Exhibit 99.1
NEWS RELEASE
For Additional Information Contact:
Joe Meyers
Vice President, Finance
(513) 874-8741
PIERRE FOODS, INC. REPORTS RESULTS FOR FOURTH QUARTER AND FISCAL YEAR ENDED MARCH 4, 2006
Cincinnati, Ohio, May 25, 2006 ... Pierre Foods, Inc. (the “Company” or “Pierre”), a leading manufacturer and marketer of high-quality, differentiated processed food solutions, today reported for its fourth quarter ended March 4, 2006 (“Fourth Quarter Fiscal 2006”), net revenues of $109.3 million versus $107.5 million for its fourth quarter ended March 5, 2005 (“Fourth Quarter Fiscal 2005”), an increase of 1.7%. For the fiscal 2006 year ended March 4, 2006 (“Fiscal 2006”), net revenues were $431.6 million versus $410.4 million for the fiscal 2005 year ended March 5, 2005 (“Fiscal 2005”), an increase of 5.2%. The Company experienced strong growth in most of its end-market segments during the Fourth Quarter Fiscal 2006, as well as in Fiscal 2006 overall. The growth was partially offset by a significant decrease in sales to two large National Accounts customers during both Fourth Quarter Fiscal 2006 and Fiscal 2006. Sales to these National Accounts customers were impacted by promotional activity towards sandwiches that do not include the Company’s products and to a lesser extent, higher gasoline prices, which impacted store traffic.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”) increased to $15.7 million for Fourth Quarter Fiscal 2006 from $14.9 million for the same period last year, a 5.4% increase. On a pro forma basis, EBITDA increased to $54.7 million for Fiscal 2006 from $42.6 million for Fiscal 2005, a 28.4% increase. The Company’s Fiscal 2005 pro forma results give effect to the acquisition of the Company on June 30, 2004 by an affiliate of Madison Dearborn Partners, LLC (the “Acquisition”) and the related financing transactions as if they had occurred on March 7, 2004 (the first day of Fiscal 2005).
The Company reported net income of $1.8 million during Fourth Quarter Fiscal 2006 compared with a net loss of $0.4 million during Fourth Quarter Fiscal 2005. This increase in net income was primarily due to (i) the net impact of decreases in prices paid for raw material proteins and formulation mix, price increases to customers, sales volume growth, and higher margin product sales; (ii) a decrease of $1.0 million in depreciation and amortization, primarily due to the accelerated amortization method used for certain intangible assets; (iii) a decrease in the income tax provision of $0.8 million; and (iv) a favorable impact as a result of a $0.1 million purchase accounting adjustment on beginning inventory in the prior year comparable period in connection with the Acquisition. These favorable expense variances were offset by (i) an increase of $1.0 million in selling, general, and administrative expenses primarily due to incentive compensation; (ii) an increase in distribution costs primarily due to a $0.6 million increase in storage expense as a result of increased inventories and a $0.5 million increase in freight due to higher fuel prices; (iii) an increase in costs of $0.5 million as a result of manufacturing efficiencies related to changes in sales mix; (iv) an increase in interest expense of $0.4 million primarily due to increased floating interest rates offset by decreased borrowings as a result of partial repayment of the Company’s term loan; (v) an increase in utility costs of $0.3 million; and (vi) an increase in selling expenses primarily due to expenses incurred to establish the Company’s new Military selling channel and an increase in demonstration expenses related to growth in the Warehouse Club selling channel.
The Company reported net income of $2.2 million for Fiscal 2006 compared with a net loss of $8.6 million for Fiscal 2005. This increase in net income was primarily due to (i) sales volume growth, higher margin product sales, price increases to customers, and the net impact of decreases in prices paid for raw material proteins and formulation mix; (ii) a favorable impact as a result of a $2.0 million purchase accounting adjustment on beginning inventory in the prior year comparable period in connection with the Acquisition; (iii) start-up costs of $3.1 million incurred in Fiscal 2005 associated with a National Accounts customer that were not incurred during Fiscal 2006; (iv) the elimination of $8.8 million in selling, general, and administrative expenses related to the previous shareholder’s expenses and non-recurring transaction fees as a result of the Acquisition; and (v) a decrease in interest expense of $3.7 million primarily due to fees and write-offs incurred as a result of the repayment of existing debt in Fiscal 2005 in connection with the Acquisition and decreased borrowings as a result of partial repayment of the Company’s term loan; offset by increased floating interest rates in Fiscal 2006 related to the Company’s term loan. These favorable expense variances were offset by (i) an increase in amortization expense primarily due to the amortization of intangible assets that only occurred subsequent to the Acquisition; (ii) an increase in distribution costs primarily due to a $1.8 million increase in storage expense as a result of increased inventories and a $2.1 million increase in freight due to higher fuel prices; (iii) an increase in depreciation expense related to the allocation of the Acquisition purchase price and re-valuation of property, plant, and equipment in Fiscal 2005 as a result of purchase accounting due to the Acquisition; (iv) a decrease in the income tax benefit of $2.2 million; (v) an increase in selling expenses of $1.6 million primarily due to expenses incurred to establish the Company’s new Military selling channel, research and development related to product line expansions, and an
increase in demo expenses related to growth in the warehouse club selling channel; (vi) an increase in costs of $1.2 million as a result of manufacturing efficiencies related to changes in sales mix; and (vii) an increase in utility costs of $1.0 million.
The primary materials used in the Company’s food processing operations include boneless beef, pork, chicken, flour, yeast, seasonings, cheese, breading, soy proteins, and packaging supplies. Meat proteins are generally purchased under 7-day payment terms. Historically, the Company has not hedged in the futures markets, and over time, raw material costs have fluctuated with movement in the relevant commodity markets. Additionally, the Company has contracts with formulaic pricing that allow the Company to immediately pass along commodity price variances.
Approximately 38.7% of total sales for Fourth Quarter Fiscal 2006 were protected from commodity exposure, of which 31.4% were attributable to cost-plus contracts, while the other 7.3% were related to the USDA Commodity Reprocessing Program, which also insulates the Company from raw material price fluctuations. Approximately 42.0% of total sales for Fiscal 2006 were protected from commodity exposure, of which 35.8% were attributable to cost-plus contracts, while the other 6.2% were related to the USDA Commodity Reprocessing Program.
The following table represents the (increases)/decreases in the weighted average prices the Company paid for beef, pork, chicken, and cheese excluding formulation mix and contracts with formulaic pricing during Fourth Quarter Fiscal 2006 compared to Fourth Quarter Fiscal 2005, Fourth Quarter Fiscal 2006 compared to Third Quarter Fiscal 2006 and Fiscal 2006 compared to Fiscal 2005:
| | (Increase)/Decrease | | (Increase)/Decrease | | | |
| | Fourth Quarter | | Fourth Quarter | | | |
| | Fiscal 2006 | | Fiscal 2006 | | (Increase)/Decrease | |
| | Compared to | | Compared to | | Fiscal 2006 | |
| | Fourth Quarter | | Third Quarter | | Compared to | |
| | Fiscal 2005 | | Fiscal 2006 | | Fiscal 2005 | |
Beef | | 9.0 | % | 0.0 | % | (7.7 | )% |
Pork | | 36.6 | % | 8.9 | % | 14.2 | % |
Chicken | | 9.2 | % | 0.7 | % | 39.0 | % |
Cheese | | 11.6 | % | 5.0 | % | 6.1 | % |
Aggregate | | 14.5 | % | 2.7 | % | 7.8 | % |
As previously announced, Pierre Foods, Inc. will hold a quarterly conference call to discuss Fourth Quarter Fiscal 2006 and Fiscal 2006 results on Friday, May 26, 2006 at 10:00 a.m. EDT. This conference call will be available via webcast on the Company’s website at www.pierrefoods.com or by direct dial at (800)-289-0494. It will be recorded and available for playback beginning at 1:00 p.m. EDT on Friday, May 26, 2006 through midnight on Sunday, May 28, 2006 by dialing (888)-203-1112 or (719)-457-0820. The replay passcode is 3234520. An archived version will be available on the Company’s website in the Investor Relations section.
Pierre is a leading manufacturer and marketer of high-quality, differentiated food solutions, focusing on pre-cooked protein products and hand-held convenience sandwiches. Headquartered in Cincinnati, Ohio, Pierre markets its sandwiches under a number of brand names, such as Pierre™, Fast Choice®, Rib-B-Q®, Blue Stone Grill™, Hot ‘n’ Ready® and Big AZ®, and has licenses to sell sandwiches using well-known brands, such as Checkers®, Rally’s®, Krystal®, Tony Roma’s®, NASCAR®, NASCAR CAFE® and Nathan’s Famous®.
In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”) included throughout this news release, the Company has provided information regarding “EBITDA” (a non-GAAP financial measure). “EBITDA” represents income (loss) before interest, taxes, depreciation and amortization. EBITDA, Pro Forma EBITDA, and Adjusted EBITDA are not intended to represent cash flow from operations as defined by GAAP and should not be used as alternatives to net income as indicators of operating performance or to cash flow as measures of liquidity. EBITDA, Pro Forma EBITDA, and Adjusted EBITDA are included in this press release because they are the basis upon which the Company’s management assesses financial performance. While EBITDA, Pro Forma EBITDA, and Adjusted EBITDA are frequently used as measures of operating performance and the ability to meet debt service requirements, they are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculations. A reconciliation of Pro Forma net income (loss) to Pro Forma EBITDA is included in this release. Also included in this release is a reconciliation of Pro Forma EBITDA to Adjusted EBITDA.
In addition to historical information, this release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “expects,” “anticipates,” “estimates,” and similar expressions identify forward-looking statements. These statements reflect the Company’s expectations at the time this release was issued and are not guarantees of future performance but instead involve various risks and uncertainties. Actual events and results may differ materially from those described in the forward-looking statements. Among the factors that could cause material differences are the ability of the Company to generate cash flows to meet its debt service obligations, increases in the price of raw materials, particularly beef, pork, chicken, and cheese, a decline in meat consumption or in the consumption of
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processed foods, outbreaks of disease among cattle, chicken or pigs, changes in applicable governmental regulations, such as the USDA’s Commodity Reprocessing Program, work stoppages or interruptions, the ability of the Company to comply with the financial covenants and other provisions of its financing arrangements, and other risks detailed from time to time in the Company’s periodic SEC reports. The Company undertakes no obligation to update or revise any forward-looking statement.
The Company continuously evaluates contingencies based upon the best available information. The Company believes it has recorded appropriate liabilities to the extent necessary in cases where the outcome of such liabilities is considered probable and reasonably estimable, and that its assessment of contingencies is reasonable. To the extent that resolution of contingencies results in amounts that vary from management’s estimates, future earnings will be charged or credited accordingly.
As part of its ongoing operations in the food manufacturing industry, the Company is subject to extensive federal, state, and local regulations and its food processing facilities and food products are subject to frequent inspection, audits, and inquiries by the USDA, the Food and Drug Administration and various local health and agricultural agencies and by federal, state and local agencies responsible for the enforcement of environmental laws and regulations. The Company is also involved in various legal actions arising in the normal course of business. These matters are continuously being evaluated and, in some cases, are being contested by the Company and the outcome is not predictable. Consequently, an estimate of the possible loss or range of loss associated with these actions cannot be made. Although occasional adverse outcomes (or settlements) may occur and could possibly have an adverse effect on the results of operations in any one accounting period, the Company believes that the final disposition of such matters will not have a material adverse affect on the Company’s consolidated financial position.
PIERRE FOODS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(in thousands)
| | Fourth Quarter | | Fourth Quarter | |
| | Fiscal 2006 | | Fiscal 2005 | |
Sales | | $ | 109,265 | | $ | 107,459 | |
Cost of goods sold | | 76,039 | | 77,743 | |
Selling, general, and administrative expenses | | 17,624 | | 14,862 | |
Loss on disposal of property, plant, and equipment, net | | — | | 5 | |
Depreciation and amortization | | 7,606 | | 8,620 | |
Interest expense | | 5,691 | | 5,217 | |
Other income, net | | 59 | | 12 | |
Income before taxes | | 2,364 | | 1,024 | |
Income tax provision | | (585 | ) | (1,410 | ) |
Net income (loss) | | $ | 1,779 | | $ | (386 | ) |
PIERRE FOODS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
(in thousands)
| | Fiscal 2006 | | Fiscal 2005 | |
Sales | | $ | 431,633 | | $ | 410,416 | |
Cost of goods sold | | 309,273 | | 304,348 | |
Selling, general, and administrative expenses | | 67,839 | | 66,274 | |
Loss on disposal of property, plant, and equipment, net | | 6 | | 345 | |
Depreciation and amortization | | 30,639 | | 24,715 | |
Interest expense | | 22,331 | | 26,031 | |
Other income, net | | 152 | | 26 | |
Income (loss) before taxes | | 1,697 | | (11,271 | ) |
Income tax benefit | | 465 | | 2,677 | |
Net income (loss) | | $ | 2,162 | | $ | (8,594 | ) |
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The following supplemental pro forma financial information is provided to present the Company’s Fiscal 2005 results on a comparable basis to the Company’s current year results. The unaudited pro forma consolidated financial data set forth below was derived from the application of pro forma adjustments to the Company’s historical financial statements. The Company provides the unaudited pro forma financial data for informational purposes only. The unaudited pro forma consolidated financial data do not purport to represent what the Company’s results of operations would have been if these transactions had occurred as of the dates indicated, nor are they indicative of results for any future periods. The adjustments to the unaudited pro forma consolidated statements of operations are based upon available information and certain assumptions that the Company believes are reasonable. You should read the unaudited pro forma consolidated financial data and the accompanying notes in conjunction with the Company’s historical financial statements and the accompanying notes thereto included in the Company’s SEC filings.
PIERRE FOODS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal 2005
(in thousands)
| | | | Acquisition | | | |
| | Historical | | Adjustments | | Pro Forma | |
| | | | | | | |
Sales | | $ | 410,416 | | $ | (9 | )(a) | $ | 410,407 | |
Cost of goods sold | | 304,348 | | — | | 304,348 | |
Selling, general, and administrative expenses | | 66,274 | | (3,105 | )(b) | 63,169 | |
Loss on disposition of property, plant and equipment | | 345 | | — | | 345 | |
Depreciation and amortization | | 24,715 | | 8,402 | (c) | 33,117 | |
Interest expense | | 26,031 | | (227 | )(d) | 25,804 | |
Other income, net | | 26 | | — | | 26 | |
Loss before taxes | | (11,271 | ) | (5,079 | ) | (16,350 | ) |
Income tax benefit | | 2,677 | | 1,872 | (e) | 4,549 | |
Net loss | | $ | (8,594 | ) | $ | (3,207 | ) | $ | (11,801 | ) |
The unaudited pro forma consolidated financial statements for Fiscal 2005 presented above give effect to the following adjustments (dollars in thousands):
(a) To reflect the elimination of revenues related to the operations of Compass Outfitters, which was retained by the selling shareholders.
(b) To reflect the elimination of (1) $138 of selling, general, and administrative expenses relating to Compass Outfitters, which was retained by the selling shareholders; (2) $1,223 of compensation expense for the selling shareholders and other personnel who were terminated in connection with the Acquisition and will not be replaced; (3) $1,009 of travel and entertainment expenses incurred by the selling shareholders and other personnel who were terminated in connection with the Acquisition and will not be replaced; (4) $719 related to the leasing of an aircraft from Columbia Hill Aviation, LLC, which was formerly a subsidiary of PF Management, the sole shareholder of Pierre, which was retained by the selling shareholders; (5) $175 of rent expense, maintenance and other occupancy costs associated with the lease of an office building from a related party, which lease was terminated in connection with the Acquisition; and (6) the addition of $159 of compensation expense related to the new deferred compensation plan established in connection with the Acquisition.
(c) To reflect (1) the $83 decrease in annual depreciation expense related to the aircraft retained by the selling shareholders; (2) the elimination of depreciation expense of $66 related to Compass Outfitters, which was retained by the selling shareholders; (3) the elimination of depreciation expense of $154 related to other assets, primarily office furniture, fixtures, and computers, that were distributed to the selling shareholders in connection with the Acquisition; and (4) the increase in depreciation of $565 and amortization of $8,140 due to the preliminary purchase price allocation.
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(d) To reflect the adjustments to interest expense as a result of (1) the increase in annual interest expense associated with $150,000 of variable rate debt under the term loan facility portion of the Company’s new senior credit facility; (2) the increase in annual interest expense associated with the issuance of $125,000 of Senior Subordinated Notes; (3) the elimination of interest expense of $6,450 associated with the Company’s indebtedness (including the amortization of related deferred financing fees; and (4) the amortization of deferred financing fees of $375 associated with the Company’s new senior credit facility and the Senior Subordinated Notes.
(e) To reflect the tax effect of the pro forma adjustments related to the Acquisition, resulting in a cumulative combined federal, state, and foreign statutory tax rate of 37.4%.
The following table provides a reconciliation of Pro Forma net income (loss) to Pro Forma EBITDA:
| | Fiscal 2006 | | Fiscal 2005 | | Fourth Quarter
Fiscal 2006 | | Fourth Quarter
Fiscal 2005 | |
Pro Forma net income (loss) | | $ | 2,162 | | $ | (11,801 | ) | $ | 1,779 | | $ | (386 | ) |
Income tax provision (benefit) | | (465 | ) | (4,549 | ) | 585 | | 1,410 | |
Interest expense | | 22,331 | | 25,804 | | 5,691 | | 5,217 | |
Depreciation and amortization | | 30,639 | | 33,117 | | 7,606 | | 8,620 | |
Pro Forma EBITDA | | $ | 54667 | | $ | 42,571 | | $ | 15,661 | | $ | 14,861 | |
In the table below, the Pro Forma EBITDA has been adjusted for expenses that the Company does not expect to incur in the future or are being incurred as a result of the Acquisition. Excluding these expenses, Pro Forma EBITDA (“Adjusted EBITDA”) for Fiscal 2006, Fiscal 2005, Fourth Quarter Fiscal 2006 and Fourth Quarter Fiscal 2005 would have been $55,201, $50,463, $15,831, and $15,082, respectively.
| | Fiscal 2006 | | Fiscal 2005 | | Fourth
Quarter
Fiscal 2006 | | Fourth
Quarter
Fiscal 2005 | |
Pro Forma EBITDA | | $ | 54,667 | | $ | 42,571 | | $ | 15,661 | | $ | 14,861 | |
Professional Fees (a) | | — | | 2,592 | | — | | — | |
Board of directors expenses (b) | | — | | 90 | | — | | — | |
Community relations and other (c) | | — | | 621 | | — | | — | |
Selling shareholders’ transaction fees (d) | | — | | 1,738 | | — | | — | |
Endorsement termination (e) | | — | | 318 | | — | | — | |
Purchase accounting adjustment (f) | | — | | 2,021 | | — | | 99 | |
Other Acquisition expenses (g) | | — | | 26 | | — | | — | |
Non-cash compensation expense (h) | | 535 | | 486 | | 170 | | 122 | |
Total | | 535 | | 7,892 | | 170 | | 221 | |
Adjusted EBITDA | | $ | 55,202 | | $ | 50,463 | | $ | 15,831 | | $ | 15,082 | |
(a) These professional fees primarily are related to the Acquisition.
(b) The selling shareholders’ expenses relate to outside board of director fees of $90. The Company does not intend to pay director fees except fees to the director that is neither an employee of the Company nor an affiliate of MDP and the related travel expenses for all directors.
(c) These fees also include community relations and other items including contributions made to the selling shareholder’s alma mater and expenses associated with the termination of the previous Chief Financial Officer.
(d) The selling shareholders’ transaction fees include legal, accounting, tax consulting, and advisory fees related to the Acquisition.
(e) The endorsement termination relates to the contract between the Company and Crawford Race Cars, LLC that resulted from the Acquisition.
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(f) The purchase accounting adjustment represents the step-up in basis of inventory as a result of the Acquisition and corresponding increase in cost of goods sold in the subsequent period.
(g) Other includes employee travel and expenses incurred in connection with the financing of the Acquisition.
(h) Represents non-cash compensation expense attributable to the accretion of dividends on the preferred stock of Pierre Holding Corp. held in a rabbi trust to fund PF Management’s obligations under a deferred compensation plan, which was established in connection with the Acquisition.
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PIERRE FOODS, INC.
CONSOLIDATED BALANCE SHEETS
As of March 4, 2006 and March 5, 2005
(in thousands)
| | Successor Pierre | |
| | March 4, 2006 | | March 5, 2005 | |
| | (Unaudited) | | | |
ASSETS | | | | | |
| | | | | |
CURRENT ASSETS: | | | | | |
Cash and cash equivalents | | $ | 2,541 | | $ | — | |
Accounts receivable, net | | 29,591 | | 29,547 | |
Inventories | | 45,686 | | 43,764 | |
Refundable income taxes | | 1,651 | | 2,907 | |
Deferred income taxes | | 3,976 | | 5,764 | |
Prepaid expenses and other current assets | | 3,165 | | 4,123 | |
| | | | | |
Total current assets | | 86,610 | | 86,105 | |
| | | | | |
PROPERTY, PLANT AND EQUIPMENT, NET | | 56,206 | | 56,285 | |
| | | | | |
OTHER ASSETS: | | | | | |
Other intangibles, net | | 134,844 | | 158,223 | |
Goodwill | | 186,535 | | 186,535 | |
Deferred loan origination fees, net | | 7,332 | | 8,924 | |
Other | | 898 | | 516 | |
| | | | | |
Total other assets | | 329,609 | | 354,198 | |
| | | | | |
Total Assets | | $ | 472,425 | | $ | 496,588 | |
| | | | | |
CURRENT LIABILITIES: | | | | | |
Current installments of long-term debt | | $ | 229 | | $ | 422 | |
Trade accounts payable | | 11,897 | | 11,172 | |
Accrued interest | | 1,781 | | 1,832 | |
Accrued payroll and payroll taxes | | 5,015 | | 4,663 | |
Accrued promotions | | 3,259 | | 3,499 | |
Accrued taxes (other than income and payroll) | | 796 | | 950 | |
Other accrued liabilities | | 1,635 | | 1,421 | |
| | | | | |
Total current liabilities | | 24,612 | | 23,959 | |
| | | | | |
LONG-TERM DEBT, less current installments | | 244,765 | | 263,159 | |
| | | | | |
DEFERRED INCOME TAXES | | 48,821 | | 52,930 | |
| | | | | |
OTHER LONG-TERM LIABILITIES | | 6,169 | | 10,517 | |
| | | | | |
SHAREHOLDER’S EQUITY: | | | | | |
Common stock – Class A, 100,000 shares authorized, issued And outstanding at March 4, 2006 and March 5, 2005 | | 150,226 | | 150,352 | |
Retained deficit | | (2,168 | ) | (4,329 | ) |
| | | | | |
Total shareholder’s equity | | 148,058 | | 146,023 | |
| | | | | |
Total Liabilities and Shareholder’s Equity | | $ | 472,425 | | $ | 496,588 | |
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PIERRE FOODS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended March 4, 2006 and March 5, 2005
(in thousands)
| | Fiscal 2006 | | Fiscal 2005 | |
| | (Unaudited) | |
| | | | | |
Net cash provided by operating activities | | $ | 28,464 | | $ | 13,800 | |
Net cash used in investing activities (a) | | (7,150 | ) | (5,761 | ) |
Net cash used in financing activities | | (18,773 | ) | (8,244 | ) |
Net increase (decrease) in cash and cash equivalents | | 2,541 | | (205 | ) |
Cash and cash equivalents, beginning of the period | | — | | 205 | |
Cash and cash equivalents, end of period | | $ | 2,541 | | $ | — | |
(a) Includes capital expenditures totaling $7,150 and $5,761 for Fiscal 2006 and Fiscal 2005, respectively.
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