##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended: March 25, 2006                                                   
|  
|OR
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from          to                                              

Commission file number:
000-51347


Premium Standard Farms, Inc.


(Exact name of Registrant as specified in its charter)


|                                                                                                      |  |                    
|----------------------------------------------------------------------------------------------------- |  | -------------------
|Delaware                                                                                              |  | 43-1755411         
|(State or other jurisdiction of                                                                       |  | (I.R.S. Employer   
|incorporation or organization)                                                                        |  | Identification No.)
|805 Pennsylvania Avenue,
    Suite 200, Kansas City, Missouri(Address of principal executive offices) |  | 64105(Zip Code)    

Registrants telephone number, including area code:


(816) 472-7675


Securities registered pursuant to Section 12(b) of the
Act:


|                             |  |                                          
|---------------------------- |  | -----------------------------------------
|Title of Each Class          |  | Name of Each Exchange on Which Registered
|                             |  |                                          
|Common Stock $0.01 Par Value |  | NASDAQ Stock Exchange                    

Securities registered pursuant to 12(g) of the Act:


None


o þ


o þ


þ o


S-K 10-K 10-K. þ


12b-2


o þ o


12b-2 o þ




DOCUMENTS INCORPORATED BY REFERENCE


10-K.










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##### Table of Contents










EXPLANATORY NOTES


10-K,


TABLE OF CONTENTS


|           |  |                                                                                                                      |    |  |    | 
|---------- |  | -------------------------------------------------------------------------------------------------------------------- | -- |  | -- | 
|PART I     |  |                                                                                                                      | 4  | 
|Item 1.    |  | Business                                                                                                             |    |  | 4  | 
|Item 1A.   |  | Risk Factors                                                                                                         |    |  | 20 | 
|Item 1B.   |  | Unresolved Staff Comments                                                                                            |    |  | 30 | 
|Item 2.    |  | Properties                                                                                                           |    |  | 30 | 
|Item 3.    |  | Legal Proceedings                                                                                                    |    |  | 30 | 
|Item 4.    |  | Submission of Matters to a Vote of Security
    Holders                                                              |    |  | 31 | 
|          
|PART II    |  |                                                                                                                      | 31 | 
|Item 5.    |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |    |  | 31 | 
|Item 6.    |  | Selected Financial Data                                                                                              |    |  | 33 | 
|Item 7.    |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |    |  | 34 | 
|Item 7A.   |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |    |  | 48 | 
|Item 8.    |  | Financial Statements and Supplementary
    Data                                                                      |    |  | 49 | 
|Item 9.    |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |    |  | 49 | 
|Item 9A.   |  | Controls and Procedures                                                                                              |    |  | 49 | 
|Item 9B.   |  | Other Information                                                                                                    |    |  | 51 | 
|          
|PART III   |  |                                                                                                                      | 51 | 
|Item 10.   |  | Directors and Executive Officers of
    Registrant                                                                   |    |  | 51 | 
|Item 11.   |  | Executive Compensation                                                                                               |    |  | 51 | 
|Item 12.   |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |    |  | 51 | 
|Item 13.   |  | Certain Relationships and Related
    Transactions                                                                   |    |  | 51 | 
|Item 14.   |  | Principal Accountant Fees and Services                                                                               |    |  | 51 | 
|          
|PART IV    |  |                                                                                                                      | 51 | 
|Item 15.   |  | Exhibits and Financial Statement
    Schedules                                                                       |    |  | 51 | 
|SIGNATURES |  |                                                                                                                      | 55 | 

2



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MARKET AND INDUSTRY DATA AND FORECASTS


10-K


FISCAL YEARS


53-week 10-K


3



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##### Table of Contents






PART I







|                                          |         
|----------------------------------------- | --------
|Item 1.                                   | Business
|EX-21.1: SUBSIDIARIES                    
|EX-23.1: CONSENT OF DELOITTE & TOUCHE LLP
|EX-31.1: CERTIFICATION                   
|EX-31.2: CERTIFICATION                   
|EX-32.1: CERTIFICATION                   
|EX-32.2: CERTIFICATION                   

Overview






1 4


Recent Developments


Contemplated Secondary Offering.


Industry Overview








4



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Pork Production, Hog Prices and Pork Prices










|    |                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on USDA statistics published by Informa Economics.                                                                                                                         
|   
|(2) | Average annual price based on the market price of lean hogs, as
    published by the Chicago Mercantile Exchange.                                                                
|   
|(3) | Average annual price based on the 185# cutout pricing method, a
    standard measure for determining current market prices of pork
    primal cuts that is published by the USDA.



5



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##### Table of Contents



Corn $/Bushel










|    |                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Average annual price, based on the monthly average of daily
    close prices of the Nearby Corn Futures quoted by the Chicago
    Board of Trade.

Soybean Meal $/Ton










|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Average annual price, based on the monthly average of daily
    close prices of the Nearby Soybean Futures quoted by the Chicago
    Board of Trade.





| |                
| | ---------------
| | Pork Processing



6



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| |               
| | --------------
| | Hog Production

feed-to




Competitive Strengths






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Vertically Integrated, Efficient Operations. We believe
    that we are one of the most vertically integrated pork
    processors in the United States, owning and operating each of
    the key steps of production. In fiscal 2006, substantially all
    of the hogs used by our Milan, Missouri processing plant were
    sourced from our Missouri hog production operation. During the
    same period, approximately 76% of hogs used by our Clinton,
    North Carolina processing plant were supplied by our owned and
    contracted North Carolina hog production operations, with the
    remainder supplied through long-term contracts with independent
    producers. Vertical integration gives us strict control over our
    process, from a hogs initial genetic makeup to the pork
    product ultimately produced and shipped. This process allows us
    to produce high-quality pork and pork products efficiently by
    combining cost-effective, high-volume hog production in close
    proximity to modern and technically advanced pork processing
    facilities. We believe this vertical integration gives us
    powerful competitive advantages as compared to non-integrated
    competitors, such as:



| |   |                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A dependable supply of high-quality hogs that lead to high meat
    quality, processing efficiencies and improved sales margins;                                                                                          
|
| |  | Streamlined logistics, feed manufacturing, transportation and
    production schedules; and                                                                                                                               
|
| |  | Control over key factors (genetics, nutrition and environment)
    that affect cost of hogs and meat quality, enabling us to market
    the value, safety, traceability, and quality of our products to
    our customers.

7



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Strong Market Position with Strategically Located, Efficient
    Operations. We are the sixth largest pork processor in the
    United States and the second largest hog producer in the United
    States. Our large-scale integrated operations, geographic
    diversification and strong market position allow us to serve a
    broad range of customers, while maintaining economies of scale
    in production and marketing. We are also one of the few pork
    national processors with an East Coast processing plant and
    distribution center. Coupled with our Midwest plant location, we
    are able to provide cost-effective overnight delivery of fresh
    pork to many of the most populous regions in the United States.
    Our hog production operations incorporate advanced breeding,
    farrowing and finishing methods. We believe our processing
    plants are two of the most modern and technically advanced
    facilities of their kind in the United States.                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Premium Product Offerings Focused on Discriminating
    Customers. By leveraging our modern, efficient processing
    operations and our high-quality production capabilities, we are
    able to produce products for discriminating customers who demand
    and expect high-quality pork on a consistent basis. In the
    retail sector we target high-end independent grocers rather than
    large national supermarket chains. Our premium products enable
    these retail customers to differentiate their product offerings
    from those generally available in large supermarkets. Our
    premium retail and export products include All Natural
    Fresh Pork, KenKo-Ton healthy pork for the
    Japanese market and Natural Excellence
    antibiotic-free pork. Also, our integrated business model allows
    us to target specific product characteristics required by
    specialty branded processed-meat customers. PSF pork was awarded
    the Best Taste Award by the American Culinary Institute
    (ACI) in 2004 and the Gold Medal Taste Award from
    the American Tasting Institute (ATI) in 2002. Judged
    by a panel of professional chefs, our products were recognized
    for the best tasting, highest quality food and culinary product
    by ACI, and for appearance, freshness and taste by ATI, with
    taste being the most important attribute.
|
| |  | Process Verified Certification. We believe we were the
    first pork company to receive Process Verified
    certification from the USDA for our entire production and
    processing supply chain. The Process Verified certification
    program is modeled after ISO-9000 quality management and quality
    assurance standards. Process Verified certification helps ensure
    our customers that food safety, meat quality, traceability,
    animal handling and environmental management standards, among
    other standards, have been met and benchmarked for continual
    improvement. Our marketing strategy capitalizes on these
    attributes and the consistency and quality of the pork we
    produce.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Experienced Management Team. Our senior management has an
    average of 20 years of industry experience. We believe we
    have one of the most experienced management teams in the pork
    industry in operating fully-integrated systems with an average
    of 24 years of industry experience in production,
    32 years in processing, 17 years in technical and food
    safety and 20 years in sales. Our experienced and motivated
    management team is focused on expanding our position as one of
    the premier producer/processors of high-quality pork and pork
    products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Business Strategy






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Focus on High Quality and Value-Added Products. We are
    seeking to move more of our products up the value-added chain to
    improve sales margins, develop a stronger brand, enhance
    relationships with key customers and drive new product
    development. We intend to continue to focus on producing
    high-quality and value-added products, such as boneless
    products, marinated pork, moisture-enhanced pork, sliced bacon,
    microwave cooked bacon, smoked hams, sausage and other processed
    meats. We plan to continue our focus on marketing these products
    to discriminating customers in the retail, wholesale,
    foodservice, further processor and export markets in order to
    further differentiate our products from those of our more
    commodity-oriented competitors.
|
| |  | Expand Processing Capacity. We continue to seek
    additional expansion opportunities with the potential to
    generate attractive returns on investment. As an example,
    through modernization and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

8



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | efficiency efforts in fiscal year 2003, we completed expansion
    of processing capacity at our North Carolina processing
    plant from 6,500 hogs per day to up to approximately 10,000 hogs
    per day on a single shift. At this North Carolina facility, we
    are now evaluating the further expansion of our value-added
    processing capacity. Our board of directors has approved the
    expansion of our Milan, Missouri hog processing plant. We expect
    those improvements will increase processing levels at this
    facility to a capacity of 10,000 hogs per day versus the current
    capacity of 7,400 hogs per day. This expansion project currently
    is scheduled for completion in the Spring of 2007.                                                                                                                                                                                                                                                          
|
| |  | Continue Expansion into International Markets. We believe
    that international markets offer significant growth
    opportunities and we intend to continue our efforts to develop
    sales outside the United States. Over the past ten years,
    we have expanded our efforts to increase export sales. Sales to
    Japan, Mexico, Canada and other export markets accounted for 13%
    of our net sales for the fiscal year ended March 25, 2006.
    We believe that our presence in these markets allows us to
    achieve higher prices for certain pork products than could be
    obtained domestically. In particular, we intend to increase our
    export volumes to Japan using available capacity at our North
    Carolina plant, as the Japanese market ascribes significant
    value to premium, process-controlled, traceable products. We
    also intend to actively expand sales in other Asian and Latin
    American markets, as well as other international regions.
|
| |  | Pursue Strategic Acquisition, Disposition and Partnership
    Opportunities. As a key part of our growth strategy, we
    evaluate on an ongoing basis potential industry-related
    acquisitions, dispositions and joint ventures. We continue to
    evaluate those opportunities that fit strategically with our
    objective of producing more processed meats and other high
    quality, value-added products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Further Improve Cost Structure. We strive to produce
    high-quality pork products at a low cost by combining modern and
    efficient pork processing with efficient, high volume hog
    production. We continually measure our processing and production
    activities in an effort to improve our processing yields,
    develop new value-added products, lower our costs and increase
    our hog production efficiencies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

Our History


start-up








9



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Products, Marketing and Customers






| |   |                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Retailers, retail distributors and wholesalers (accounting for
    45% of our total processing sales in fiscal year 2006) primarily
    in the form of chilled, vacuum-packaged loins, tenderloins,
    hams, picnics, butts, ribs, marinated, case-ready, bacon, smoked
    hams and sausage;                           
|
| |  | Foodservice customers (accounting for 4% of our total processing
    sales in fiscal year 2006) primarily in the form of chilled and
    frozen boxed bone-in and boneless loins, ribs, picnics, butts
    and further processed smoked meats;                                                                           
|
| |  | Further processors (accounting for 35% of our total processing
    sales in fiscal year 2006) primarily in the form of chilled bulk
    bone-in and boneless hams, bellies, trimmings, picnics and
    butts, variety meats and other products which are used by these
    customers to make processed pork products; and
|
| |  | Export customers (accounting for 16% of our total processing
    sales in fiscal year 2006) primarily in the form of chilled
    boneless loins, tenderloins, boneless picnics, fresh bone-in
    hams, frozen boneless hams, bellies, as well as frozen ground
    pork and variety meats.                              













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Processing and Production Operations




| |         
| | --------
| | Overview

10-K




| |                
| | ---------------
| | Pork Processing







11



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| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Every order is traceable to source farms;                                                                                                                                         
|
| |  | Every phase of production is managed using a food safety based
    control system;                                                                                                
|
| |  | Production and processing systems are designed to continuously
    assess the effect of farm and plant processes on meat quality
    traits, including extensive genetic research;
|
| |  | Personnel are trained to handle livestock according to proper
    animal handling guidelines;                                                                                     
|
| |  | We are committed to environmental stewardship with the goal to
    protect the quality of the environment by evaluating and
    improving the waste management systems; and       
|
| |  | All antibiotic free products are derived from market animals
    that have never received antibiotics through feed, water, or via
    injection.                                  





| |   |                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | We streamline logistics, transportation and production schedules
    to enhance asset utilization and reduce our cost structure
    because of the proximity of our processing facilities to our
    production operations;
|
| |  | We improve the realizable value of our hogs through our control
    over the key factors (genetics, nutrition and environment) that
    affect leanness and meat quality; and                                              
|
| |  | We believe we provide a higher level of quality and safety
    assurance to our customers because of our control of both
    production and processing.                                                                    







| |   |                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Modern equipment and proven technology have been used to build
    two of the most modern and technically advanced facilities in
    the industry;                                                                                                             
|
| |  | The facilities are designed to emphasize worker safety to help
    ensure compliance with all regulations and to reduce worker
    injury and turnover;                                                                                                        
|
| |  | The facilities are designed to enhance animal welfare and
    produce a product that is appealing to further processors and
    consumers (employing identification and tracking technology to
    help ensure quality control for the final pork product); and
|
| |  | The facilities are designed to reduce waste products and
    emissions and dispose of waste in accordance with applicable
    environmental standards.                                                                                                         



| |               
| | --------------
| | Hog Production





12



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six-to wean-to


feed-to


feed-to




| |            
| | -----------
| | Biosecurity

96-hour




13



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| |         
| | --------
| | Missouri









| |               
| | --------------
| | North Carolina









| |      
| | -----
| | Texas



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wean-to


Research and Development












start-up


Competition




Intellectual Property




15



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Employees




Regulation




| |                                 
| | --------------------------------
| | Environmental, Health and Safety













| |                                             
| | --------------------------------------------
| | Environmental Consent Decrees and Agreements



16



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start-up








17



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| |                                   
| | ----------------------------------
| | Environmental Capital Expenditures





| |                          
| | -------------------------
| | North Carolina Moratorium





| |              
| | -------------
| | 2003 BSE Case

country-of




| |                  
| | -----------------
| | Nuisance Lawsuits





| |                     
| | --------------------
| | ContiGroup Indemnity





| |                         
| | ------------------------
| | Other Regulatory Matters



18



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Executive Officers of the Registrant




|                      |  |     |    |  |             |                                                                
|--------------------- |  | --- | -- |  | ----------- | ---------------------------------------------------------------
|Name                  |  | Age |    |  | Position(s)
|                      |  |     |    |  |            
|John M. Meyer         |  |     | 44 |  |             | Chief Executive Officer and Director                           
|Robert W. Manly       |  |     | 53 |  |             | President and Chief Operating Officer                          
|Stephen A. Lightstone |  |     | 60 |  |             | Executive Vice President, Chief Financial Officer and Treasurer
|Gerard J. Schulte     |  |     | 56 |  |             | General Counsel and Secretary                                  
|Dennis D. Rippe       |  |     | 52 |  |             | Vice President, Controller and Assistant Secretary             
|Calvin R. Held        |  |     | 50 |  |             | Vice President Processing Operations                           
|Richard L. Morris     |  |     | 55 |  |             | Vice President Sales and Marketing                             



19



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John M. Meyer


Robert W. Manly


Stephen A. Lightstone


Gerard J. Schulte


Dennis D. Rippe


Calvin R. Held


Richard L. Morris


Available Information


http://www.psfarms.com 10-K.







|         |             
|-------- | ------------
|Item 1A. | Risk Factors

The risks described below are not the only ones facing our
Company. Additional risks and uncertainties not presently known
to us or that we currently believe to be immaterial may also
materially and adversely affect our business, financial
condition or results of operations. Any of the following risks
could materially and adversely affect our business, financial
condition or results of operations.


Risk Factors Related To Our Business




| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | Cyclicality in the pork industry could adversely affect
    our results of operations and financial condition.



20



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| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | Increases in the costs of our feed components could
    adversely affect our costs and operating margins.





| |                                                                        
| | -----------------------------------------------------------------------
| | Changes in consumer preference could adversely affect our
    business.



21



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| |                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------
| | The consolidation of our retail, further processor and
    foodservice customers may put pressures on our operating
    margins.





| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Our history of operations includes periods of operating
    and net losses, and we may incur operating and net losses in the
    future.



start-up




| |                                                           
| | ----------------------------------------------------------
| | Our hedging activities may hurt our operating
    results.









22



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| |                                                                            
| | ---------------------------------------------------------------------------
| | Our profitability may suffer as a result of competition in
    our markets.





| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | The loss of one or more of our largest customers could
    significantly and adversely affect our cash flow, market share
    and profits.







| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | International markets expose us to political and economic
    risks in foreign countries, as well as to risks related to
    currency values and import/export policies.



23



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| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | changes in foreign currency exchange rates;                                                                        
|
| |  | exchange controls;                                                                                                 
|
| |  | changes in a specific countrys or regions political
    or economic conditions, particularly in emerging markets;
|
| |  | hyperinflation;                                                                                                    
|
| |  | tariffs, quotas, trade barriers, other trade protection measures
    and import or export licensing requirements;  
|
| |  | increased costs, disruptions in shipping or reduced availability
    of freight transportation;                    
|
| |  | enforcement of remedies in foreign jurisdictions and compliance
    with applicable foreign laws;                  
|
| |  | potentially negative consequences from changes in tax laws;                                                        
|
| |  | different regulatory structures and unexpected changes in
    regulatory requirements; and                         
|
| |  | the impact of disease on international consumer preferences
    regarding meat proteins.                           





| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our results depend on our sow herd productivity, mortality
    and feed efficiency. Changes in herd productivity and feed
    efficiency can adversely affect our profitability and
    margins.







24



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| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Outbreaks of disease can adversely affect our revenues and
    operating margins and the recent results have been adversely
    affected by Porcine Reproductive and Respiratory Syndrome and
    Other Conditions.











| |                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our operations are subject to numerous laws and
    regulations. Non-compliance with these laws and regulations, or
    the enactment of more stringent laws or regulations, could
    adversely affect our business.





25



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| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | We are operating under environmental consent decrees that
    require us to spend approximately $33 million on
    environmental controls by 2010.





| |                                                                                  
| | ---------------------------------------------------------------------------------
| | We are subject to North Carolinas moratorium on
    expansion of hog operations.





| |                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The nature of our operations exposes us to the risk of
    environmental claims, including nuisance claims by neighboring
    property owners. We are a defendant in several nuisance
    lawsuits. If these lawsuits are adversely determined, they could
    harm our business.





| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | The occurrence of unanticipated natural disasters could
    adversely affect our business.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our production and processing operations materially depend on
    the availability of large supplies of fresh water, and our
    animals health and our ability to operate our processing
    facilities at full capacity could be adversely affected if we
    experience a shortage of fresh water due to floods, droughts,
    depletion of underground aquifers or other causes beyond our
    control;

26



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| |   |                                                                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | one of our principal costs in the production side of our
    business is feed costs, and our feed costs may increase if crop
    supplies are reduced as a result of droughts, floods, hail
    storms, crop diseases or other causes beyond our control;
|
| |  | our production and processing facilities and our hog herds could
    be materially damaged by floods, hurricanes and
    tornadoes; and                                                                                                                  
|
| |  | natural disasters, such as flooding, can cause the discharge of
    effluents or other waste into the environment, potentially
    resulting in our being subject to further liability claims and
    governmental regulation.                           



| |                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Product liability claims or product recalls could result
    in significant claims, adversely affect our business reputation
    and expose us to increased scrutiny by federal and state
    regulators.







| |                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Governmental authorities may take action prohibiting meat
    packers from owning livestock, which could adversely affect our
    business and threaten the efficiency of our vertically
    integrated operations.



27



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| |                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in corporate farming laws and other
    laws and regulations in some of the states where we operate, or
    a finding that we are not in compliance with existing laws and
    regulations could adversely affect our business.







| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | The price or availability of water, energy and freight
    costs could increase our expenses, reduce our profitability and
    hamper our operations.







| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | Our level of indebtedness and the terms of our
    indebtedness could adversely affect our business and liquidity
    position.





| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a substantial portion of our cash flow from operations must be
    dedicated to interest payments on our indebtedness and is not
    available for other purposes, which amount would increase if
    prevailing interest rates rise;

28



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##### Table of Contents





| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | it may materially limit or impair our ability to obtain
    financing in the future;                                                                            
|
| |  | it may reduce our flexibility to respond to changing business
    and economic conditions or to take advantage of business
    opportunities that may arise; and
|
| |  | it restricts our ability to pay dividends.                                                                                                                      





| |                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our performance depends on favorable labor relations with
    our employees and our ability to retain them. Any deterioration
    of those relations, increase in labor costs or inability to
    attract and retain employees could adversely affect our
    business.







| |                                                                                 
| | --------------------------------------------------------------------------------
| | The loss of key members of our management may adversely
    affect our business.





| |                                                                 
| | ----------------------------------------------------------------
| | We are subject to risks associated with future
    acquisitions.





| |   |                                                         
| | - | --------------------------------------------------------
| |  | dilutive issuances of equity securities;                
|
| |  | reductions in our operating results;                    
|
| |  | incurrence of debt and contingent liabilities;          
|
| |  | future impairment of goodwill and other intangibles; and
|
| |  | other acquisition-related expenses.                     



29



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##### Table of Contents








|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments








|        |           
|------- | ----------
|Item 2. | Properties

Pork Processing








Hog Production










Headquarters











|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings



30



---



##### Table of Contents














|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders






PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|                                   |  |      |       |  |     |   |       | 
|---------------------------------- |  | ---- | ----- |  | --- | - | ----- | 
|                                   |  | High |       |  | Low |  
|                                   |  |      |       |  |     |  
|Fiscal Year Ended March 25, 2006:  |  |      |       |  |     |   |       | 
|First quarter (from June 13, 2005) |  | $    | 14.10 |  |     | $ | 12.50 | 
|Second quarter                     |  |      | 15.65 |  |     |   | 12.66 | 
|Third quarter                      |  |      | 18.54 |  |     |   | 14.30 | 
|Fourth quarter                     |  |      | 19.47 |  |     |   | 13.25 | 





31



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##### Table of Contents



Equity Compensation Plan Information




|                                                           |  |                      |         |     |                      |                      |                     |                    |  |  |           |    
|---------------------------------------------------------- |  | -------------------- | ------- | --- | -------------------- | -------------------- | ------------------- | ------------------ |  |  | --------- | ---
|                                                           |  | A                    |         |     | B                    |                      |                     | C                  | 
|                                                           |  |                      |         |     |                      |                      |                     |                    | 
|                                                           |  |                      |         |     |                      | Number of Securities |                    
|                                                           |  |                      |         |     |                      | Remaining Available  |                    
|                                                           |  | Number of Securities |         |     |                      |                      | for Future Issuance |                   
|                                                           |  | to be Issued Upon    |         |     | Weighted Average     |                      |                     | Under Equity       | 
|                                                           |  | Exercise of          |         |     | Price of             |                      |                     | Compensation Plans | 
|                                                           |  | Outstanding Options, |         |     | Outstanding Options, |                      |                     | (Excluding Those   | 
|Plan Category                                              |  | Warrants and Rights  |         |     | Warrants and Rights  |                      |                     | in Column A)       | 
|                                                           |  |                      |         |     |                      |                      |                     |                    | 
|Equity compensation plans approved by security holders     |  |                      | 197,828 |     |                      | $                    | 12.50               |                    |  |  | 1,909,687 | (1)
|Equity compensation plans not approved by security holders |  |                      | 82,857  | (2) |                      | $                    | 11.49               |                    |  |  |          |    
|                                                           |  |                      |         |     |                      |                      |                     |                    | 
|Total                                                      |  |                      | 280,685 |     |                      |                      |                     |                    |  |  | 1,909,687 |    
|                                                           |  |                      |         |     |                      |                      |                     |                    | 






|    |                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents shares of common stock available for future issuance
    under our 2005 Long Term Incentive Plan (the 2005
    Plan). The shares available under the 2005 Plan may be
    used for awards in the form of stock options, stock appreciation
    rights, restricted stock, performance units and performance
    share awards.
|   
|(2) | Represents options to purchase shares of our common stock that
    are outstanding under our 1999 Equity Incentive Plan. No further
    grants may be made under this plan.                                                                                                                                                              

32



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|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

10-K.


|                                                                        |                         |                      |         |            |           |   |         |            |   |   |           |            |   |           |         |            |  |   |         |            | 
|----------------------------------------------------------------------- | ----------------------- | -------------------- | ------- | ---------- | --------- | - | ------- | ---------- | - | - | --------- | ---------- | - | --------- | ------- | ---------- |  | - | ------- | ---------- | 
|                                                                        |                         | Fiscal Year Ended(1) |        
|                                                                        |                         |                      |        
|                                                                        |                         | March 30,            |         |            | March 29, |   |         | March 27,  |   |   | March 26, |            |   | March 25, |        
|                                                                        |                         | 2002                 |         |            | 2003      |   |         | 2004       |   |   | 2005      |            |   | 2006      |        
|                                                                        |                         |                      |         |            |           |   |         |            |   |   |           |            |   |           |        
|Statement of Operations Data:                                           |                         |                      |         |            |           |   |         |            |   |   |           |            |   |           |         |            |  |   |         |           
|Net sales                                                               |                         | $                    | 674,946 |            |           | $ | 608,414 |            |   | $ | 730,737   |            |   | $         | 927,571 |            |  | $ | 919,540 |           
|Cost of goods sold                                                      |                         |                      | 589,183 |            |           |   | 631,870 |            |   |   | 696,751   |            |   |           | 774,512 |            |  |   | 785,724 |           
|                                                                        |                         |                      |         |            |           |   |         |            |   |   |           |            |   |           |        
|                                                                        | Gross Profit            |                      |         | 85,763     |           |   |         | (23,456    | ) |   |           | 33,986     |   |           |         | 153,059    |  |   |         | 133,816    | 
|Selling, general and administrative expenses                            |                         |                      | 21,551  |            |           |   | 18,267  |            |   |   | 17,397    |            |   |           | 26,068  |            |  |   | 26,674  |           
|Loss on early extinguishment of debt                                    |                         |                      | 2,192   |            |           |   |        |            |   |   |          |            |   |           |        |            |  |   | 21,707  |           
|Other (income) expense, net                                             |                         |                      | (558    | )          |           |   | (2,293  | )          |   |   | (597      | )          |   |           | (826    | )          |  |   | (839    | )         
|                                                                        |                         |                      |         |            |           |   |         |            |   |   |           |            |   |           |        
|                                                                        | Operating income (loss) |                      |         | 62,578     |           |   |         | (39,430    | ) |   |           | 17,186     |   |           |         | 127,817    |  |   |         | 86,274     | 
|Interest expense, net                                                   |                         |                      | 20,404  |            |           |   | 23,745  |            |   |   | 24,700    |            |   |           | 20,155  |            |  |   | 8,900   |           
|Income tax expense (benefit)                                            |                         |                      | 16,809  |            |           |   | (24,575 | )          |   |   | (2,923    | )          |   |           | 40,004  |            |  |   | 24,264  |           
|                                                                        |                         |                      |         |            |           |   |         |            |   |   |           |            |   |           |        
|                                                                        | Net income (loss)       |                      | $       | 25,365     |           |   | $       | (38,600    | ) |   | $         | (4,591     | ) |           | $       | 67,658     |  |   | $       | 53,110     | 
|                                                                        |                         |                      |         |            |           |   |         |            |   |   |           |            |   |           |        
|Earnings (loss) per share(2):                                           |                         |                      |         |            |           |   |         |            |   |   |           |            |   |           |         |            |  |   |         |           
|                                                                        | Basic                   |                      | $       | 0.82       |           |   | $       | (1.25      | ) |   | $         | (0.15      | ) |           | $       | 2.19       |  |   | $       | 1.71       | 
|                                                                        | Diluted                 |                      |         | 0.82       |           |   |         | (1.25      | ) |   |           | (0.15      | ) |           |         | 2.18       |  |   |         | 1.70       | 
|Shares used to calculate earning (loss) per share(3):                   |                         |                      |         |            |           |   |         |            |   |   |           |            |   |           |         |            |  |   |         |           
|                                                                        | Basic                   |                      |         | 30,928,593 |           |   |         | 30,928,593 |   |   |           | 30,928,593 |   |           |         | 30,928,593 |  |   |         | 31,038,044 | 
|                                                                        | Diluted                 |                      |         | 30,952,196 |           |   |         | 30,928,593 |   |   |           | 30,928,593 |   |           |         | 31,088,489 |  |   |         | 31,324,679 | 
|Cash dividends declared per share:                                      |                         | $                    |        |            |           | $ |        |            |   | $ |          |            |   | $         |        |            |  | $ | 0.24    |           
|Balance Sheet Data (At Period End):                                     |                         |                      |         |            |           |   |         |            |   |   |           |            |   |           |         |            |  |   |         |           
|Working capital                                                         |                         | $                    | 120,097 |            |           | $ | 139,523 |            |   | $ | 164,750   |            |   | $         | 159,962 |            |  | $ | 175,181 |           
|Total assets                                                            |                         |                      | 806,268 |            |           |   | 777,780 |            |   |   | 758,832   |            |   |           | 736,966 |            |  |   | 728,851 |           
|Total long-term debt and capital leases (including current
    portion) |                         |                      | 271,411 |            |           |   | 303,902 |            |   |   | 285,902   |            |   |           | 176,088 |            |  |   | 128,352 |           
|Shareholders equity                                                    |                         |                      | 383,567 |            |           |   | 344,295 |            |   |   | 340,012   |            |   |           | 407,724 |            |  |   | 460,720 |           
|Other Data:                                                             |                         |                      |         |            |           |   |         |            |   |   |           |            |   |           |         |            |  |   |         |           
|Capital expenditures (including accrued capital expenditures)           |                         | $                    | 96,232  |            |           | $ | 35,505  |            |   | $ | 41,884    |            |   | $         | 44,298  |            |  | $ | 49,078  |           
|Pounds of pork sales (millions)                                         |                         |                      | 675.02  |            |           |   | 737.95  |            |   |   | 786.22    |            |   |           | 844.24  |            |  |   | 869.50  |           
|Total hogs processed (millions)                                         |                         |                      | 3.66    |            |           |   | 4.07    |            |   |   | 4.28      |            |   |           | 4.46    |            |  |   | 4.59    |           

33



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##### Table of Contents








|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our fiscal year is the 52 or
    53-week period ending
    on the last Saturday in March. Each of fiscal years 2002 through
    2006 consisted of 52 weeks.                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(2) | Basic earnings (loss) per share is computed by dividing net
    income (loss) by the weighted average number of common shares
    outstanding during the period. Diluted earnings (loss) per share
    is computed giving effect to all dilutive potential common
    shares that were outstanding during the period. The effect of
    stock options and warrants represents the only difference
    between the weighted average shares used for the basic earnings
    (loss) per share computation compared to the diluted earnings
    (loss) per share computation.
|   
|(3) | On May 6, 2005, the board of directors declared a
    145-for-1 stock split
    in the form of a stock dividend on account of its common stock.
    This stock dividend has been retroactively applied to the shares
    outstanding for each year shown.                                                                                                                                                                                                                                                                                                                






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

The following discussion and analysis of financial condition,
results of operations, liquidity and capital resources should be
read in conjunction with our audited consolidated financial
statements, including the notes thereto, and the other financial
information appearing elsewhere in this report on
Form 10-K. This
discussion contains forward-looking statements that involve
risks and uncertainties, including information with respect to
our plans, intentions and strategies for our business. See
Forward-Looking Statements. Our actual results may
differ materially from those estimated or projected in any of
these forward-looking statements.


Overview




1 4






34



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##### Table of Contents





Pork and Hog Prices (March 2003-March 2006)










|    |                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Average monthly price based on the market price of lean hogs, as
    published by the Chicago Mercantile Exchange.                                                                
|   
|(2) | Average monthly price based on the 185# cutout pricing method, a
    standard measure for determining current market prices of pork
    primal cuts that is published by the USDA.

Corn $/Bushel (March 2003-March 2006)










|    |                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------
|(1) | Based on the monthly average of daily close prices of the Nearby
    Corn Futures quoted by the Chicago Board of Trade.

35



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Soybean Meal $/Ton (March 2003-March 2006)










|    |                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------
|(1) | Based on the monthly average of daily close prices of the Nearby
    Soybean Futures quoted by the Chicago Board of Trade.







Components of Revenue and Expenses




| |          
| | ---------
| | Net Sales





36



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##### Table of Contents













| |                   
| | ------------------
| | Cost of Goods Sold







| |                                             
| | --------------------------------------------
| | Selling, General and Administrative Expenses





| |                       
| | ----------------------
| | Other income (expense)



37



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##### Table of Contents



10-K.




| |                      
| | ---------------------
| | Interest expense, net



Results of Operations




| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Fiscal Year Ended March 25, 2006 Compared to the
    Fiscal Year Ended March 26, 2005

year-to


|                        |                                      |                                   |       |        |                     |  |       |              |       |            |           |       |       |   |       |       |       |   
|----------------------- | ------------------------------------ | --------------------------------- | ----- | ------ | ------------------- |  | ----- | ------------ | ----- | ---------- | --------- | ----- | ----- | - | ----- | ----- | ----- | --
|                        |                                      | Fiscal Year Ended                 |       |        | Year-to-Year Change | 
|                        |                                      |                                   |       |        |                     | 
|                        |                                      | March 26,                         |       |        | March 25,           |  |       |              |       | Percentage |          
|                        |                                      | 2005                              |       |        | 2006                |  |       | 2005 to 2006 |       |            | Change(1) |      
|                        |                                      |                                   |       |        |                     |  |       |              |       |            |           |      
|                        |                                      | (In millions, except percentages) |      
|Net Sales               |                                      |                                   |       |        |                     |  |       |              |       |            |           |       |       |   |       |      
|                        | Processing                           |                                   | $     | 850.8  |                     |  | $     | 817.1        |       |            | $         | (33.7 | )     |   |       | (4.0  | )%   
|                        | Production                           |                                   |       | 628.9  |                     |  |       | 607.1        |       |            |           | (21.8 | )     |   |       | (3.5  | )%   
|                        | Intersegment                         |                                   |       | (552.1 | )                   |  |       | (504.7       | )     |            |           | 47.4  |       |   |       | 8.6   | %    
|                        |                                      |                                   |       |        |                     |  |       |              |       |            |           |      
|                        |                                      | Total Net Sales                   |       | $      | 927.6               |  |       | $            | 919.5 |            |           | $     | (8.1  | ) |       |       | (0.9  | )%
|                        |                                      |                                   |       |        |                     |  |       |              |       |            |           |      
|Gross Profit            |                                      |                                   |       |        |                     |  |       |              |       |            |           |       |       |   |       |      
|                        | Processing                           |                                   | $     | 29.8   |                     |  | $     | 18.3         |       |            | $         | (11.5 | )     |   |       | (38.6 | )%   
|                        | Production                           |                                   |       | 123.3  |                     |  |       | 115.5        |       |            |           | (7.8  | )     |   |       | (6.3  | )%   
|                        |                                      |                                   |       |        |                     |  |       |              |       |            |           |      
|                        |                                      | Total Gross Profit                |       | $      | 153.1               |  |       | $            | 133.8 |            |           | $     | (19.3 | ) |       |       | (12.6 | )%
|                        |                                      |                                   |       |        |                     |  |       |              |       |            |           |      
|Operating Income (loss) |                                      |                                   |       |        |                     |  |       |              |       |            |           |       |       |   |       |      
|                        | Processing                           |                                   | $     | 24.7   |                     |  | $     | 13.2         |       |            | $         | (11.5 | )     |   |       | (46.6 | )%   
|                        | Production                           |                                   |       | 123.4  |                     |  |       | 115.5        |       |            |           | (7.9  | )     |   |       | (6.4  | )%   
|                        |                                      |                                   |       |        |                     |  |       |              |       |            |           |      
|                        |                                      |                                   | 148.1 |        |                     |  | 128.7 |              |       |            | (19.4     | )     |       |   | (13.1 | )%   
|                        | Corporate                            |                                   |       | (20.3  | )                   |  |       | (20.7        | )     |            |           | (0.4  | )     |   |       | (2.0  | )%   
|                        | Loss on early extinguishment of debt |                                   |       |       |                     |  |       | (21.7        | )     |            |           | (21.7 | )     |   |       | NM    |      
|                        |                                      |                                   |       |        |                     |  |       |              |       |            |           |      
|                        |                                      | Total Operating Income            |       | $      | 127.8               |  |       | $            | 86.3  |            |           | $     | (41.5 | ) |       |       | (32.5 | )%
|                        |                                      |                                   |       |        |                     |  |       |              |       |            |           |      






|    |                  
|--- | -----------------
|(1) | NM-not meaningful



| |             
| | ------------
| | Consolidated

Net Sales.


38



---



##### Table of Contents



Gross Profit.


Selling, General and Administrative Expenses.


Operating Income.


Interest Expense, net.


Income Tax Expense (Benefit).




| |                 
| | ----------------
| | Segment Analysis



| |                
| | ---------------
| | Pork Processing

Net Sales.


Gross Profit.


Operating Income.




| |               
| | --------------
| | Hog Production

Net Sales.


39



---



##### Table of Contents





Gross Profit.


Operating Income.




| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Fiscal Year Ended March 26, 2005 Compared to the
    Fiscal Year Ended March 27, 2004

year-to


|                        |              |                                   |   |        |                     |  |   |              |       |            |           |        |       |  |  |       |       |  
|----------------------- | ------------ | --------------------------------- | - | ------ | ------------------- |  | - | ------------ | ----- | ---------- | --------- | ------ | ----- |  |  | ----- | ----- | -
|                        |              | Fiscal Year Ended                 |   |        | Year-to-Year Change | 
|                        |              |                                   |   |        |                     | 
|                        |              | March 27,                         |   |        | March 26,           |  |   |              |       | Percentage |          
|                        |              | 2004                              |   |        | 2005                |  |   | 2004 to 2005 |       |            | Change(1) |       
|                        |              |                                   |   |        |                     |  |   |              |       |            |           |       
|                        |              | (In millions, except percentages) |  
|Net Sales               |              |                                   |   |        |                     |  |   |              |       |            |           |        |       |  |  |      
|                        | Processing   |                                   | $ | 663.5  |                     |  | $ | 850.8        |       |            | $         | 187.3  |       |  |  | 28.2  | %    
|                        | Production   |                                   |   | 452.3  |                     |  |   | 628.9        |       |            |           | 176.6  |       |  |  | 39.0  | %    
|                        | Intersegment |                                   |   | (385.1 | )                   |  |   | (552.1       | )     |            |           | (167.0 | )     |  |  | (43.4 | )%   
|                        |              |                                   |   |        |                     |  |   |              |       |            |           |       
|                        |              | Total Net Sales                   |   | $      | 730.7               |  |   | $            | 927.6 |            |           | $      | 196.9 |  |  |       | 26.9  | %
|                        |              |                                   |   |        |                     |  |   |              |       |            |           |       
|Gross Profit            |              |                                   |   |        |                     |  |   |              |       |            |           |        |       |  |  |      
|                        | Processing   |                                   | $ | 38.2   |                     |  | $ | 29.8         |       |            | $         | (8.4   | )     |  |  | (22.0 | )%   
|                        | Production   |                                   |   | (4.2   | )                   |  |   | 123.3        |       |            |           | 127.5  |       |  |  | NM    |      
|                        |              |                                   |   |        |                     |  |   |              |       |            |           |       
|                        |              | Total Gross Profit                |   | $      | 34.0                |  |   | $            | 153.1 |            |           | $      | 119.1 |  |  |       | 350.3 | %
|                        |              |                                   |   |        |                     |  |   |              |       |            |           |       
|Operating Income (loss) |              |                                   |   |        |                     |  |   |              |       |            |           |        |       |  |  |      
|                        | Processing   |                                   | $ | 34.7   |                     |  | $ | 24.7         |       |            | $         | (10.0  | )     |  |  | (28.8 | )%   
|                        | Production   |                                   |   | (4.2   | )                   |  |   | 123.4        |       |            |           | 127.6  |       |  |  | NM    |      
|                        | Corporate    |                                   |   | (13.3  | )                   |  |   | (20.3        | )     |            |           | (7.0   | )     |  |  | (52.6 | )%   
|                        |              |                                   |   |        |                     |  |   |              |       |            |           |       
|                        |              | Total Operating Income            |   | $      | 17.2                |  |   | $            | 127.8 |            |           | $      | 110.6 |  |  |       | 643.0 | %
|                        |              |                                   |   |        |                     |  |   |              |       |            |           |       






|    |                  
|--- | -----------------
|(1) | NM-not meaningful



| |             
| | ------------
| | Consolidated

Net Sales.


40



---



##### Table of Contents





Gross Profit.


Selling, General and Administrative Expenses.


Operating Income.


Interest Expense, net.


Income Tax Expense (Benefit).




| |                 
| | ----------------
| | Segment Analysis



| |                
| | ---------------
| | Pork Processing

Net Sales.


Gross Profit.


Operating Income.




| |               
| | --------------
| | Hog Production

Net Sales.


41



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##### Table of Contents





Gross Profit.


Operating Income.


Seasonality




|             |  |                  |         |  |                  |   |         |       |  |   |         |  |  |       |         |  |        |   |         |       |  |   |         |  |  |   |         |  |  |   |         | 
|------------ |  | ---------------- | ------- |  | ---------------- | - | ------- | ----- |  | - | ------- |  |  | ----- | ------- |  | ------ | - | ------- | ----- |  | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|             |  | Fiscal Year 2005 |         |  | Fiscal Year 2006 |  
|             |  |                  |         |  |                  |  
|             |  | First            |         |  | Second           |   |         | Third |  |   | Fourth  |  |  | First |         |  | Second |   |         | Third |  |   | Fourth  | 
|             |  |                  |         |  |                  |   |         |       |  |   |         |  |  |       |         |  |        |   |         |       |  |   |         | 
|Net sales    |  | $                | 212,136 |  |                  | $ | 218,831 |       |  | $ | 246,759 |  |  | $     | 249,845 |  |        | $ | 245,307 |       |  | $ | 213,231 |  |  | $ | 242,899 |  |  | $ | 218,103 | 
|Gross profit |  |                  | 24,277  |  |                  |   | 29,980  |       |  |   | 48,600  |  |  |       | 50,202  |  |        |   | 57,067  |       |  |   | 26,881  |  |  |   | 30,593  |  |  |   | 19,275  | 
|Net income   |  |                  | 9,389   |  |                  |   | 11,894  |       |  |   | 22,996  |  |  |       | 23,379  |  |        |   | 15,372  |       |  |   | 12,230  |  |  |   | 13,754  |  |  |   | 11,754  | 







Liquidity and Capital Resources






42



---



##### Table of Contents







| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Approximately $10 million was spent for continuing
    improvements of our pork processing facilities;                                                                                                  
|
| |  | Approximately $11 million was spent for continuing
    improvements of our hog production facilities, and investments
    to develop and implement new technologies for improved waste
    handling; and
|
| |  | The remainder was spent for purchases of breedstock.                                                                                                                                                    





1 4 1 4 1 4 1 4 1 4 1 4 1 4










43



---



##### Table of Contents



Letter-of letter-of


5.0-to 4.0-to














| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Approximately $49 million in upgrades and improvements in
    our processing operations;                                                                                               
|
| |  | Approximately $16 million in upgrades and improvements in
    our production operations, and investments to develop and
    implement new technologies for improved waste handling; and
|
| |  | Approximately $7 million in net breedstock purchases.                                                                                                                                  





44



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##### Table of Contents





Contractual Cash Obligations




|                                                 |  |                        |         |     |         |   |        |       |  |           |        |  |  |         |        |  |  |   |         | 
|------------------------------------------------ |  | ---------------------- | ------- | --- | ------- | - | ------ | ----- |  | --------- | ------ |  |  | ------- | ------ |  |  | - | ------- | 
|                                                 |  | Payments Due by Period |        
|                                                 |  |                        |        
|                                                 |  |                        |         | 1-3 |         |   | 4-5    |       |  | More Than |       
|                                                 |  | Total                  |         |     | Current |   |        | Years |  |           | Years  |  |  | 5 Years |       
|                                                 |  |                        |         |     |         |   |        |       |  |           |        |  |  |         |       
|Contractual Cash Obligations                     |  |                        |         |     |         |   |        |       |  |           |        |  |  |         |        |  |  |   |         | 
|Credit agreement and senior notes                |  | $                      | 127,000 |     |         | $ |       |       |  | $         | 7,500  |  |  | $       | 10,000 |  |  | $ | 109,500 | 
|Interest on credit agreement and senior notes(1) |  |                        | 55,609  |     |         |   | 6,935  |       |  |           | 13,617 |  |  |         | 12,588 |  |  |   | 22,469  | 
|Capital lease obligations (including interest)   |  |                        | 1,521   |     |         |   | 924    |       |  |           | 589    |  |  |         | 8      |  |  |   |        | 
|Operating leases                                 |  |                        | 20,198  |     |         |   | 5,708  |       |  |           | 8,982  |  |  |         | 4,239  |  |  |   | 1,269   | 
|Unconditional purchase obligations(2)            |  |                        | 8,294   |     |         |   | 8,294  |       |  |           |       |  |  |         |       |  |  |   |        | 
|                                                 |  |                        |         |     |         |   |        |       |  |           |        |  |  |         |       
|Total contractual cash obligations               |  | $                      | 212,622 |     |         | $ | 21,861 |       |  | $         | 30,688 |  |  | $       | 26,835 |  |  | $ | 133,238 | 
|                                                 |  |                        |         |     |         |   |        |       |  |           |        |  |  |         |       






|    |                                                                                 
|--- | --------------------------------------------------------------------------------
|(1) | Computed based on scheduled maturities and current effective
    interest rates.
|   
|(2) | Represents forward grain purchase contracts.                                    





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Most of our hog production is raised in company-owned
    facilities. Some of the production, however, is raised under
    farrowing, nursery, or finishing contracts with individual
    farmers. In these relationships, we typically own the livestock
    and provide the necessary feed, genetics, and veterinary
    supplies, while the contract producer provides the land,
    facilities, labor, utilities, and other costs of production.
    These contracts vary from terms of less than one year to up to
    twelve years. Payments under these agreements are included in
    cost of goods sold. These payments represented approximately 12%
    of our hog production segments cost of goods sold for
    fiscal year 2006. All of these contracts are cancelable by us if
    the producer fails to perform in accordance with our performance
    standards.
|
| | At our North Carolina pork processing facility, we have
    contracts with producers to provide us with hogs for the amount
    we do not produce at our owned or contracted hog production
    facilities in order to meet our processing needs. These
    contracts vary in length but are all based on a market price and
    grade and yield formula. Over the next 5 years we are
    contracted to purchase approximately 780,000 hogs under these
    contracts.                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | Under the 2004 Missouri Consent Decree with the Attorney General
    and the amended 2002 Federal Consent Decree with the United
    States Environmental Protection Agency (EPA) we are
    committed to install improved wastewater, air and odor
    technology at all of our finisher farms in northern Missouri by
    2010. Included in this commitment is a fertilizer plant in
    northern Missouri that converts solid waste into useable
    commercial grade fertilizer. We currently estimate, based on
    known technology, that we may spend approximately
    $33 million to satisfy this commitment, of which
    $12.3 million had been spent as of March 25, 2006.                                                                                                                                                                                          

Critical Accounting Policies




45



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##### Table of Contents





Inventory valuation of livestock


Estimates


Derivative instruments


Property, plant, equipment and breeding stock


Impairment of long-lived assets


New Accounting Pronouncements






46



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##### Table of Contents







Forward-Looking Statements


10-K




| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the impact of cyclicality in the pork industry;                                                                                                                      
|
| |  | the effect on results of operation of an inability to control
    feed costs;                                                                                        
|
| |  | the impact of changes in consumer preferences;                                                                                                                       
|
| |  | the consolidation of our retail, further processor and
    foodservice customers;                                                                                    
|
| |  | our history of operations include net losses in some periods;                                                                                                        
|
| |  | our hedging activities;                                                                                                                                              
|
| |  | competition in the hog production and pork processing industries;                                                                                                    
|
| |  | our ability to manage relationships with large customers that
    comprise a significant percentage of our total revenues;                                           
|
| |  | the effect of economic, political and regulatory risks
    associated with international operations;                                                                 
|
| |  | our ability to maintain herd productivity and feed efficiency;                                                                                                       
|
| |  | the outbreak of disease in our herds;                                                                                                                                
|
| |  | the impact of environmental laws and other legal requirements,
    including compliance costs and adverse outcomes of pending,
    threatened or future litigation;  
|
| |  | the effect of North Carolinas moratorium on expansion of
    hog operations;                                                                                        
|
| |  | the occurrence of unanticipated natural disasters;                                                                                                                   
|
| |  | the impact of product liability claims and product recalls;                                                                                                          
|
| |  | the enactment of laws prohibiting meat packers from owning
    livestock;                                                                                            
|
| |  | the impact of corporate farming laws and foreign ownership
    restrictions, including changes to current laws or a finding of
    non compliance with existing laws;

47



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##### Table of Contents





| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | our ability to cope with increased water, energy and freight
    costs or their unavailability;
|
| |  | our level of indebtedness;                                                                     
|
| |  | our ability to maintain favorable labor relations with and
    retain our employees;           
|
| |  | the loss of key members of our management;                                                     
|
| |  | the impact of future acquisitions on our business and financial
    condition; and             
|
| |  | the ability of our majority shareholder to direct our business
    and affairs.                








|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk





wtd.-avg.


|                          |  |          |         |  |         |  |         |            |  |   |       |  |  |   |       |  
|------------------------- |  | -------- | ------- |  | ------- |  | ------- | ---------- |  | - | ----- |  |  | - | ----- | -
|                          |  | Contract |         |  | Volumes |  |         | Wtd.-Avg.  |  |   | Fair  | 
|                          |  | Quantity |         |  | Units   |  |         | Price/Unit |  |   | Value | 
|                          |  |          |         |  |         |  |         |            |  |   |       | 
|Futures Contracts         |  |          |         |  |         |  |         |            |  |   |       |  |  |   |       |  
|Corn sales  short        |  |          | 325     |  |         |  | bushels |            |  | $ | 2.51  |  |  | $ | (1    | )
|Lean hog sales  short    |  |          | 161,000 |  |         |  | pounds  |            |  |   | 0.70  |  |  |   | 3,279 |  
|Lean hog purchases  long |  |          | 840     |  |         |  | pounds  |            |  |   | 0.68  |  |  |   | (15   | )
|Wheat sales  short       |  |          | 75      |  |         |  | bushels |            |  |   | 3.99  |  |  |   | (5    | )

|                  |  |          |       |  |         |  |         |            |  |   |          |  |  |   |       | 
|----------------- |  | -------- | ----- |  | ------- |  | ------- | ---------- |  | - | -------- |  |  | - | ----- | 
|                  |  | Contract |       |  | Volumes |  |         | Wtd.-Avg.  |  |   | Notional | 
|                  |  | Quantity |       |  | Units   |  |         | Price/Unit |  |   | Amount   | 
|                  |  |          |       |  |         |  |         |            |  |   |          | 
|Forward Contracts |  |          |       |  |         |  |         |            |  |   |          |  |  |   |       | 
|Corn              |  |          | 3,182 |  |         |  | bushels |            |  | $ | 2.25     |  |  | $ | 7,156 | 
|Meal              |  |          | 6     |  |         |  | tons    |            |  |   | 175.47   |  |  |   | 1,138 | 

48



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##### Table of Contents





1 4







|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data










|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures



Managements Report on Internal Control Over Financial
Reporting


13a-15(f).




10-K,


49



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








Internal
Control  Integrated Framework








Internal
Control  Integrated Framework Internal Control  Integrated
Framework






| |                      
| | ---------------------
| | DELOITTE & TOUCHE LLP





50



---



##### Table of Contents








|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                               
|-------- | ----------------------------------------------
|Item 10. | Directors and Executive Officers of Registrant

S-K,


Code of Ethics


http://www.psfarms.com







|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services






PART IV







|         |                                            
|-------- | -------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules.

Financial Statements and Schedules




| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | (1) The following financial statements are filed as a part
    of this Report on
    Form 10-K:



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | Report of Independent Registered Public Accounting Firm                                                                                                  
|
| | Consolidated Balance Sheets as of March 25, 2006 and
    March 26, 2005                                                                                  
|
| | Consolidated Statements of Operations and Comprehensive (Loss)
    Income for the three years ended March 25, 2006,
    March 26, 2005 and March 27, 2004
|
| | Consolidated Statements of Shareholders Equity for the
    three years ended March 25, 2006, March 26, 2005 and
    March 27, 2004                      
|
| | Consolidated Statements of Cash Flows for the three years ended
    March 25, 2006, March 26, 2005 and March 27, 2004                                    



| |                                               
| | ----------------------------------------------
| | Notes to the Consolidated Financial Statements

51



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##### Table of Contents





| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | (2) The following financial statement schedule is filed as
    a part of this Report on
    Form 10-K:

Schedule II


Valuation and Qualifying Accounts


|                                             |      |                        |   |       |            |  |   |       |  |           |   |   |                |  |   |      |  |  |   |         | 
|-------------------------------------------- | ---- | ---------------------- | - | ----- | ---------- |  | - | ----- |  | --------- | - | - | -------------- |  | - | ---- |  |  | - | ------- | 
|                                             |      | Balance at             |   |       |            |  |   |       |  |           |  
|                                             |      | Beginning of           |   |       | Charged to |  |   |       |  | Less:     |   |   | Balance at End | 
|Description                                  |      | Year                   |   |       | Earnings   |  |   | Other |  | Deduction |   |   | of Year        | 
|                                             |      |                        |   |       |            |  |   |       |  |           |   |   |                | 
|                                             |      | (Dollars in thousands) |  
|Allowance for Losses on Accounts Receivable: |      |                        |   |       |            |  |   |       |  |           |   |   |                |  |   |      |  |  |   |        
|                                             | 2006 |                        | $ | 832.3 |            |  | $ | 193.3 |  |           | $ |  |                |  | $ | 7.9  |  |  | $ | 1,017.7 | 
|                                             | 2005 |                        |   | 675.6 |            |  |   | 189.3 |  |           |   |  |                |  |   | 32.6 |  |  |   | 832.3   | 
|                                             | 2004 |                        |   | 540.3 |            |  |   | 146.2 |  |           |   |  |                |  |   | 10.9 |  |  |   | 675.6   | 

Exhibits




| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | The following documents are filed as a part of this Report on
    Form 10-K or
    incorporated herein by reference as indicated below:

|        |   |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | - | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |                       
|Number  |   | Description of Exhibit
|        |   |                       
|        | 2 | .1                     |  | Articles of Merger of PSF Acquisition Corp. into The Lundy
    Packing Company, filed August 25, 2000 (incorporated by
    reference to Exhibit 2.1 of the Registrants
    Registration Statement on Form S-4 filed on June 29,
    2001, Commission File No. 333-64180).                                                                                                                                                                            
|       
|        | 2 | .2                     |  | Certificate of Ownership and Merger Merging PSF Group Holdings,
    Inc. into Premium Standard Farms, Inc., filed May 2, 2005
    (incorporated by reference to Exhibit 2.1 of the
    Registrants Current Report on Form 8-K dated
    May 2, 2005, Commission File No. 333-64180).                                                                                                                                                                 
|       
|        | 2 | .3                     |  | Certificate of Ownership and Merger Merging Premium Standard
    Farms of North Carolina, Inc. into Premium Standard Farms, Inc.,
    filed May 9, 2005 (incorporated by reference to
    Exhibit 2.4 of the Registrants Annual Report on
    Form 10-K for the year ended March 26, 2005,
    Commission File No. 333-64180).                                                                                                                       
|       
|        | 3 | .1                     |  | Amended and Restated Certificate of Incorporation (incorporated
    by reference to Exhibit 3.1 of the Registrants
    Current Report on Form 8-K dated June 13, 2005,
    Commission File No. 333-64180).                                                                                                                                                                                                                                           
|       
|        | 3 | .2                     |  | Amended and Restated By-laws (incorporated by reference to
    Exhibit 3.2 of the Registrants Current Report on
    Form 8-K dated June 13, 2005, Commission File
    No. 333-64180).                                                                                                                                                                                                                                                                
|       
|        | 4 | .1                     |  | Indenture, dated as of June 7, 2001, among Premium Standard
    Farms, Inc., PSF Group Holdings, Inc., The Lundy Packing
    Company, Lundy International, Inc., Premium Standard Farms of
    North Carolina, Inc., and Wilmington Trust Company (incorporated
    by reference to Exhibit 4.1(a) of the Registrants
    Registration Statement on Form S-4 filed on June 29,
    2001, Commission File No. 333-64180).                             
|       
|        | 4 | .2                     |  | Specimen certificate of
    91/4% Senior Notes due 2011 (incorporated by reference
    to Exhibit 4.1(b) of the Registrants Registration
    Statement on Form S-4 filed on June 29, 2001,
    Commission File No. 333-64180).                                                                                                                                                                                                                       
|       
|        | 4 | .3                     |  | First Supplemental Indenture dated as of March 31, 2002
    (incorporated by reference to Exhibit 4.1(c) of the
    Registrants Annual Report on Form 10-K for the year
    ended March 30, 2002, Commission File No. 333-64180).                                                                                                                                                                                                                    
|       
|        | 4 | .4                     |  | Amended and Restated Registration Rights Agreement (incorporated
    by reference to Exhibit 4.4 of the Registrants
    Registration Statement on Form S-1, Commission File
    No. 333-123260).                                                                                                                                                                                                                                                     
|       
|        | 4 | .5                     |  | Second Amended and Restated Loan and Security Agreement, dated
    June 24, 2005, by and between Premium Standard Farms, Inc.,
    Lundy International, Inc., LPC Transport, Inc. and
    U.S. Bank National Association, as a Lender and as the
    Agent, and the Lenders parties thereto (incorporated by
    reference to Exhibit 10.1 of the Registrants Current
    Report on Form 8-K dated June 24, 2005, Commission
    File No. 000-51347).

52



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##### Table of Contents



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | -- | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|       
|        | 4  | .6                     |  | Warrant Agreement between PSF Holdings, L.L.C. and Fleet
    National Bank, dated September 17, 1996 (incorporated by
    reference to Exhibit 4.1 of PSF Holdings, L.L.C.s
    Registration Statement on Form S-1 filed on April 30,
    1997, Commission File No. 333-26239).                                                                                                                                                        
|       
|        | 4  | .7                     |  | Amendment to Warrant Agreement, dated as of May 6, 2005, by
    and between Premium Standard Farms, Inc. as successor in
    interest to PSF Group Holdings, Inc., as successor in interest
    to PSF Holdings, L.L.C., Morgan Stanley & Co.
    Incorporated and Metalmark Capital LLC (incorporated by
    reference to Exhibit 4.10 of the Registrants
    Registration Statement on Form S-1, Commission File
    No. 333-123260).
|       
|        | 4  | .8                     |  | Specimen Stock Certificate (incorporated by reference to
    Exhibit 4.11 of the Registrants Registration
    Statement on Form S-1, Commission File No. 333-123260).                                                                                                                                                                                                                                                                  
|       
|        | 10 | .1*                    |  | PSF Group Holdings, Inc. 1999 Equity Incentive Plan, dated
    December 1, 1999 (incorporated by reference to
    Exhibit 10.1 of the Registrants Registration
    Statement on Form S-4 filed on June 29, 2001,
    Commission File No. 333-64180).                                                                                                                                                                                   
|       
|        | 10 | .2*                    |  | First Amendment to the PSF Group Holdings, Inc. 1999 Equity
    Incentive Plan, dated November 11, 2005 (incorporated by
    reference to Exhibit 10.1 of the Registrants Current
    Report on Form 8-K dated November 11, 2005, Commission
    File No. 000-51347).                                                                                                                                                                  
|       
|        | 10 | .3*                    |  | Premium Standard Farms, Inc. Long-Term Incentive Plan, effective
    April 1, 2003 (incorporated by reference to
    Exhibit 10.2 of the Registrants Annual Report on
    Form 10-K for the year ended March 27, 2004,
    Commission File No. 333-64180).                                                                                                                                                                             
|       
|        | 10 | .4*                    |  | Premium Standard Farms, Inc. Long-Term Incentive Plan, effective
    April 1, 2004 (incorporated by reference to
    Exhibit 10.3 of the Registrants Registration
    Statement on Form S-1 filed on March 11, 2005,
    Commission File No. 333-123260).                                                                                                                                                                              
|       
|        | 10 | .6*                    |  | Premium Standard Farms, Inc. Executive Level Severance
    Plan, effective February 1, 2003 (incorporated by reference
    to Exhibit 10.4 of the Registrants Registration
    Statement on Form S-1 filed on March 11, 2005,
    Commission File No. 333-123260).                                                                                                                                                                     
|       
|        | 10 | .7*                    |  | Premium Standard Farms, Inc. Vice President Level Severance
    Plan, effective February 1, 2003 (incorporated by reference
    to Exhibit 10.5 of the Registrants Registration
    Statement on Form S-1 filed on March 11, 2005,
    Commission File No. 333-123260).                                                                                                                                                                
|       
|        | 10 | .8*                    |  | Premium Standard Farms, Inc. Special Executive Retirement Plan,
    dated October 1, 2004 (incorporated by reference to
    Exhibit 10.6 of the Registrants Registration
    Statement on Form S-1 filed on March 11, 2005,
    Commission File No. 333-123260).                                                                                                                                                                       
|       
|        | 10 | .9*                    |  | Premium Standard Farms, Inc. Deferred Compensation Plan, dated
    December 29, 2000 (incorporated by reference to
    Exhibit 10.6(a) of the Registrants Registration
    Statement on Form S-4 filed on June 29, 2001,
    Commission File No. 333-64180).                                                                                                                                                                           
|       
|        | 10 | .10*                   |  | Amendment No. 1 to the Deferred Compensation Plan, dated
    June 8, 2001 (incorporated by reference to
    Exhibit 10.6(b) of the Registrants Registration
    Statement on Form S-4 filed on June 29, 2001,
    Commission File No. 333-64180).                                                                                                                                                                                      
|       
|        | 10 | .11*                   |  | Premium Standard Farms, Inc. 2005 Long Term Incentive Plan
    (incorporated by reference to Exhibit 10.9 of the
    Registrants Registration Statement on Form S-1,
    Commission File No. 333-123260).                                                                                                                                                                                                                              
|       
|        | 10 | .12*                   |  | Form of Restricted Stock Award Agreement under the Premium
    Standard Farms, Inc. 2005 Long Term Incentive Plan (incorporated
    by reference to Exhibit 10.1 of the Registrants
    Quarterly Report on Form 10-Q for the quarter ended
    December 24, 2005, Commission File No. 000-51347).                                                                                                                                     
|       
|        | 10 | .13*                   |  | Form of Nonqualified Stock Option Agreement under the Premium
    Standard Farms, Inc. 2005 Long Term Incentive Plan (incorporated
    by reference to Exhibit 10.2 of the Registrants
    Quarterly Report on Form 10-Q for the quarter ended
    December 24, 2005, Commission File No. 000-51347).                                                                                                                                  
|       
|        | 10 | .14*                   |  | Employment Agreement between Premium Standard Farms, Inc. and
    John M. Meyer (incorporated by reference to Exhibit 10.10
    of the Registrants Registration Statement on
    Form S-1, Commission File No. 333-123260).                                                                                                                                                                                                            

53



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|        |    |                        |  |                                                                                                                                                                                                                                                                                                             
|------- | -- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|Number  |    | Description of Exhibit
|        |    |                       
|       
|        | 10 | .15*                   |  | Employment Agreement between Premium Standard Farms, Inc. and
    Robert W. Manly (incorporated by reference to Exhibit 10.11
    of the Registrants Registration Statement on
    Form S-1, Commission File No. 333-123260).                                                                              
|       
|        | 10 | .16*                   |  | Employment Agreement between Premium Standard Farms, Inc. and
    Stephen A. Lightstone (incorporated by reference to
    Exhibit 10.12 of the Registrants Registration
    Statement on Form S-1, Commission File No. 333-123260).                                                                        
|       
|        | 10 | .17                    |  | Services Agreement, dated October, 1998, by and between Premium
    Standard Farms, Inc. and Continental Grain Company (incorporated
    by reference to Exhibit 10.8 of the Registrants
    Registration Statement on Form S-4 filed on June 29,
    2001, Commission File No. 333-64180).                
|       
|        | 10 | .19                    |  | Market Hog Contract Grower Agreement, dated May 3, 1998, by
    and between Continental Grain Company and CGC Asset Acquisition
    Corp. (incorporated by reference to Exhibit 10.11 of the
    Registrants Registration Statement on Form S-4 filed
    on June 29, 2001, Commission File No. 333-64180).
|       
|        | 10 | .20                    |  | State of Missouri Consent Decree with Premium Standard Farms,
    Inc. and ContiGroup Companies, Inc. (incorporated by reference
    to Exhibit 10.10 of the Registrants Annual Report on
    Form 10-K for the year ended March 27, 2004,
    Commission File No. 333-64180).                             
|       
|        | 10 | .21*                   |  | Employment Severance Agreement, dated as of November 17,
    2003, between Premium Standard Farms and Richard Morris
    (incorporated by reference to Exhibit 10.12 of the
    Registrants Registration Statement on Form S-1 filed
    on March 11, 2005, Commission File No. 333-123260).               
|       
|        | 10 | .22*                   |  | Letter Agreement dated November 7, 2003, between Premium
    Standard Farms, Inc. and Richard Morris ((incorporated by
    reference to Exhibit 10.13 of the Registrants
    Registration Statement on Form S-1 filed on March 11,
    2005, Commission File No. 333-123260).                              
|       
|        | 14 | .1                     |  | Premium Standard Farms Code of Professional Ethics for employees
    of Premium Standard Farms (incorporated by reference to
    Exhibit 14.1 of the Registrants Annual Report on
    Form 10-K for the year ended March 26, 2005,
    Commission File No. 333-64180).                                     
|       
|        | 21 | .1                     |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                             
|       
|        | 23 | .1                     |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                                                            
|       
|        | 24 | .1                     |  | Powers of Attorney (see signature page).                                                                                                                                                                                                                                                                    
|       
|        | 31 | .1                     |  | Certification of John M. Meyer, Chief Executive Officer,
    pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                                                                                          
|       
|        | 31 | .2                     |  | Certification of Stephen A. Lightstone, Chief Financial Officer,
    pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                                                                                  
|       
|        | 32 | .1                     |  | Certification of John M. Meyer, Chief Executive Officer,
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                  
|       
|        | 32 | .2                     |  | Certification of Stephen A. Lightstone, Chief Financial Officer,
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                          






|  |                                                                  
|- | -----------------------------------------------------------------
|* | Indicates management contract or compensatory plan or arrangement

54



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##### Table of Contents






SIGNATURES






| |                              
| | -----------------------------
| | PREMIUM STANDARD FARMS, INC. 
|
| | /s/ John M. Meyer            
| |                              
| | John M. Meyer,               
| | Chief Executive Officer      
| | (Principal Executive Officer)



10-K attorneys-in attorneys-in




|                                                   |  |                                                                        |  |              |  | 
|-------------------------------------------------- |  | ---------------------------------------------------------------------- |  | ------------ |  | 
|Signature                                          |  | Title                                                                  |  | Date        
|                                                   |  |                                                                        |  |             
|                                                  
|/s/ John M. MeyerJohn
    M. Meyer                 |  | Chief Executive Officer and Director (Principal Executive
    Officer) |  | May 31, 2006
|                                                  
|/s/ Stephen A. LightstoneStephen
    A. Lightstone |  | Chief Financial Officer
    (Principal Financial Officer)              |  | May 31, 2006
|                                                  
|/s/ Michael J. ZimmermanMichael
    J. Zimmerman   |  | Director                                                               |  | May 31, 2006
|                                                  
|/s/ Ronald E. JusticeRonald
    E. Justice         |  | Director                                                               |  | May 31, 2006
|                                                  
|/s/ Robert S. KoprivaRobert
    S. Kopriva         |  | Director                                                               |  | May 31, 2006
|                                                  
|/s/ Vart K. AdjemianVart
    K. Adjemian           |  | Director                                                               |  | May 31, 2006

55



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##### Table of Contents



|                                                 |  |          |  |              |  | 
|------------------------------------------------ |  | -------- |  | ------------ |  | 
|Signature                                        |  | Title    |  | Date        
|                                                 |  |          |  |             
|                                                
|/s/ Maurice L. McGillMaurice
    L. McGill       |  | Director |  | May 31, 2006
|                                                
|/s/ Paul J. FribourgPaul
    J. Fribourg         |  | Director |  | May 31, 2006
|                                                
|/s/ William R. PattersonWilliam
    R. Patterson |  | Director |  | May 31, 2006

56



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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Premium Standard Farms, Inc. and Subsidiaries


|                                                                                                                                                              |  |      |     | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                              |  | Page |    
|                                                                                                                                                              |  |      |    
|Report of Independent Registered Public
    Accounting Firm                                                                                                   |  |      | F-2 | 
|Consolidated Balance Sheets as of
    March 25, 2006 and March 26, 2005                                                                                       |  |      | F-3 | 
|Consolidated Statements of Operations and
    Comprehensive Income (Loss) for the three years ended
    March 25, 2006, March 26, 2005 and March 27,
    2004 |  |      | F-4 | 
|Consolidated Statements of
    Shareholders Equity for the three years ended
    March 25, 2006, March 26, 2005 and March 27,
    2004                       |  |      | F-5 | 
|Consolidated Statements of Cash Flows for
    the three years ended March 25, 2006, March 26, 2005
    and March 27, 2004                                     |  |      | F-6 | 
|Notes to the Consolidated Financial
    Statements                                                                                                            |  |      | F-7 | 

F-1



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##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM














Internal Control 
Integrated Framework




| |                      
| | ---------------------
| | DELOITTE & TOUCHE LLP





F-2



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS


|                                               |                                                                                                                              |                                                     |         |         |           |  |         |         |         | 
|---------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ------- | ------- | --------- |  | ------- | ------- | ------- | 
|                                               |                                                                                                                              | March 26,                                           |         |         | March 25, | 
|                                               |                                                                                                                              | 2005                                                |         |         | 2006      | 
|                                               |                                                                                                                              |                                                     |         |         |           | 
|                                               |                                                                                                                              | (In thousands, except                               |        
|                                               |                                                                                                                              | share and per share                                 |        
|                                               |                                                                                                                              | information)                                        |        
|ASSETS                                        
|CURRENT ASSETS:                                |                                                                                                                              |                                                     |         |         |           |  |         |        
|                                               | Cash and cash equivalents                                                                                                    |                                                     | $       | 10,054  |           |  | $       | 25,512  |        
|                                               | Accounts receivable, less allowance of $832 and $1,018 in 2005
    and 2006, respectively                                    |                                                     |         | 33,871  |           |  |         | 28,761  |        
|                                               | Inventories                                                                                                                  |                                                     |         | 165,363 |           |  |         | 167,030 |        
|                                               | Deferred income taxes                                                                                                        |                                                     |         | 8,116   |           |  |         | 8,175   |        
|                                               | Prepaid expenses and other                                                                                                   |                                                     |         | 5,270   |           |  |         | 4,990   |        
|                                               |                                                                                                                              |                                                     |         |         |           | 
|                                               |                                                                                                                              | Total current assets                                |         |         | 222,674   |  |         |         | 234,468 | 
|PROPERTY, PLANT, EQUIPMENT AND BREEDING STOCK: |                                                                                                                              |                                                     |         |         |           |  |         |        
|                                               | Land and improvements                                                                                                        |                                                     |         | 101,469 |           |  |         | 102,501 |        
|                                               | Buildings                                                                                                                    |                                                     |         | 296,569 |           |  |         | 298,292 |        
|                                               | Machinery and equipment                                                                                                      |                                                     |         | 284,554 |           |  |         | 297,970 |        
|                                               | Breeding stock                                                                                                               |                                                     |         | 39,570  |           |  |         | 44,868  |        
|                                               | Construction in progress                                                                                                     |                                                     |         | 12,193  |           |  |         | 10,008  |        
|                                               |                                                                                                                              |                                                     |         |         |           | 
|                                               |                                                                                                                              |                                                     | 734,355 |         |           |  | 753,639 |        
|                                               | Less-Accumulated depreciation                                                                                                |                                                     |         | 307,979 |           |  |         | 348,643 |        
|                                               |                                                                                                                              |                                                     |         |         |           | 
|                                               |                                                                                                                              | Total property, plant, equipment and breeding stock |         |         | 426,376   |  |         |         | 404,996 | 
|GOODWILL                                       |                                                                                                                              |                                                     | 75,998  |         |           |  | 75,998  |        
|OTHER LONG-TERM ASSETS:                        |                                                                                                                              |                                                     |         |         |           |  |         |        
|                                               | Deferred financing costs, net                                                                                                |                                                     |         | 4,542   |           |  |         | 2,137   |        
|                                               | Other                                                                                                                        |                                                     |         | 7,376   |           |  |         | 11,252  |        
|                                               |                                                                                                                              |                                                     |         |         |           | 
|                                               |                                                                                                                              | Total other long-term assets                        |         |         | 11,918    |  |         |         | 13,389  | 
|                                               |                                                                                                                              |                                                     |         |         |           | 
|                                               |                                                                                                                              | Total assets                                        |         | $       | 736,966   |  |         | $       | 728,851 | 
|                                               |                                                                                                                              |                                                     |         |         |           | 
|                                              
|LIABILITIES AND SHAREHOLDERS EQUITY          
|CURRENT LIABILITIES:                           |                                                                                                                              |                                                     |         |         |           |  |         |        
|                                               | Accounts payable                                                                                                             |                                                     | $       | 6,133   |           |  | $       | 9,044   |        
|                                               | Accrued expenses                                                                                                             |                                                     |         | 49,913  |           |  |         | 43,313  |        
|                                               | Dividends payable                                                                                                            |                                                     |         |        |           |  |         | 911     |        
|                                               | Due to related party (including dividends payable of $986 in
    2006)                                                       |                                                     |         | 29      |           |  |         | 1,008   |        
|                                               | Income tax payable                                                                                                           |                                                     |         | 975     |           |  |         | 3,204   |        
|                                               | Accrued interest                                                                                                             |                                                     |         | 4,861   |           |  |         | 997     |        
|                                               | Current maturities of long-term debt and capital leases                                                                      |                                                     |         | 801     |           |  |         | 810     |        
|                                               |                                                                                                                              |                                                     |         |         |           | 
|                                               |                                                                                                                              | Total current liabilities                           |         |         | 62,712    |  |         |         | 59,287  | 
|LONG-TERM LIABILITIES:                         |                                                                                                                              |                                                     |         |         |           |  |         |        
|                                               | Long-term debt and capital leases, less current maturities                                                                   |                                                     |         | 175,287 |           |  |         | 127,542 |        
|                                               | Other long-term liabilities                                                                                                  |                                                     |         | 8,151   |           |  |         | 6,327   |        
|                                               | Deferred income taxes                                                                                                        |                                                     |         | 83,092  |           |  |         | 74,975  |        
|                                               |                                                                                                                              |                                                     |         |         |           | 
|                                               |                                                                                                                              | Total long-term liabilities                         |         |         | 266,530   |  |         |         | 208,844 | 
|                                               |                                                                                                                              |                                                     |         |         |           | 
|                                               |                                                                                                                              | Total liabilities                                   |         |         | 329,242   |  |         |         | 268,131 | 
|COMMITMENTS AND CONTINGENCIES:                 |                                                                                                                              |                                                     |         |         |           |  |         |        
|SHAREHOLDERS EQUITY:                          |                                                                                                                              |                                                     |         |         |           |  |         |        
|                                               | Preferred stock, $.01 par value, 10,000,000 shares
    authorized, no shares outstanding                                     |                                                     |         |        |           |  |         |        |        
|                                               | Common stock, $.01 par value; 100,000,000 shares
    authorized, 30,928,593 and 31,620,039 shares issued and
    outstanding |                                                     |         | 309     |           |  |         | 316     |        
|                                               | Additional paid-in capital                                                                                                   |                                                     |         | 373,401 |           |  |         | 378,083 |        
|                                               | Accumulated other comprehensive income, net of tax                                                                           |                                                     |         |        |           |  |         | 2,748   |        
|                                               | Retained earnings                                                                                                            |                                                     |         | 34,014  |           |  |         | 79,573  |        
|                                               |                                                                                                                              |                                                     |         |         |           | 
|                                               |                                                                                                                              | Total shareholders equity                          |         |         | 407,724   |  |         |         | 460,720 | 
|                                               |                                                                                                                              |                                                     |         |         |           | 
|                                               |                                                                                                                              | Total liabilities and shareholders equity          |         | $       | 736,966   |  |         | $       | 728,851 | 
|                                               |                                                                                                                              |                                                     |         |         |           | 



F-3



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
INCOME (LOSS)


|                                                      |                                                   |                                           |         |            |            |   |         |            |         |   |         |            |         |  
|----------------------------------------------------- | ------------------------------------------------- | ----------------------------------------- | ------- | ---------- | ---------- | - | ------- | ---------- | ------- | - | ------- | ---------- | ------- | -
|                                                      |                                                   | Fiscal Year Ended                         |        
|                                                      |                                                   |                                           |        
|                                                      |                                                   | March, 27,                                |         |            | March, 26, |   |         | March, 25, |        
|                                                      |                                                   | 2004                                      |         |            | 2005       |   |         | 2006       |        
|                                                      |                                                   |                                           |         |            |            |   |         |            |        
|                                                      |                                                   | (In thousands, except share and per share |        
|                                                      |                                                   | information)                              |        
|NET SALES                                             |                                                   | $                                         | 730,737 |            |            | $ | 927,571 |            |         | $ | 919,540 |           
|COST OF GOODS SOLD                                    |                                                   |                                           | 696,751 |            |            |   | 774,512 |            |         |   | 785,724 |           
|                                                      |                                                   |                                           |         |            |            |   |         |            |        
|                                                      |                                                   | Gross profit                              |         |            | 33,986     |   |         |            | 153,059 |   |         |            | 133,816 |  
|OPERATING EXPENSES:                                   |                                                   |                                           |         |            |            |   |         |            |         |   |         |           
|                                                      | Selling, general and administrative expenses      |                                           |         | 17,397     |            |   |         | 26,068     |         |   |         | 26,674     |        
|                                                      | Loss on early extinguishment of debt              |                                           |         |           |            |   |         |           |         |   |         | 21,707     |        
|                                                      | Other income, net                                 |                                           |         | (597       | )          |   |         | (826       | )       |   |         | (839       | )      
|                                                      |                                                   |                                           |         |            |            |   |         |            |        
|                                                      |                                                   | Total operating expenses                  |         |            | 16,800     |   |         |            | 25,242  |   |         |            | 47,542  |  
|                                                      |                                                   |                                           |         |            |            |   |         |            |        
|                                                      |                                                   | Operating income                          |         |            | 17,186     |   |         |            | 127,817 |   |         |            | 86,274  |  
|INTEREST (EXPENSE) INCOME:                            |                                                   |                                           |         |            |            |   |         |            |         |   |         |           
|                                                      | Interest expense                                  |                                           |         | (24,822    | )          |   |         | (20,314    | )       |   |         | (9,421     | )      
|                                                      | Interest income                                   |                                           |         | 122        |            |   |         | 159        |         |   |         | 521        |        
|                                                      |                                                   |                                           |         |            |            |   |         |            |        
|                                                      |                                                   | Interest expense, net                     |         |            | (24,700    | ) |         |            | (20,155 | ) |         |            | (8,900  | )
|                                                      |                                                   |                                           |         |            |            |   |         |            |        
|                                                      |                                                   | Income (loss) before income taxes         |         |            | (7,514     | ) |         |            | 107,662 |   |         |            | 77,374  |  
|INCOME TAX (EXPENSE) BENEFIT                          |                                                   |                                           |         |            |            |   |         |            |         |   |         |           
|                                                      | Current tax provision                             |                                           |         | (212       | )          |   |         | (24,845    | )       |   |         | (34,138    | )      
|                                                      | Deferred tax provision                            |                                           |         | 3,135      |            |   |         | (15,159    | )       |   |         | 9,874      |        
|                                                      |                                                   |                                           |         |            |            |   |         |            |        
|                                                      |                                                   | Income tax (expense) benefit              |         |            | 2,923      |   |         |            | (40,004 | ) |         |            | (24,264 | )
|                                                      |                                                   |                                           |         |            |            |   |         |            |        
|NET INCOME (LOSS)                                     |                                                   | $                                         | (4,591  | )          |            | $ | 67,658  |            |         | $ | 53,110  |           
|                                                      |                                                   |                                           |         |            |            |   |         |            |        
|                                                      | Unrealized gain on interest rate swap, net of tax |                                           |         | 293        |            |   |         | 54         |         |   |         | 2,748      |        
|                                                      |                                                   |                                           |         |            |            |   |         |            |        
|COMPREHENSIVE INCOME (LOSS)                           |                                                   | $                                         | (4,298  | )          |            | $ | 67,712  |            |         | $ | 55,858  |           
|                                                      |                                                   |                                           |         |            |            |   |         |            |        
|EARNINGS (LOSS) PER SHARE:                            |                                                   |                                           |         |            |            |   |         |            |         |   |         |           
|                                                      | Basic                                             |                                           | $       | (0.15      | )          |   | $       | 2.19       |         |   | $       | 1.71       |        
|                                                      | Diluted                                           |                                           | $       | (0.15      | )          |   | $       | 2.18       |         |   | $       | 1.70       |        
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: |                                                   |                                           |         |            |            |   |         |            |         |   |         |           
|                                                      | Basic                                             |                                           |         | 30,928,593 |            |   |         | 30,928,593 |         |   |         | 31,038,044 |        
|                                                      | Diluted                                           |                                           |         | 30,928,593 |            |   |         | 31,088,489 |         |   |         | 31,324,679 |        
|DIVIDENDS DECLARED PER SHARE                          |                                                   | $                                         |        |            |            | $ |        |            |         | $ | 0.24    |           



F-4



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY


|                        |                                                     |                                          |     |            |         |             |               |        |   |          |           |       |  |       |         |        |   |   |         |        |  
|----------------------- | --------------------------------------------------- | ---------------------------------------- | --- | ---------- | ------- | ----------- | ------------- | ------ | - | -------- | --------- | ----- |  | ----- | ------- | ------ | - | - | ------- | ------ | -
|                        |                                                     |                                          |     |            |         | Accumulated |               |        |   |          |          
|                        |                                                     |                                          |     |            |         | Other       |               |        |   |          |          
|                        |                                                     |                                          |     | Additional |         |             | Comprehensive |        |   | Retained |           |       | 
|                        |                                                     | Common                                   |     |            | Paid-In |             |               | Income |   |          | Earnings  |       |  |      
|                        |                                                     | Stock                                    |     |            | Capital |             |               | (Loss) |   |          | (Deficit) |       |  | Total |        
|                        |                                                     |                                          |     |            |         |             |               |        |   |          |           |       |  |       |        
|                        |                                                     | (In thousands, except share information) |    
|BALANCE, March 29, 2003 |                                                     | $                                        | 309 |            |         | $           | 373,386       |        |   | $        | (347      | )     |  | $     | (29,053 | )      |   | $ | 344,295 |       
|                        | Net loss                                            |                                          |     |           |         |             |               |       |   |          |           |      |  |       |         | (4,591 | ) |   |         | (4,591 | )
|                        | Unrealized gain on interest rate swap, net of tax   |                                          |     |           |         |             |               |       |   |          |           | 293   |  |       |         |       |   |   |         | 293    |  
|                        | Other                                               |                                          |     |           |         |             |               | 15     |   |          |           |      |  |       |         |       |   |   |         | 15     |  
|                        |                                                     |                                          |     |            |         |             |               |        |   |          |           |       |  |       |        
|BALANCE, March 27, 2004 |                                                     | $                                        | 309 |            |         | $           | 373,401       |        |   | $        | (54       | )     |  | $     | (33,644 | )      |   | $ | 340,012 |       
|                        | Net income                                          |                                          |     |           |         |             |               |       |   |          |           |      |  |       |         | 67,658 |   |   |         | 67,658 |  
|                        | Unrealized gain on interest rate swap, net of tax   |                                          |     |           |         |             |               |       |   |          |           | 54    |  |       |         |       |   |   |         | 54     |  
|                        |                                                     |                                          |     |            |         |             |               |        |   |          |           |       |  |       |        
|BALANCE, March 26, 2005 |                                                     | $                                        | 309 |            |         | $           | 373,401       |        |   | $        |          |       |  | $     | 34,014  |        |   | $ | 407,724 |       
|                        | Net income                                          |                                          |     |           |         |             |               |       |   |          |           |      |  |       |         | 53,110 |   |   |         | 53,110 |  
|                        | Common stock issued                                 |                                          |     | 3          |         |             |               | (3     | ) |          |           |      |  |       |         |       |   |   |         |       |  
|                        | Dividends declared on common stock, $0.24 per share |                                          |     |           |         |             |               |       |   |          |           |      |  |       |         | (7,551 | ) |   |         | (7,551 | )
|                        | Conversion of incentive plan to restricted stock    |                                          |     | 4          |         |             |               | 1,824  |   |          |           |      |  |       |         |       |   |   |         | 1,828  |  
|                        | Stock-based compensation expense                    |                                          |     |           |         |             |               | 1,171  |   |          |           |      |  |       |         |       |   |   |         | 1,171  |  
|                        | Stock option income tax benefits                    |                                          |     |           |         |             |               | 1,690  |   |          |           |      |  |       |         |       |   |   |         | 1,690  |  
|                        | Unrealized gain on interest rate swap, net of tax   |                                          |     |           |         |             |               |       |   |          |           | 2,748 |  |       |         |       |   |   |         | 2,748  |  
|                        |                                                     |                                          |     |            |         |             |               |        |   |          |           |       |  |       |        
|BALANCE, March 25, 2006 |                                                     | $                                        | 316 |            |         | $           | 378,083       |        |   | $        | 2,748     |       |  | $     | 79,573  |        |   | $ | 460,720 |       
|                        |                                                     |                                          |     |            |         |             |               |        |   |          |           |       |  |       |        



F-5



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOW


|                                               |                                                                                              |                                                                                               |                                                          |                                           |           |        |         |           |        |        |          |          |        |        |         |  
|---------------------------------------------- | -------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ----------------------------------------- | --------- | ------ | ------- | --------- | ------ | ------ | -------- | -------- | ------ | ------ | ------- | -
|                                               |                                                                                              | March 27,                                                                                     |                                                          |                                           | March 26, |        |         | March 25, |       
|                                               |                                                                                              | 2004                                                                                          |                                                          |                                           | 2005      |        |         | 2006      |       
|                                               |                                                                                              |                                                                                               |                                                          |                                           |           |        |         |           |       
|                                               |                                                                                              | (In thousands)                                                                                |                                                         
|OPERATING ACTIVITIES:                          |                                                                                              |                                                                                               |                                                          |                                           |           |        |         |           |        |        |          |         
|                                               | Net income (loss)                                                                            |                                                                                               | $                                                        | (4,591                                    | )         |        | $       | 67,658    |        |        | $        | 53,110   |       
|                                               | Adjustments to reconcile net income (loss) to net cash provided
    by operating activities- |                                                                                               |                                                          |                                           |           |        |         |           |        |        |          |          |       
|                                               |                                                                                              | Depreciation and amortization                                                                 |                                                          |                                           | 61,306    |        |         |           | 60,645 |        |          |          | 60,925 |       
|                                               |                                                                                              | Stock-based compensation                                                                      |                                                          |                                           |          |        |         |           |       |        |          |          | 1,171  |       
|                                               |                                                                                              | Amortization of deferred financing costs                                                      |                                                          |                                           | 1,752     |        |         |           | 1,042  |        |          |          | 484    |       
|                                               |                                                                                              | Premium on early extinguishment of debt                                                       |                                                          |                                           |          |        |         |           |       |        |          |          | 17,762 |       
|                                               |                                                                                              | Write-off of deferred financing costs                                                         |                                                          |                                           |          |        |         |           |       |        |          |          | 3,945  |       
|                                               |                                                                                              | Deferred income taxes                                                                         |                                                          |                                           | (2,948    | )      |         |           | 15,194 |        |          |          | (9,874 | )     
|                                               |                                                                                              | Excess tax benefits from share-based payment arrangements                                     |                                                          |                                           |          |        |         |           |       |        |          |          | (1,690 | )     
|                                               |                                                                                              | Net gain on sale of property, plant, equipment and breeding stock                             |                                                          |                                           | (4,651    | )      |         |           | (8,640 | )      |          |          | (7,011 | )     
|                                               |                                                                                              | Changes in operating assets and liabilities, net-Accounts
    receivable                      |                                                          |                                           | (6,548    | )      |         |           | (5,415 | )      |          |          | 5,110  |       
|                                               |                                                                                              |                                                                                               | Inventories                                              |                                           |           | (9,417 | )       |           |        | 2,455  |          |          |        | (1,667 | )      
|                                               |                                                                                              |                                                                                               | Prepaid expenses and other assets                        |                                           |           | 3,320  |         |           |        | (1,077 | )        |          |        | 2,541  |        
|                                               |                                                                                              |                                                                                               | Accounts payable, accrued expenses and other liabilities |                                           |           | 3,448  |         |           |        | 18,072 |          |          |        | (6,846 | )      
|                                               |                                                                                              |                                                                                               |                                                          |                                           |           |        |         |           |       
|                                               |                                                                                              |                                                                                               |                                                          | Net cash provided by operating activities |           |        | 41,671  |           |        |        | 149,934  |          |        |        | 117,960 |  
|                                               |                                                                                              |                                                                                               |                                                          |                                           |           |        |         |           |       
|INVESTING ACTIVITIES:                          |                                                                                              |                                                                                               |                                                          |                                           |           |        |         |           |        |        |          |         
|                                               | Purchases of property, plant, equipment and breeding stock                                   |                                                                                               |                                                          | (41,884                                   | )         |        |         | (44,298   | )      |        |          | (47,559  | )     
|                                               | Proceeds from disposal of property, plant, equipment and
    breeding stock                  |                                                                                               |                                                          | 18,378                                    |           |        |         | 20,730    |        |        |          | 16,542   |       
|                                               |                                                                                              |                                                                                               |                                                          |                                           |           |        |         |           |       
|                                               |                                                                                              |                                                                                               |                                                          | Net cash used in investing activities     |           |        | (23,506 | )         |        |        | (23,568  | )        |        |        | (31,017 | )
|                                               |                                                                                              |                                                                                               |                                                          |                                           |           |        |         |           |       
|FINANCING ACTIVITIES:                          |                                                                                              |                                                                                               |                                                          |                                           |           |        |         |           |        |        |          |         
|                                               | Checks issued against future deposits                                                        |                                                                                               |                                                          | (14                                       | )         |        |         | (5,115    | )      |        |          |         |       
|                                               | Excess tax benefits from share-based payment arrangements                                    |                                                                                               |                                                          |                                          |           |        |         |          |        |        |          | 1,690    |       
|                                               | Dividends paid                                                                               |                                                                                               |                                                          |                                          |           |        |         |          |        |        |          | (5,654   | )     
|                                               | Payments on revolving debt, net                                                              |                                                                                               |                                                          | (4,799                                    | )         |        |         | (102,500  | )      |        |          |         |       
|                                               | Proceeds from term loan                                                                      |                                                                                               |                                                          |                                          |           |        |         |          |        |        |          | 125,000  |       
|                                               | Payments for deferred financing costs                                                        |                                                                                               |                                                          | (50                                       | )         |        |         | (1,272    | )      |        |          | (953     | )     
|                                               | Premium on early extinguishment of debt                                                      |                                                                                               |                                                          |                                          |           |        |         |          |        |        |          | (17,762  | )     
|                                               | Repayments on long-term debt                                                                 |                                                                                               |                                                          | (13,302                                   | )         |        |         | (7,425    | )      |        |          | (173,806 | )     
|                                               |                                                                                              |                                                                                               |                                                          |                                           |           |        |         |           |       
|                                               |                                                                                              |                                                                                               |                                                          | Net cash used in financing activities     |           |        | (18,165 | )         |        |        | (116,312 | )        |        |        | (71,485 | )
|                                               |                                                                                              |                                                                                               |                                                          |                                           |           |        |         |           |       
|                                               |                                                                                              |                                                                                               |                                                          | Net increase in cash and cash equivalents |           |        |        |           |        |        | 10,054   |          |        |        | 15,458  |  
|CASH AND CASH EQUIVALENTS, beginning of period |                                                                                              |                                                                                               |                                                         |                                           |           |        |        |           |        |        | 10,054   |         
|                                               |                                                                                              |                                                                                               |                                                          |                                           |           |        |         |           |       
|CASH AND CASH EQUIVALENTS, end of period       |                                                                                              | $                                                                                             |                                                         |                                           |           | $      | 10,054  |           |        | $      | 25,512   |         
|                                               |                                                                                              |                                                                                               |                                                          |                                           |           |        |         |           |       
|SUPPLEMENTAL DISCLOSURES:                      |                                                                                              |                                                                                               |                                                          |                                           |           |        |         |           |        |        |          |         
|                                               | Interest paid                                                                                |                                                                                               | $                                                        | 23,014                                    |           |        | $       | 20,571    |        |        | $        | 12,979   |       
|                                               | Income tax paid (received)                                                                   |                                                                                               |                                                          | (4,350                                    | )         |        |         | 23,028    |        |        |          | 30,411   |       
|                                               | Noncash operating activities-                                                                |                                                                                               |                                                          |                                           |           |        |         |           |        |        |          |          |       
|                                               |                                                                                              | Fair value of interest rate swap                                                              |                                                          |                                           | 479       |        |         |           | 88     |        |          |          | 4,446  |       
|                                               | Noncash investing activities                                                                 |                                                                                               |                                                          |                                           |           |        |         |           |        |        |          |          |       
|                                               |                                                                                              | Current liabilities related to purchases of property, plant,
    equipment and breeding stock |                                                          |                                           |          |        |         |           |       |        |          |          | 1,519  |       
|                                               | Noncash financing activities-                                                                |                                                                                               |                                                          |                                           |           |        |         |           |        |        |          |          |       
|                                               |                                                                                              | Dividend payable                                                                              |                                                          |                                           |          |        |         |           |       |        |          |          | 1,897  |       
|                                               |                                                                                              | Conversion of incentive plan to restricted stock                                              |                                                          |                                           |          |        |         |           |       |        |          |          | 1,828  |       



F-6



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                                            
|-- | -------------------------------------------
|1. | Summary of significant accounting policies:



| |                     
| | --------------------
| | Nature of operations









| |            
| | -----------
| | Fiscal year

53-week




| |                            
| | ---------------------------
| | Principles of consolidation





| |                 
| | ----------------
| | Use of estimates





| |                    
| | -------------------
| | Revenue recognition





| |                          
| | -------------------------
| | Cash and cash equivalents



F-7



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |            
| | -----------
| | Inventories

first-in,


|                                |  |           |         |  |           |   |         | 
|------------------------------- |  | --------- | ------- |  | --------- | - | ------- | 
|                                |  | March 26, |         |  | March 25, |  
|                                |  | 2005      |         |  | 2006      |  
|                                |  |           |         |  |           |  
|Hogs                            |  | $         | 147,080 |  |           | $ | 147,391 | 
|Processed pork products         |  |           | 13,458  |  |           |   | 13,348  | 
|Packaging and supplies          |  |           | 1,755   |  |           |   | 2,248   | 
|Grain, feed additives and other |  |           | 3,070   |  |           |   | 4,043   | 
|                                |  |           |         |  |           |  
|                                |  | $         | 165,363 |  |           | $ | 167,030 | 
|                                |  |           |         |  |           |  

Property, plant,
equipment and breeding stock




|                        |  |       |          | 
|----------------------- |  | ----- | -------- | 
|                        |  | Years |         
|                        |  |       |         
|Land improvements       |  |       | 15 to 20 | 
|Buildings               |  |       | 20 to 40 | 
|Machinery and equipment |  |       | 3 to 10  | 
|Breeding stock          |  |       | 3        | 











| |                                
| | -------------------------------
| | Impairment of long-lived assets





| |                                   
| | ----------------------------------
| | Market-risk management instruments



F-8



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |                        
| | -----------------------
| | Self-insurance programs





| |             
| | ------------
| | Income taxes





| |                                    
| | -----------------------------------
| | Fair value of financial instruments







| |         
| | --------
| | Goodwill





| |                         
| | ------------------------
| | Deferred financing costs



F-9



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                             
| | ----------------------------
| | Asset retirement obligations





| |                                                  
| | -------------------------------------------------
| | Derivative instruments and hedging
    activities











| |                         
| | ------------------------
| | Stock-based compensation





F-10



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








F-11



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                                             |  |                    |        |   |           |   |        |           |  |   |        | 
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | - | --------- | - | ------ | --------- |  | - | ------ | 
|                                                                                                                                             |  | Fiscal Years Ended |       
|                                                                                                                                             |  |                    |       
|                                                                                                                                             |  | March 27,          |        |   | March 26, |   |        | March 25, | 
|                                                                                                                                             |  | 2004               |        |   | 2005      |   |        | 2006      | 
|                                                                                                                                             |  |                    |        |   |           |   |        |           | 
|Net income (loss), as reported                                                                                                               |  | $                  | (4,591 | ) |           | $ | 67,658 |           |  | $ | 53,110 | 
|Add: Stock-based compensation expense included in net income,
    net of related taxes                                                       |  |                    | 9      |   |           |   |       |           |  |   | 724    | 
|Less: Total stock-based employee compensation expense determined
    under fair value based methods for all awards, net of related
    taxes |  |                    | 9      |   |           |   |       |           |  |   | 807    | 
|                                                                                                                                             |  |                    |        |   |           |   |        |           | 
|Pro forma net income                                                                                                                         |  | $                  | (4,591 | ) |           | $ | 67,658 |           |  | $ | 53,027 | 
|                                                                                                                                             |  |                    |        |   |           |   |        |           | 
|Basic earnings (loss) per share, as reported                                                                                                 |  | $                  | (0.15  | ) |           | $ | 2.19   |           |  | $ | 1.71   | 
|Basic earnings (loss) per share, pro forma                                                                                                   |  | $                  | (0.15  | ) |           | $ | 2.19   |           |  | $ | 1.71   | 
|Diluted earnings (loss) per share, as reported                                                                                               |  | $                  | (0.15  | ) |           | $ | 2.18   |           |  | $ | 1.70   | 
|Diluted earnings (loss) per share, pro forma                                                                                                 |  | $                  | (0.15  | ) |           | $ | 2.18   |           |  | $ | 1.69   | 



| |                   
| | ------------------
| | Earnings per share



in-the


F-12



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                         |  |           |            |   |           |   |            |           |  |   |            | 
|---------------------------------------------------------------------------------------- |  | --------- | ---------- | - | --------- | - | ---------- | --------- |  | - | ---------- | 
|                                                                                         |  | March 27, |            |   | March 26, |   |            | March 25, | 
|                                                                                         |  | 2004      |            |   | 2005      |   |            | 2006      | 
|                                                                                         |  |           |            |   |           |   |            |           | 
|Basic Computation:                                                                       |  |           |            |   |           |   |            |           |  |   |            | 
|Net income (loss)                                                                        |  | $         | (4,591     | ) |           | $ | 67,658     |           |  | $ | 53,110     | 
|Weighted average common shares outstanding                                               |  |           | 30,928,593 |   |           |   | 30,928,593 |           |  |   | 31,038,044 | 
|                                                                                         |  |           |            |   |           |   |            |           | 
|Basic earnings (loss) per share                                                          |  | $         | (0.15      | ) |           | $ | 2.19       |           |  | $ | 1.71       | 
|                                                                                         |  |           |            |   |           |   |            |           | 
|Diluted Computation:                                                                     |  |           |            |   |           |   |            |           |  |   |            | 
|Net income (loss)                                                                        |  | $         | (4,591     | ) |           | $ | 67,658     |           |  | $ | 53,110     | 
|Weighted average common shares outstanding                                               |  |           | 30,928,593 |   |           |   | 30,928,593 |           |  |   | 31,038,044 | 
|Net effect of dilutive stock options and warrants based on the
    treasury stock method |  |           |           |   |           |   | 159,896    |           |  |   | 286,635    | 
|                                                                                         |  |           |            |   |           |   |            |           | 
|Outstanding shares for diluted earnings (loss) per share                                 |  |           | 30,928,593 |   |           |   | 31,088,489 |           |  |   | 31,324,679 | 
|                                                                                         |  |           |            |   |           |   |            |           | 
|Diluted earnings (loss) per share                                                        |  | $         | (0.15      | ) |           | $ | 2.18       |           |  | $ | 1.70       | 
|                                                                                         |  |           |            |   |           |   |            |           | 



| |                              
| | -----------------------------
| | New accounting pronouncements







F-13



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |             
| | ------------
| | Risk factors





|   |                     
|-- | --------------------
|2. | Shareholders equity

145-for-1




| |                
| | ---------------
| | Preferred stock





| |                     
| | --------------------
| | Stockholder warrants





|   |                         
|-- | ------------------------
|3. | Stock-based compensation









F-14



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






three-to








|               |                                       |             |  |          |                |           |   |           |           |  |                 |           |  |  |  |     | 
|-------------- | ------------------------------------- | ----------- |  | -------- | -------------- | --------- | - | --------- | --------- |  | --------------- | --------- |  |  |  | --- | 
|               |                                       |             |  |          |                |           |   | Wtd.-Avg. |          
|               |                                       |             |  |          |                | Aggregate |   |           | Remaining | 
|               |                                       | Options     |  |          | Wtd.-Avg.      |           |   | Intrinsic |           |  | Contractual     |          
|               |                                       | Outstanding |  |          | Exercise Price |           |   | Value     |           |  | Life (In Years) |          
|               |                                       |             |  |          |                |           |   |           |           |  |                 |          
|Stock Options: |                                       |             |  |          |                |           |   |           |           |  |                 |           |  |  |  |    
|1999 Plan      |                                       |             |  |          |                |           |   |           |           |  |                 |           |  |  |  |    
|               | Balance at March 27, 2005             |             |  | 952,859  |                |           | $ | 11.49     |           |  |                 |           |  |  |  |     | 
|               | Granted                               |             |  |         |                |           |   |          |           |  |                 |           |  |  |  |     | 
|               | Exercised                             |             |  | (870,002 | )              |           |   | 11.49     |           |  |                 |           |  |  |  |     | 
|               | Forfeited                             |             |  |         |                |           |   |          |           |  |                 |           |  |  |  |     | 
|               | Expired                               |             |  |         |                |           |   |          |           |  |                 |           |  |  |  |     | 
|               |                                       |             |  |          |                |           |   |           |           |  |                 |          
|               | Balance at March 25, 2006             |             |  | 82,857   |                |           | $ | 11.49     |           |  | $               | 506,008   |  |  |  | 4.8 | 
|               |                                       |             |  |          |                |           |   |           |           |  |                 |          
|               | Options exercisable at March 25, 2006 |             |  | 54,685   |                |           | $ | 11.49     |           |  | $               | 333,961   |  |  |  | 4.8 | 
|2005 Plan      |                                       |             |  |          |                |           |   |           |           |  |                 |           |  |  |  |    
|               | Balance at March 27, 2005             |             |  |         |                |           | $ |          |           |  |                 |           |  |  |  |     | 
|               | Granted                               |             |  | 197,828  |                |           |   | 12.50     |           |  |                 |           |  |  |  |     | 
|               | Exercised                             |             |  |         |                |           |   |          |           |  |                 |           |  |  |  |     | 
|               | Forfeited                             |             |  |         |                |           |   |          |           |  |                 |           |  |  |  |     | 
|               | Expired                               |             |  |         |                |           |   |          |           |  |                 |           |  |  |  |     | 
|               |                                       |             |  |          |                |           |   |           |           |  |                 |          
|               | Balance at March 25, 2006             |             |  | 197,828  |                |           | $ | 12.50     |           |  | $               | 1,008,923 |  |  |  | 9.3 | 
|               |                                       |             |  |          |                |           |   |           |           |  |                 |          
|               | Options exercisable at March 25, 2006 |             |  |         |                |           | $ |          |           |  |                 |           |  |  |  |     | 

F-15



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                     |  |                   |         |  
|-------------------- |  | ----------------- | ------- | -
|                     |  | Fiscal Year Ended |        
|                     |  | March 25, 2006    |        
|                     |  |                   |        
|Expected option life |  |                   | 6 years |  
|Volatility           |  |                   | 40.0    | %
|Risk-free rate       |  |                   | 4.2     | %
|Dividend yield       |  |                   | 1.5     | %











|                         |                             |                 |  |         |                  |  |   |       |       | 
|------------------------ | --------------------------- | --------------- |  | ------- | ---------------- |  | - | ----- | ----- | 
|                         |                             | Nonvested Stock |  |         | Wtd.-Avg. Grant- | 
|                         |                             | Outstanding     |  |         | Date Fair Value  | 
|                         |                             |                 |  |         |                  | 
|Restricted Stock Grants: |                             |                 |  |         |                  |  |   |      
|2005 Plan                |                             |                 |  |         |                  |  |   |      
|                         | Nonvested at March 27, 2005 |                 |  |        |                  |  | $ |      |      
|                         |                             | Granted         |  |         | 392,485          |  |   |       | 12.54 | 
|                         |                             | Vested          |  |         |                 |  |   |       |      | 
|                         |                             | Forfeited       |  |         |                 |  |   |       |      | 
|                         |                             |                 |  |         |                  | 
|                         | Nonvested at March 25, 2006 |                 |  | 392,485 |                  |  | $ | 12.54 |      
|                         |                             |                 |  |         |                  | 



F-16



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                 
|-- | ----------------
|4. | Accrued expenses



|                              |  |           |        |  |           |   |        | 
|----------------------------- |  | --------- | ------ |  | --------- | - | ------ | 
|                              |  | March 26, |        |  | March 25, |  
|                              |  | 2005      |        |  | 2006      |  
|                              |  |           |        |  |           |  
|Salaries and benefits payable |  | $         | 21,373 |  |           | $ | 19,483 | 
|Workers compensation payable |  |           | 5,397  |  |           |   | 6,091  | 
|Grain and feed                |  |           | 1,431  |  |           |   | 1,686  | 
|Claims reserves               |  |           | 4,211  |  |           |   | 3,454  | 
|Accrued payables and other    |  |           | 17,501 |  |           |   | 12,599 | 
|                              |  |           |        |  |           |  
|                              |  | $         | 49,913 |  |           | $ | 43,313 | 
|                              |  |           |        |  |           |  



|   |                                  
|-- | ---------------------------------
|5. | Long-term debt and capital leases



|                                                                                                                                                                                                                               |                                   |           |         |         |           |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------- | --------- | ------- | ------- | --------- | - | ------- | ------- | 
|                                                                                                                                                                                                                               |                                   | March 26, |         |         | March 25, |  
|                                                                                                                                                                                                                               |                                   | 2005      |         |         | 2006      |  
|                                                                                                                                                                                                                               |                                   |           |         |         |           |  
|Senior unsecured notes, due on June 15, 2011, interest at
    9.25%
    (91/4% Notes), interest payable semiannually                                                                                                           |                                   | $         | 175,000 |         |           | $ | 2,000   |        
|Revolving loan, due on June 24, 2010                                                                                                                                                                                           |                                   |           |        |         |           |   |        |        
|Term loan, due on May 9, 2015, interest based on LIBOR
    rates plus 0.875% ($125,000 fixed with a swap agreement for 5.4%
    at March 25, 2006), payable in quarterly installments of
    $1,250 beginning November 9, 2007 |                                   |           |        |         |           |   | 125,000 |        
|Capital leases                                                                                                                                                                                                                 |                                   |           | 2,158   |         |           |   | 1,352   |        
|                                                                                                                                                                                                                               |                                   |           |         |         |           |  
|                                                                                                                                                                                                                               | Total debt and capital leases     |           |         | 177,158 |           |   |         | 128,352 | 
|Less-Unamortized discount on senior notes                                                                                                                                                                                      |                                   |           | 1,070   |         |           |   |        |        
|Less-Current portion                                                                                                                                                                                                           |                                   |           | 801     |         |           |   | 810     |        
|                                                                                                                                                                                                                               |                                   |           |         |         |           |  
|                                                                                                                                                                                                                               | Long-term debt and capital leases |           | $       | 175,287 |           |   | $       | 127,542 | 
|                                                                                                                                                                                                                               |                                   |           |         |         |           |  



|            |  |   |         | 
|----------- |  | - | ------- | 
|Fiscal Year |  |  
|            |  |  
|2007        |  | $ | 810     | 
|2008        |  |   | 2,947   | 
|2009        |  |   | 5,087   | 
|2010        |  |   | 5,008   | 
|2011        |  |   | 5,000   | 
|Thereafter  |  |   | 109,500 | 
|            |  |   |        
|            |  | $ | 128,352 | 
|            |  |   |        

1 4


F-17



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


1 4 1 4


1 4








| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | the contemplated initial public offering of shares of common
    stock by certain holders thereof,
|
| |  | the merger of PSF Group Holdings, Inc., the parent, with and
    into the Company, and            
|
| |  | the Tender Offer for the
    91/4% Notes as described below.                                      



1 4 1 4 1 4 1 4 i.e. 1 4 1 4






F-18



---



##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










Letter-of letter-of


5.0-to 4.0-to






F-19



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |             
|-- | ------------
|6. | Income taxes



|                                   |                 |                   |       |       |           |   |         |           |   |   |         |         |  
|---------------------------------- | --------------- | ----------------- | ----- | ----- | --------- | - | ------- | --------- | - | - | ------- | ------- | -
|                                   |                 | Fiscal Year Ended |      
|                                   |                 |                   |      
|                                   |                 | March 27,         |       |       | March 26, |   |         | March 25, |  
|                                   |                 | 2004              |       |       | 2005      |   |         | 2006      |  
|                                   |                 |                   |       |       |           |   |         |           |  
|Current:                           |                 |                   |       |       |           |   |         |           |   |   |         |        
|                                   | Federal         |                   | $     | (190  | )         |   | $       | (22,034   | ) |   | $       | (30,805 | )
|                                   | State and local |                   |       | (22   | )         |   |         | (2,811    | ) |   |         | (3,333  | )
|                                   |                 |                   |       |       |           |   |         |           |  
|                                   |                 |                   | (212  | )     |           |   | (24,845 | )         |   |   | (34,138 | )      
|                                   |                 |                   |       |       |           |   |         |           |  
|Deferred:                          |                 |                   |       |       |           |   |         |           |   |   |         |        
|                                   | Federal         |                   |       | 2,662 |           |   |         | (13,505   | ) |   |         | 7,623   |  
|                                   | State and local |                   |       | 473   |           |   |         | (1,654    | ) |   |         | 2,251   |  
|                                   |                 |                   |       |       |           |   |         |           |  
|                                   |                 |                   | 3,135 |       |           |   | (15,159 | )         |   |   | 9,874   |        
|                                   |                 |                   |       |       |           |   |         |           |  
|Total income tax (expense) benefit |                 | $                 | 2,923 |       |           | $ | (40,004 | )         |   | $ | (24,264 | )      
|                                   |                 |                   |       |       |           |   |         |           |  



|                                                      |  |           |      |    |           |  |      |           |  |  |      |   
|----------------------------------------------------- |  | --------- | ---- | -- | --------- |  | ---- | --------- |  |  | ---- | --
|                                                      |  | March 27, |      |    | March 26, |  |      | March 25, | 
|                                                      |  | 2004      |      |    | 2005      |  |      | 2006      | 
|                                                      |  |           |      |    |           |  |      |           | 
|U.S. federal statutory income tax rate                |  |           | 35.0 | %  |           |  | 35.0 | %         |  |  | 35.0 | % 
|State income taxes, net of federal tax benefit        |  |           | 4.0  | %  |           |  | 4.0  | %         |  |  | 3.2  | % 
|Extraterritorial income exclusion                     |  |           |     |    |           |  | (0.5 | )%        |  |  | (2.1 | )%
|Qualified domestic production activities              |  |           |     |    |           |  |     |           |  |  | (1.0 | )%
|Change in estimated tax rate on temporary differences |  |           |     |    |           |  | (1.4 | )%        |  |  | (2.0 | )%
|Other, net                                            |  |           | (0.1 | )% |           |  | 0.1  | %         |  |  | (1.7 | )%
|                                                      |  |           |      |    |           |  |      |           | 
|                                                      |  |           | 38.9 | %  |           |  | 37.2 | %         |  |  | 31.4 | % 
|                                                      |  |           |      |    |           |  |      |           | 



|                                        |                                                 |           |   |         |           |  |   |         |  
|--------------------------------------- | ----------------------------------------------- | --------- | - | ------- | --------- |  | - | ------- | -
|                                        |                                                 | March 26, |   |         | March 25, | 
|                                        |                                                 | 2005      |   |         | 2006      | 
|                                        |                                                 |           |   |         |           | 
|Net current deferred tax assets-        |                                                 |           |   |         |           |  |   |        
|                                        | Goodwill                                        |           | $ | 202     |           |  | $ | 198     |  
|                                        | Inventory                                       |           |   | 1,544   |           |  |   | 1,527   |  
|                                        | Stock-based compensation                        |           |   |        |           |  |   | 447     |  
|                                        | Fair value of interest rate swap                |           |   |        |           |  |   | (230    | )
|                                        | Workers compensation and health claims payable |           |   | 2,961   |           |  |   | 3,647   |  
|                                        | Other accruals and reserves                     |           |   | 3,190   |           |  |   | 2,586   |  
|                                        | Net state operating loss carryforwards          |           |   | 219     |           |  |   |        |  
|                                        |                                                 |           |   |         |           | 
|                                        | Net current deferred tax assets                 |           | $ | 8,116   |           |  | $ | 8,175   |  
|                                        |                                                 |           |   |         |           | 
|Net long-term deferred tax liabilities- |                                                 |           |   |         |           |  |   |        
|                                        | Fixed assets                                    |           | $ | (86,560 | )         |  | $ | (76,737 | )
|                                        | Fair value of interest rate swap                |           |   |        |           |  |   | (1,468  | )
|                                        | Goodwill                                        |           |   | 640     |           |  |   | 429     |  
|                                        | Other                                           |           |   | 2,828   |           |  |   | 2,801   |  
|                                        |                                                 |           |   |         |           | 
|                                        | Net long-term deferred tax liability            |           | $ | (83,092 | )         |  | $ | (74,975 | )
|                                        |                                                 |           |   |         |           | 

F-20



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |                            
|-- | ---------------------------
|7. | Investments in partnerships









F-21



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                
|-- | ---------------
|8. | Related parties









|   |            
|-- | -----------
|9. | Commitments





|                          |  |          |         |  |         |  |         |            |  |   |       |  |  |   |       |  
|------------------------- |  | -------- | ------- |  | ------- |  | ------- | ---------- |  | - | ----- |  |  | - | ----- | -
|                          |  | Contract |         |  | Volumes |  |         | Wtd.-Avg.  |  |   | Fair  | 
|                          |  | Quantity |         |  | Units   |  |         | Price/Unit |  |   | Value | 
|                          |  |          |         |  |         |  |         |            |  |   |       | 
|Futures Contracts         |  |          |         |  |         |  |         |            |  |   |       |  |  |   |       |  
|Corn sales  short        |  |          | 325     |  |         |  | bushels |            |  | $ | 2.51  |  |  | $ | (1    | )
|Lean hog sales  short    |  |          | 161,000 |  |         |  | pounds  |            |  |   | 0.70  |  |  |   | 3,279 |  
|Lean hog purchases  long |  |          | 840     |  |         |  | pounds  |            |  |   | 0.68  |  |  |   | (15   | )
|Wheat sales  short       |  |          | 75      |  |         |  | bushels |            |  |   | 3.99  |  |  |   | (5    | )

|                  |  |          |       |  |         |  |         |            |  |   |          |  |  |   |       | 
|----------------- |  | -------- | ----- |  | ------- |  | ------- | ---------- |  | - | -------- |  |  | - | ----- | 
|                  |  | Contract |       |  | Volumes |  |         | Wtd.-Avg.  |  |   | Notional | 
|                  |  | Quantity |       |  | Units   |  |         | Price/Unit |  |   | Amount   | 
|                  |  |          |       |  |         |  |         |            |  |   |          | 
|Forward Contracts |  |          |       |  |         |  |         |            |  |   |          |  |  |   |       | 
|Corn              |  |          | 3,182 |  |         |  | bushels |            |  | $ | 2.25     |  |  | $ | 7,156 | 
|Meal              |  |          | 6     |  |         |  | tons    |            |  |   | 175.47   |  |  |   | 1,138 | 

F-22



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|           |  |   |        | 
|---------- |  | - | ------ | 
|2007       |  | $ | 5,708  | 
|2008       |  |   | 4,890  | 
|2009       |  |   | 4,092  | 
|2010       |  |   | 2,740  | 
|2011       |  |   | 1,499  | 
|Thereafter |  |   | 1,269  | 
|           |  |   |       
|           |  | $ | 20,198 | 
|           |  |   |       







|    |                       
|--- | ----------------------
|10. | Employee benefit plans







F-23



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                                                             |  |           |             |   |           |   |             |  
|---------------------------------------------------------------------------- |  | --------- | ----------- | - | --------- | - | ----------- | -
|                                                                             |  | March 26, |             |   | March 25, |  
|                                                                             |  | 2005      |             |   | 2006      |  
|                                                                             |  |           |             |   |           |  
|Accumulated benefit obligation                                               |  | $         | 1,950       |   |           | $ | 2,294       |  
|Change in benefit obligation during year                                     |  |           |             |   |           |   |             |  
|Projected benefit obligation, beginning of fiscal year                       |  | $         | 2,630       |   |           | $ | 1,988       |  
|Service cost                                                                 |  |           | 278         |   |           |   | 206         |  
|Interest cost                                                                |  |           | 110         |   |           |   | 114         |  
|Actuarial loss (gain) (including assumption changes)                         |  |           | (735        | ) |           |   | 15          |  
|Plan amendment                                                               |  |           | (295        | ) |           |   |            |  
|                                                                             |  |           |             |   |           |  
|Projected benefit obligation, end of fiscal year                             |  | $         | 1,988       |   |           | $ | 2,323       |  
|Reconciliation of funded status as of end of fiscal year                     |  |           |             |   |           |   |             |  
|Funded status, end of fiscal year                                            |  | $         | (1,988      | ) |           | $ | (2,323      | )
|Unrecognized prior service cost                                              |  |           | 182         |   |           |   | 166         |  
|Unrecognized net gain                                                        |  |           | (620        | ) |           |   | (570        | )
|                                                                             |  |           |             |   |           |  
|Accrued cost, end of fiscal year                                             |  | $         | (2,426      | ) |           | $ | (2,727      | )
|Components of net periodic pension cost                                      |  |           |             |   |           |   |             |  
|Service cost                                                                 |  | $         | 278         |   |           | $ | 206         |  
|Interest cost                                                                |  |           | 110         |   |           |   | 114         |  
|Amortization of prior service cost                                           |  |           | 32          |   |           |   | 17          |  
|Amortization of unrecognized gain                                            |  |           | (40         | ) |           |   | (35         | )
|                                                                             |  |           |             |   |           |  
|Pension cost                                                                 |  | $         | 380         |   |           | $ | 302         |  
|Weighted average assumption used to determine benefit
    obligation         |  |           |             |   |           |   |             |  
|Discount rate                                                                |  |           | 5.75        | % |           |   | 6.00        | %
|Salary increases                                                             |  |           | 3.50        | % |           |   | 3.50        | %
|Weighted average assumptions used to determine net periodic
    pension cost |  |           |             |   |           |   |             |  
|Discount rate                                                                |  |           | 6.00        | % |           |   | 5.75        | %
|Salary increases                                                             |  |           | 3.50        | % |           |   | 3.50        | %
|Measurement date                                                             |  |           | March 27    |   |           |   | March 26    |  
|Fiscal period                                                                |  |           | March 28    |   |           |   | March 27    |  
|                                                                             |  |           | to March 26 |   |           |   | to March 25 |  

F-24



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|          |  |          |     | 
|--------- |  | -------- | --- | 
|          |  | Expected |    
|          |  | Benefit  |    
|Year      |  | Payments |    
|          |  |          |    
|2007      |  | $        | 42  | 
|2008      |  |          | 54  | 
|2009      |  |          | 66  | 
|2010      |  |          | 71  | 
|2011      |  |          | 99  | 
|2012-2016 |  |          | 559 | 



|    |           
|--- | ----------
|11. | Litigation



| |                      
| | ---------------------
| | Environmental matters



start-up


Steven Adwell, et al. vs. PSF,
et al. Michael Adwell, et al. vs. PSF,
et al. Fred Torrey, et al.
vs. PSF, et al Doyle Bounds, et al. vs.
PSF, et al. Vernon Hanes et al. v. Premium Standard
Farms, Inc. et al. Steve Hanes
et al. v. Premium Standard Farms, Inc.,
et al William J.
Engel, III, et al. vs. PSF, et al


F-25



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Daniel Herrold, et al. and Others Similarly
Situated v. ContiGroup Companies, Inc, Premium Standard
Farms, Inc., and PSF Group Holdings, Inc.






| |                    
| | -------------------
| | Other legal matters





F-26



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                    
|--- | -------------------
|12. | Segment information



|             |                                                               |            |   |         |            |  |   |           |   |  |       |          |   |  |   |         | 
|------------ | ------------------------------------------------------------- | ---------- | - | ------- | ---------- |  | - | --------- | - |  | ----- | -------- | - |  | - | ------- | 
|             |                                                               | Pork       |   |         | Hog        |  |   | Corporate |   |  |      
|             |                                                               | Processing |   |         | Production |  |   | and Other |   |  | Total |         
|             |                                                               |            |   |         |            |  |   |           |   |  |       |         
|Fiscal 2004: |                                                               |            |   |         |            |  |   |           |   |  |       |          |   |  |   |        
|             | Net sales                                                     |            | $ | 663,530 |            |  | $ | 452,321   |   |  | $     | (385,114 | ) |  | $ | 730,737 | 
|             | Intersegment sales                                            |            |   | (2,936  | )          |  |   | (382,178  | ) |  |       |         |   |  |   |        | 
|             | Operating income (loss)                                       |            |   | 34,695  |            |  |   | (4,249    | ) |  |       | (13,260  | ) |  |   | 17,186  | 
|             | Assets                                                        |            |   | 195,366 |            |  |   | 534,724   |   |  |       | 28,742   |   |  |   | 758,832 | 
|             | Goodwill                                                      |            |   | 25,020  |            |  |   | 50,978    |   |  |       |         |   |  |   | 75,998  | 
|             | Depreciation and amortization                                 |            |   | 15,718  |            |  |   | 44,793    |   |  |       | 795      |   |  |   | 61,306  | 
|             | Capital expenditures                                          |            |   | 9,911   |            |  |   | 31,101    |   |  |       | 872      |   |  |   | 41,884  | 
|Fiscal 2005: |                                                               |            |   |         |            |  |   |           |   |  |       |          |   |  |   |        
|             | Net sales                                                     |            | $ | 850,764 |            |  | $ | 628,938   |   |  | $     | (552,131 | ) |  | $ | 927,571 | 
|             | Intersegment sales                                            |            |   | (2,122  | )          |  |   | (550,009  | ) |  |       |         |   |  |   |        | 
|             | Operating income                                              |            |   | 24,715  |            |  |   | 123,379   |   |  |       | (20,277  | ) |  |   | 127,817 | 
|             | Assets                                                        |            |   | 196,854 |            |  |   | 507,516   |   |  |       | 32,596   |   |  |   | 736,966 | 
|             | Goodwill                                                      |            |   | 25,020  |            |  |   | 50,978    |   |  |       |         |   |  |   | 75,998  | 
|             | Depreciation and amortization                                 |            |   | 15,785  |            |  |   | 44,021    |   |  |       | 839      |   |  |   | 60,645  | 
|             | Capital expenditures                                          |            |   | 8,366   |            |  |   | 35,013    |   |  |       | 919      |   |  |   | 44,298  | 
|Fiscal 2006: |                                                               |            |   |         |            |  |   |           |   |  |       |          |   |  |   |        
|             | Net sales                                                     |            | $ | 817,088 |            |  | $ | 607,108   |   |  | $     | (504,656 | ) |  | $ | 919,540 | 
|             | Intersegment sales                                            |            |   | (2,319  | )          |  |   | (502,337  | ) |  |       |         |   |  |   |        | 
|             | Operating income                                              |            |   | 13,141  |            |  |   | 115,508   |   |  |       | (42,375  | ) |  |   | 86,274  | 
|             | Assets                                                        |            |   | 184,997 |            |  |   | 494,308   |   |  |       | 49,546   |   |  |   | 728,851 | 
|             | Goodwill                                                      |            |   | 25,020  |            |  |   | 50,978    |   |  |       |         |   |  |   | 75,998  | 
|             | Depreciation and amortization                                 |            |   | 16,626  |            |  |   | 43,479    |   |  |       | 820      |   |  |   | 60,925  | 
|             | Capital expenditures (including accrued capital expenditures) |            |   | 9,262   |            |  |   | 38,003    |   |  |       | 1,813    |   |  |   | 49,078  | 

F-27



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                       
| | ----------------------
| | Geographic information



|                         |  |      |         |  |      |   |         |      |  |   |         | 
|------------------------ |  | ---- | ------- |  | ---- | - | ------- | ---- |  | - | ------- | 
|                         |  | 2004 |         |  | 2005 |   |         | 2006 | 
|                         |  |      |         |  |      |   |         |      | 
|United States            |  | $    | 675,745 |  |      | $ | 832,191 |      |  | $ | 803,997 | 
|Far East                 |  |      | 35,389  |  |      |   | 56,826  |      |  |   | 71,308  | 
|Europe and Russia        |  |      | 357     |  |      |   | 449     |      |  |   | 656     | 
|Canada                   |  |      | 9,075   |  |      |   | 14,575  |      |  |   | 14,539  | 
|Mexico and South America |  |      | 10,171  |  |      |   | 23,530  |      |  |   | 29,040  | 
|                         |  |      |         |  |      |   |         |      | 
|Totals                   |  | $    | 730,737 |  |      | $ | 927,571 |      |  | $ | 919,540 | 
|                         |  |      |         |  |      |   |         |      | 





|    |                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------
|13. | Quarterly results of operations (unaudited in thousands,
    except share and per share information):



|                                                      |              |         |   |         |            |  |   |         |            |  |        |         |            |  |   |         |            | 
|----------------------------------------------------- | ------------ | ------- | - | ------- | ---------- |  | - | ------- | ---------- |  | ------ | ------- | ---------- |  | - | ------- | ---------- | 
|                                                      |              | First   |   |         | Second     |  |   | Third   |            |  | Fourth |        
|                                                      |              |         |   |         |            |  |   |         |            |  |        |        
|Fiscal 2005-                                          |              |         |   |         |            |  |   |         |            |  |        |         |            |  |   |        
|                                                      | Net sales    |         | $ | 212,136 |            |  | $ | 218,831 |            |  | $      | 246,759 |            |  | $ | 249,845 |           
|                                                      | Gross profit |         |   | 24,277  |            |  |   | 29,980  |            |  |        | 48,600  |            |  |   | 50,202  |           
|                                                      | Net income   |         |   | 9,389   |            |  |   | 11,894  |            |  |        | 22,996  |            |  |   | 23,379  |           
|Earnings per share:                                   |              |         |   |         |            |  |   |         |            |  |        |         |            |  |   |        
|                                                      |              | Basic   |   | $       | 0.30       |  |   | $       | 0.38       |  |        | $       | 0.74       |  |   | $       | 0.76       | 
|                                                      |              | Diluted |   | $       | 0.30       |  |   | $       | 0.38       |  |        | $       | 0.74       |  |   | $       | 0.75       | 
|Weighted average number of common shares outstanding: |              |         |   |         |            |  |   |         |            |  |        |         |            |  |   |        
|                                                      |              | Basic   |   |         | 30,928,593 |  |   |         | 30,928,593 |  |        |         | 30,928,593 |  |   |         | 30,928,593 | 
|                                                      |              | Diluted |   |         | 31,025,491 |  |   |         | 31,067,134 |  |        |         | 31,106,857 |  |   |         | 31,142,884 | 
|Fiscal 2006-                                          |              |         |   |         |            |  |   |         |            |  |        |         |            |  |   |        
|                                                      | Net sales    |         | $ | 245,307 |            |  | $ | 213,231 |            |  | $      | 242,899 |            |  | $ | 218,103 |           
|                                                      | Gross profit |         |   | 57,067  |            |  |   | 26,881  |            |  |        | 30,593  |            |  |   | 19,275  |           
|                                                      | Net income   |         |   | 15,372  |            |  |   | 12,230  |            |  |        | 13,754  |            |  |   | 11,754  |           
|Earnings per share:                                   |              |         |   |         |            |  |   |         |            |  |        |         |            |  |   |        
|                                                      |              | Basic   |   | $       | 0.50       |  |   | $       | 0.40       |  |        | $       | 0.44       |  |   | $       | 0.38       | 
|                                                      |              | Diluted |   | $       | 0.49       |  |   | $       | 0.39       |  |        | $       | 0.44       |  |   | $       | 0.37       | 
|Weighted average number of common shares outstanding: |              |         |   |         |            |  |   |         |            |  |        |         |            |  |   |        
|                                                      |              | Basic   |   |         | 30,928,524 |  |   |         | 30,928,524 |  |        |         | 31,067,575 |  |   |         | 31,227,554 | 
|                                                      |              | Diluted |   |         | 31,078,513 |  |   |         | 31,332,313 |  |        |         | 31,602,256 |  |   |         | 31,485,398 | 

F-28



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##### Table of Contents



PREMIUM STANDARD FARMS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|    |                  
|--- | -----------------
|14. | Subsequent events

S-1 S-1






F-29