaction, the Company, on behalf
of Mom `n' Pop's Country Ham, LLC, paid $490,178 for a non-compete and
consulting agreement with a former executive officer of the subsidiary. In
addition, the executive officer received severance benefits totaling
$357,583 as a result of the disposal of this business. As a result of this
sale, the Company recorded a loss on disposition of $2,826,096. At
September 4, 1999, the receivable under the line of credit was $340,453.
11. On September 10, 1999, the Company signed an agreement to sell
substantially all of its restaurant operations and thereby committed itself
to disposing of its restaurant operations segment in a transaction
completed on October 7, 1999. Under the terms of the agreement, the buyer,
Carousel Capital Partners, L.P., acquired all restaurant operating
subsidiaries of the Company (referred to collectively as "Claremont
Restaurant Group") as well as non-compete and consulting contracts with
certain key restaurant executives in exchange for a cash purchase price of
$50 million. Claremont Restaurant Group owns and operates 49
Sagebrush(R)Steakhouse & Saloon restaurants, 13 Western Steer(R)restaurants
and four Prime Sirloin(R)restaurants. In addition, a total of 30 franchised
restaurants operate under the Western Steer and Prime Sirloin concepts. The
Company expects to record a gain on this sale of approximately $8.0 million
in the third quarter of fiscal 2000, with the final amount to be determined
subsequent to certain post-closing adjustments.
Coinciding with the transaction discussed above, on October 4, 1999 the
Company sold its one Bennett's restaurant operation to certain members of
management for a cash purchase price of $1.1 million, plus the assumption
of all related liabilities. The Company expects to record a gain on this
sale of approximately $650,000 in the third quarter of fiscal 2000.
11
<PAGE> 14
In addition, on September 14, 1999 the Company sold five former restaurant
properties and one tract of vacant land, with a combined book value of
$2,073,457, to an entity in which a former officer and principal
shareholder is a minority investor, for a total price of $975,000. This
transaction was completed under an agreement entered into earlier during
the fiscal year which was contingent upon the sale of the Claremont
Restaurant Group. Under the terms of the initial agreement, all
non-operating restaurant properties, consisting of seven former restaurant
locations and three tracts of undeveloped land with a total book value of
$3,260,816, were offered for sale in exchange for cash proceeds totaling
$2,635,000. The agreement further specified that the cash proceeds from the
sale of any of these properties to third parties prior to the sale of
Claremont Restaurant Group would reduce the purchase price of the remaining
pool of properties on a dollar-for-dollar basis, subject to the sale of
Claremont Restaurant Group. Prior to September 14, 1999, four of the
properties, with a book value totaling $1,187,359, were sold for cash
totaling $1,660,000. Three of these properties were sold during the current
quarter at a total gain of approximately $390,000. Due to the nature of
this transaction, this gain has been deferred and will be netted against
the net loss to be recorded in the third quarter from the sale of real
estate occurring on September 14, 1999. The Company expects to record a net
loss from this transaction of approximately $750,000 in the third quarter
of fiscal 2000. This loss will be netted against the other gains, discussed
previously, resulting from the disposal of the Claremont Restaurant Group.
Due to the post-balance-sheet-date disposition of all assets and
liabilities relating to the Claremont Restaurant Group, the results of the
restaurant segment have been reported separately as discontinued operations
in the Consolidated Statements of Operations. The results of the
discontinued operations do not reflect any interest expense or management
fees allocated by the Company. Prior year consolidated financial statements
have been restated to present the Claremont Restaurant Group as a
discontinued operation.
Net sales and income from discontinued operations are as follows:
<TABLE>
<CAPTION>
Quarter Ended Year to Date Ended
--------------------------------- ---------------------------------
September 4, September 5, September 4, September 5,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net operating revenues $ 25,607,119 $ 29,121,175 $ 51,529,006 $ 50,625,456
============ ============ ============ ============
Operating income 2,198,919 2,626,102 4,410,406 4,821,639
Other expense (35,325) (327,581) (159,783) (338,588)
Income tax expense (876,256) (924,822) (1,721,502) (1,748,390)
------------ ------------ ------------ ------------
Income from discontinued
operations $ 1,287,338 $ 1,373,699 $ 2,529,121 $ 2,734,661
============ ============ ============ ============
</TABLE>
The net assets of the discontinued operations are as follows:
<TABLE>
<CAPTION>
September 4, 1999 March 6, 1999
----------------- -------------
<S> <C> <C>
Current assets $ 4,187,204 $ 2,474,646
Property, plant and equipment 38,157,592 40,453,593
Other assets 3,338,222 3,783,656
Current liabilities (7,153,732) (7,750,921)
Deferred income taxes -- (594,000)
------------ ------------
Net assets of discontinued operations $ 38,529,586 $ 38,366,974
============ ============
</TABLE>
12
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's operations are classified into three business segments:
food processing operations, principally fully cooked protein and sandwich
production; restaurant operations, comprised of the Sagebrush, Western Steer,
Prime Sirloin and Bennett's concepts; and ham curing operations. As discussed in
Note 11 to the Consolidated Financial Statements, the Company sold its
restaurant operations effective October 7, 1999. Accordingly, the results of the
restaurant operations are shown as a discontinued operation in the Company's
Consolidated Statements of Operations and Retained Earnings, and are excluded
from the table below.
As a part of the Pierre acquisition, the Company changed its interim
fiscal periods to conform to the 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. Accordingly, the
current fiscal quarter contains 13 weeks of operations as compared to 15 weeks
of operations in the same fiscal quarter of the prior fiscal year. In addition,
year-to-date results for fiscal 2000 reflect twenty-six weeks of operations,
compared with twenty-seven weeks in fiscal 1999.
Results for the fiscal quarters and year to date ended September 4,
1999 and September 5, 1998, are shown below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Year to Date Ended
----------------------------- -----------------------------
September 4, September 5, September 4, September 5,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(In millions)
Revenues:
Food processing operations $ 41.0 $ 46.1 $ 84.0 $ 58.2
Ham curing operations .6 1.8 2.1 3.1
------------ ------------ ------------ ------------
Total 41.6 47.9 86.1 61.3
------------ ------------ ------------ ------------
Cost of goods sold:
Food processing operations 23.6 29.7 49.0 40.7
Ham curing operations .6 1.4 1.9 2.7
------------ ------------ ------------ ------------
Total 24.2 31.1 50.9 43.4
------------ ------------ ------------ ------------
Selling, general and administrative 14.1 13.6 27.0 15.2
Depreciation and amortization 1.5 1.6 3.1 2.0
------------ ------------ ------------ ------------
Operating income 1.8 1.6 5.1 .7
------------ ------------ ------------ ------------
Other expense 6.9 4.4 10.9 5.1
------------ ------------ ------------ ------------
Loss before income taxes,
discontinued operations and
extraordinary item (5.1) (2.8) (5.8) (4.4)
Income tax benefit (2.1) (1.1) (2.4) (1.7)
============ ============ ============ ============
Loss before income taxes,
discontinued operations and
extraordinary item $ (3.0) $ (1.7) $ (3.4) $ (2.7)
============ ============ ============ ============
</TABLE>
13
<PAGE> 16
Fiscal Quarter Ended September 4, 1999 Compared to Fiscal Quarter Ended
September 5, 1998
Revenues. Revenues from continuing operations decreased by $6.3
million, or 13.1%, comprised of a $5.1 million (11.1%) decrease in the food
processing segment and a $1.2 million (63.2%) decrease in the ham curing
segment. The decrease in food processing revenues was due to the inclusion in
the quarter ended September 5, 1998 of business which did not reoccur in the
fiscal quarter ended September 4, 1999. In addition, the quarter ended September
5, 1998 included $1.3 million of revenues due to the inclusion of two extra
weeks of the Company's Claremont food processing operations (see Note 1). This
decrease was offset by a general increase in demand experienced by the primary
food processing business units. The decrease in ham curing revenues was due to
the Company's strategic decision to exit the ham curing business, which was
effective July 2, 1999.
Cost of goods sold. Cost of goods sold decreased by $6.9 million, or
22.2%, comprised of a $6.1 million (20.6%) decrease in the food processing
segment and a $.8 million (56.8%) decrease in the ham curing segment. The
decrease in food processing cost of goods sold was due to the following factors:
(1) the inclusion in the fiscal quarter ended September 5, 1998 of business
which did not reoccur in the fiscal quarter ended September 4, 1999; (2) the
inclusion of two extra weeks of cost of goods sold (approximately $.9 million)
related to the Company's Claremont food processing operations during the fiscal
quarter ended September 5, 1998 (see Note 1); and (3) an overall improvement in
the cost structure of the manufacturing process since the fiscal quarter ended
September 5, 1998; offset by (4) a general increase in demand experienced by the
primary food processing business units. As a percentage of food processing
revenues, food processing cost of goods sold decreased from 64.5% to 57.6% due
to the reasons stated above. The decrease in ham curing cost of goods sold was
due to the Company's strategic decision to exit the ham curing business.
Selling, general and administrative. Selling, general and
administrative expenses increased by $.5 million, or 3.8%, due primarily to
professional fees incurred in the disposition of the restaurant and ham curing
segments. As a percentage of operating revenues, selling, general and
administrative expenses increased from 28.3% to 33.8% for the reasons stated
above.
Depreciation and amortization. Depreciation and amortization decreased
by $.1 million, or 3.1%, due to a slight decrease in the amount of capital
expenditures incurred over the past twelve months. As a percentage of operating
revenues, depreciation and amortization increased from 3.4% to 3.8% due to the
reasons stated above.
Operating income. Operating income increased by $.2 million, or 10.9%,
and increased as a percentage of operating revenues from 3.4% to 4.4%, due to
the reasons stated above.
Other expense, net. Net other expense increased by $2.5 million, or
56.9%. This increase was due to the loss on the sale of the Company's ham curing
segment and a slight increase in interest expense resulting from borrowings
obtained to finance the Pierre acquisition and the Company's recapitalization
(see --- "Liquidity and Capital Resources" below).
Operating loss before income taxes, discontinued operations and
extraordinary item. Such loss increased by $2.3 million, or 84.3%, and increased
as a percentage of revenues from (5.8%) to (12.2%), for the reasons stated
above.
Income tax provision. The effective tax rate for the fiscal quarter
ended September 4, 1999 was 40.5%, as compared to 39.8% for the fiscal quarter
ended September 5, 1998. The lower rate in the fiscal quarter ended September 5,
1998 is attributed to general business tax credits.
Loss before discontinued operations and extraordinary item. Such loss
increased by $1.4 million, or 82.1%, and increased as a percentage of operating
revenues from (3.5%) to (7.3%), for the reasons stated above.
14
<PAGE> 17
Fiscal Year to Date Ended September 4, 1999 Compared to Fiscal Year to Date
Ended September 5, 1998
Revenues. Revenues from continuing operations increased by $24.8
million, or 40.5%, comprised of a $25.8 million (44.3%) increase in the food
processing segment offset by a $1.0 million (31.8%) decrease in the ham curing
segment. The increase in food processing revenues was due to the following
factors: (1) inclusion of Pierre revenues for 26 weeks in the fiscal
year-to-date ended September 4, 1999 versus 13 weeks in the fiscal year-to-date
ended September 5, 1998 due to the acquisition of Pierre on June 9, 1998; (2) a
general increase in demand experienced by the primary food processing business
units; offset by (3) the inclusion in the fiscal quarter ended September 5, 1998
of business manufactured by Pierre as part of the transition from previous
ownership in connection with the acquisition of Pierre as of June 9, 1998, and
which did not reoccur in the fiscal quarter ended September 4, 1999. The
decrease in ham curing revenues was due to the Company's strategic decision to
exit the ham curing business.
Cost of goods sold. Cost of goods sold increased by $7.5 million, or
17.3%, comprised of a $8.3 million (20.2%) increase in the food processing
segment offset by a $.8 million (28.3%) decrease in the ham curing segment. The
increase in food processing cost of goods sold was due to the following factors:
(1) inclusion of Pierre cost of goods sold for 26 weeks in the fiscal
year-to-date ended September 4, 1999 versus 13 weeks in the fiscal year-to-date
ended September 5, 1998 due to the acquisition of Pierre on June 9,1998; (2) a
general increase in demand experienced by the primary food processing business
units since the fiscal quarter ended September 5, 1998; offset by (3) an overall
improvement in the cost structure of the manufacturing process since the fiscal
quarter ended September 5, 1998; and (4) the inclusion in the fiscal quarter
ended September 5, 1998 of business which did not reoccur in the fiscal
year-to-date ended September 4, 1999. As a percentage of food processing
revenues, cost of goods sold decreased from 70.0% to 58.3%, due primarily to the
following: (1) the Company's acquisition of Pierre, which has historically
realized a higher gross margin percentage than the Company's other food
processing operations; (2) an overall improvement in the cost structure of the
manufacturing process since the fiscal quarter ended September 5, 1998; and (3)
the elimination of business which did not reoccur in the fiscal quarter ended
September 4, 1999. The decrease in the ham curing segment was due to the
Company's strategic decision to exit the ham curing business.
Selling, general and administrative. Selling, general and
administrative expenses increased by $11.9 million, or 78.7% and, as a
percentage of operating revenues, increased from 24.7% to 31.4%, due primarily
to the incremental costs associated with the June 9, 1998 Pierre acquisition,
specifically selling, distribution, personnel and facilities costs in
Cincinnati. Pierre selling, general and administrative expenses include 26 weeks
in the fiscal year-to-date ended September 4, 1999 versus 13 weeks in the fiscal
year-to-date ended September 5, 1998 due to the acquisition of Pierre on June
9,1998
Depreciation and amortization. Depreciation and amortization increased
by $1.0 million, or 51.9%, due to the inclusion of Pierre depreciation and
amortization of 26 weeks in the fiscal year-to-date ended September 4, 1999
versus 13 weeks in the fiscal year-to-date ended September 5, 1998 due to the
acquisition of Pierre on June 9,1998. As a percentage of operating revenues,
depreciation and amortization increased from 3.3% to 3.6% as a result of the
additional depreciation of fixed assets and amortization of intangible assets
associated with the Pierre acquisition on June 9, 1998.
Operating income. Operating income increased by $4.3 million, or
599.9%, and increased as a percentage of revenues from 1.2% to 5.9%, due to the
reasons stated above.
Other expense, net. Net other expense increased by $5.7 million due to
the following factors: (1) disposition of the Company's ham curing segment; and
(2) an increase in interest expense resulting from borrowings obtained to
finance the Pierre acquisition and the Company's recapitalization (see "---
Liquidity and Capital Resources" below); offset by (3) the dispositions of
certain fixtures and equipment deemed worthless as a result of the acquisition
and integration of the Sagebrush operations in the fiscal year-to-date ended
September 5, 1998, which did not reoccur in the current fiscal year; and (4) the
disposition in the prior period of computer software deemed worthless as a
result of the acquisition and integration of Pierre into the Company's food
processing operations, which did not reoccur in the current fiscal year.
15
<PAGE> 18
Loss before income taxes, discontinued operations and extraordinary
item. Such loss increased by $1.4 million, or 31.3%, and increased as a
percentage of operating revenues from (7.2%) to (6.7%), for the reasons stated
above.
Income tax provision. The effective tax rate for the fiscal quarter
ended September 4, 1999 was 40.5%, as compared to 39.0% for the fiscal quarter
ended September 5, 1998. Such increase was due to general business tax credits
created in the first quarter of fiscal 1999.
Loss before discontinued operations and extraordinary item. Such loss
increased by $.8 million, or 28.0%, and decreased as a percentage of operating
revenues from (4.4%) to (4.0%), for the reasons stated above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flows from
operating activities and the use of the Company's revolving credit facility. Net
cash used by operating activities was $13.8 million for the fiscal quarter ended
September 4, 1999 as compared to net cash provided by operating activities of
$2.1 million for the fiscal quarter ended September 5, 1998. The decrease in net
cash provided by operating activities was primarily due to the following
factors: (1) an increase in inventories by $11.0 million due to the seasonal
building of inventories, which normally occurs during the late spring and early
summer in order to service certain of Pierre's market channels, which require
heavy shipments in the late summer and fall; (2) a decrease in trade accounts
payable and other accrued liabilities due to the timing of certain payments; and
(3) payment of estimated income taxes due; offset by (4) increased earnings
(after reflecting noncash items) from the acquisition of Pierre.
Cash flows used by investing activities were $.6 million for the fiscal
year-to-date ended September 4, 1999, as compared to $132.4 million for the
fiscal year-to-date ended September 5, 1998. The primary components of net cash
used in investing activities for the fiscal year-to-date ending September 4,
1999, were capital expenditures for the food processing and restaurant segments
and payments made for non-compete and consulting agreements offset by the
proceeds from the sale of certain Company assets. The decrease in net cash used
in investing activities was due to the funds used for the acquisition of Pierre
on June 9, 1998, which did not reoccur in the fiscal year-to-date ended
September 4, 1999 and the decrease in net cash used for new restaurant
construction and conversions from the "buffet style" restaurant to the Sagebrush
concept.
Cash flows provided by financing activities were $14.6 million for the
fiscal year-to-date ended September 4, 1999, as compared to $130.9 million for
the fiscal year-to-date ended September 5, 1998. The major component of
financing activities in the fiscal quarter ended September 4, 1999 was
borrowings under the revolving credit facility, which were used primarily to
fund the seasonal increase in inventories in the food processing segment and the
semi-annual interest payment on the Notes and which were offset partially by the
early payoff of the Company's industrial revenue bonds.
As of September 4, 1999, the Company had a $75.0 million revolving
credit facility with a syndicate of four banks. This facility is a five-year
revolving line of credit (expiring June 9, 2003) 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). Funds available
under the facility may be used for working capital requirements, permitted
acquisitions, permitted investments and general corporate purposes. Borrowings
under the facility will bear interest at floating rates based upon he interest
rate option selected from time to time by the Company.
As of September 4, 1999, the Company had approximately $45.9 million in
outstanding borrowings under the revolving credit facility and approximately
$16.9 million of additional availability. The outstanding borrowings under the
revolving credit facility were used to finance part of the Pierre acquisition,
restaurant conversions and construction and working capital needs of all
business segments. These borrowings are classified as long-term debt on the
balance sheet.
16
<PAGE> 19
The Company anticipates that for its foreseeable future, its cash
requirements, including working capital, capital expenditures and required
principal and interest payments under financing arrangements, will be met
through a combination of funds provided by operations and borrowings under the
revolving credit facility as well as the sale of the restaurant segment and all
excess real estate (see Note 11). In addition, from time to time the Company
expects to continue its practice of acquiring equipment with the proceeds of
capital or operating leases as permitted under such facility.
The Company has budgeted approximately $2.2 million for capital
expenditures for the remainder of its current fiscal year. These expenditures
are being devoted to routine capital improvement projects in the food processing
segment and other miscellaneous expenditures. The Company believes that funds
from operations and funds from existing credit agreements, as well as the
Company's ability to enter into capital or operating leases, will be adequate to
finance these capital expenditures.
As discussed in the Annual Report for the fiscal year ended March 6,
1999, the Company's major market risk exposure is potential loss arising from
changing interest rates and its impact on long-term debt. The Company's policy
is to manage interest rate risk by maintaining a combination of fixed and
variable rate financial instruments in amounts and with maturities that
management considers appropriate. The risks associated with long-term debt at
September 4, 1999 have not changed materially since March 6, 1999. Of long-term
debt outstanding at September 4, 1999, $11.2 million principal amount was
accruing interest at a variable rate. A rise in prevailing interest rates could
have adverse effects on the Company's financial condition and results of
operations.
Subsequent to the quarter ended September 4, 1999, the Company sold the
Claremont Restaurant Group and, consequently, the results of these operations
are shown as a discontinued operation (see Note 11). The Company has used net
proceeds from the sale of the Claremont Restaurant Group and its excess real
estate to reduce to zero the outstanding borrowings under the Company's
revolving credit facility. Accordingly, the Company has no outstanding
borrowings under the revolving credit facility and approximately $42.7 million
of additional availability.
ENGAGEMENT OF INVESTMENT BANKING FIRM
The Company engaged Bowles Hollowell Conner & Co., now known as First
Union Securities, Inc. ("First Union Securities"), to pursue strategic
alternatives to enhance the market price of the Company's common stock. As part
of this process, the Company has disposed of its ham curing segment, the
Claremont Restaurant Group and all excess real estate. All current operations
are conducted in the food processing segment. The engagement and mandate of
First Union Securities is continuing.
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 during the early spring and summer and early January,
there is no significant seasonal variation in the Company's sales of food
products.
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
17
<PAGE> 20
recognize dates in the year 2000 and beyond. The result could be a temporary
disruption of operations and the processing of transactions.
The Company 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 the
creation of a comprehensive plan to address and fix any problems identified.
Phase 3 is the implementation of the comprehensive plan. In Phase 4, the Company
is to address any unforeseen complications or issues not previously addressed.
The Company has completed Phase 1 and Phase 2.
Phase 3, relating to the Company's systems, both information technology
and non-information technology, was substantially complete at the end of
calendar year 1998, with most of the systems Year 2000 compliant. Testing of
compliance is continuing. 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. More than
two-thirds of all vendors and other entities and substantially all major vendors
and other entities receiving questionnaires from the Company have responded. The
vast majority of vendors and other entities responding have done so by offering
assurances that they are either currently Year 2000 compliant or have a plan in
place to be Year 2000 compliant in a timely manner. The Company plans to
validate readiness responses for its key relationships as it assesses its
contingency planning requirements. For those vendors that have responded with
substandard assurance, the Company is seeking alternative sources of supply. The
Company has sent out a second inquiry to those vendors and other entities that
had not responded to the initial mailing.
The Company cannot predict how many, if any, of the responses it
receives may prove later to be inaccurate or overly optimistic. The Company is
continuing to develop contingency plans, which are based on its actual testing
experience and an assessment of outside risks, 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 4, 1999
were $254,635 and are being expensed as incurred. The estimated cost to complete
Phase 3 is $115,000. These costs exclude the costs of purchasing Year 2000
compliant computer programs that would have been purchased in the ordinary
course of business regardless of Year 2000 concerns. As of September 4, 1999,
the Company is on schedule to complete Phase 3 and 4 by October 31, 1999.
The Company is continuing to closely monitor adherence to the
implementation plan and is currently satisfied that it will be completed in the
scheduled time frame. If, however, the Company encounters unforeseen
complications or issues not previously addressed in the comprehensive plan
(Phase 4), then additional resources would be committed to complete the
necessary conversions in the required time frame. The most reasonably likely
worst case Year 2000 scenario facing the Company's food processing business is
that production would be interrupted and distribution of products to customers
would be delayed, resulting in revenue and profit losses until the problems
could be corrected. The Company does not expect these events to occur and thus
has no plans for handling them (other than being aware that data can be captured
and accounted for temporarily by non-electronic means). Since the Company has no
reason to believe that it will need to use additional (Phase 4) resources, no
estimate as to their cost has been made at this time.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, Statement of Financial Accounting Standards ("SFAS")
No.133, "Accounting for Derivative Instruments and Hedging Activities," was
issued. SFAS No. 133 requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. The Company will be required to adopt this new Statement for the fiscal
year ending March 2, 2002. Management is currently evaluating the impact of this
Statement.
18
<PAGE> 21
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 imposed on the Company by the terms of its revolving
credit 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. See Exhibit 99.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended March 6, 1999.
19
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description Page No.
----------- ----------- --------
27 Financial Data Schedule 23
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on September 13,
1999, announcing the signing of a definitive agreement to sell the Claremont
Restaurant Group.
20
<PAGE> 23
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 19, 1999 By: /s/ James C. Richardson, Jr.
---------------- ----------------------------------------
James C. Richardson, Jr.
(Chief Executive Officer)
Date October 19, 1999 By: /s/ James E. Harris
---------------- ----------------------------------------
James E. Harris
(Principal Financial Officer)
21
<PAGE> 24
INDEX TO EXHIBITS
For inclusion in Quarterly Report on Form 10-Q Quarter Ended September 4, 1999
Exhibit No. Page No.
- ----------- --------
27 Financial Data Schedule 23
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FISCAL
2000 2ND 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-04-2000
<PERIOD-START> MAR-07-1999
<PERIOD-END> SEP-04-1999
<CASH> 1,815,397
<SECURITIES> 0
<RECEIVABLES> 17,727,737
<ALLOWANCES> 176,282
<INVENTORY> 40,293,218
<CURRENT-ASSETS> 69,652,914
<PP&E> 100,905,198
<DEPRECIATION> 29,412,037
<TOTAL-ASSETS> 225,539,005
<CURRENT-LIABILITIES> 21,427,457
<BONDS> 161,225,827
0
0
<COMMON> 5,810,004
<OTHER-SE> 34,456,008
<TOTAL-LIABILITY-AND-EQUITY> 225,539,005
<SALES> 86,074,765
<TOTAL-REVENUES> 86,074,765
<CGS> 50,882,854
<TOTAL-COSTS> 50,882,854
<OTHER-EXPENSES> 3,072,941
<LOSS-PROVISION> 214,447
<INTEREST-EXPENSE> 7,949,282
<INCOME-PRETAX> (5,785,626)
<INCOME-TAX> 2,343,365
<INCOME-CONTINUING> (3,442,261)
<DISCONTINUED> 2,529,121
<EXTRAORDINARY> (52,350)
<CHANGES> 0
<NET-INCOME> (965,490)
<EPS-BASIC> (.17)
<EPS-DILUTED> (.17)
</TABLE>
