##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended: June 25, 2005ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from          to
 Commission file number: 333-64180
 Premium Standard Farms, Inc.
  Delaware
State or other jurisdiction of
incorporation or organization
    
    43-1755411
(I.R.S. Employer Identification No.)
 805 Pennsylvania, Suite 200, Kansas City, Missouri
(Address of principal executive office)
    
    64105
(Zip Code)
  Not Applicable
 
 
 þ o
 o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Qualitative and Quantitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II  OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Changes in SecuritiesItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Premium Standard Farms, Inc. and Subsidiaries
 Condensed Consolidated Balance Sheets
June 25, 2005 and March 26, 2005
(in 000s)
(Unaudited)
 June 25,
    
    March 26,2005
    
    2005ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    
    
    
    $
    10,054Accounts receivable, net
    
    
    30,662
    
    
    
    33,871Inventories
    
    
    168,077
    
    
    
    165,363Deferred income taxes
    
    
    7,195
    
    
    
    8,116Prepaid expenses and other
    
    
    3,962
    
    
    
    5,270Total current assets
    
    
    209,896
    
    
    
    222,674PROPERTY, PLANT, EQUIPMENT AND BREEDING STOCK:Land and improvements
    
    
    101,519
    
    
    
    101,469Buildings
    
    
    296,895
    
    
    
    296,569Machinery and equipment
    
    
    285,784
    
    
    
    284,554Breeding stock
    
    
    42,521
    
    
    
    39,570Construction in progress
    
    
    15,292
    
    
    
    12,193742,011
    
    
    
    734,355Less- accumulated depreciation
    
    
    319,367
    
    
    
    307,979Total property, plant, equipment and breeding stock
    
    
    422,644
    
    
    
    426,376GOODWILL
    
    
    75,998
    
    
    
    75,998OTHER LONG-TERM ASSETS:Deferred financing costs, net
    
    
    2,411
    
    
    
    4,542Other
    
    
    7,006
    
    
    
    7,376Total other long-term assets
    
    
    9,417
    
    
    
    11,918Total assets
    
    $
    717,955
    
    
    $
    736,966LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Checks issued against future deposits
    
    $
    11,766
    
    
    $
    Accounts payable
    
    
    4,216
    
    
    
    6,133Accrued expenses
    
    
    45,910
    
    
    
    49,913Dividends payable
    
    
    893
    
    
    
    Due to related party (including dividends payable of $986
and $0)
    
    
    1,169
    
    
    
    29Federal income tax payable
    
    
    306
    
    
    
    975Accrued interest
    
    
    281
    
    
    
    4,861Current maturities of long-term debt and capital leases
    
    
    820
    
    
    
    801Total current liabilities
    
    
    65,361
    
    
    
    62,712LONG-TERM LIABILITIES:Long-term debt and capital leases, less current maturities
    
    
    137,659
    
    
    
    175,287Other long-term liabilities
    
    
    8,793
    
    
    
    8,151Deferred income taxes
    
    
    84,687
    
    
    
    83,092Total long-term liabilities
    
    
    231,139
    
    
    
    266,530Total liabilities
    
    
    296,500
    
    
    
    329,242SHAREHOLDERS EQUITY:Common stock
    
    
    313
    
    
    
    309Additional paid-in capital
    
    
    378,216
    
    
    
    373,401Unearned compensation
    
    
    (2,971
    )
    
    
    Accumulated other comprehensive loss, net of tax
    
    
    (1,610
    )
    
    
    Retained earnings
    
    
    47,507
    
    
    
    34,014Total shareholders equity
    
    
    421,455
    
    
    
    407,724Total liabilities and shareholders equity
    
    $
    717,955
    
    
    $
    736,966
 The accompanying notes are an integral part of the condensed consolidated financial statements.
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Premium Standard Farms, Inc. and Subsidiaries
 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
13 weeks ended June 25, 2005 and June 26, 2004
(in 000s except share and per share data)
(Unaudited)
 13 Weeks EndedJune 25,
    
    June 26,2005
    
    2004Net sales
    
    $
    245,307
    
    
    $
    212,136Cost of goods sold
    
    
    188,240
    
    
    
    187,859Gross profit
    
    
    57,067
    
    
    
    24,277Selling, general and administrative expenses
    
    
    7,433
    
    
    
    3,793Loss on early extinguishment of debt
    
    
    21,707
    
    
    
    Other income
    
    
    (283
    )
    
    
    (519
    )Operating income
    
    
    28,210
    
    
    
    21,003Interest expense (income):Interest expense
    
    
    3,194
    
    
    
    5,667Interest income
    
    
    (130
    )
    
    
    (30
    )Interest expense, net
    
    
    3,064
    
    
    
    5,637Income before income taxes
    
    
    25,146
    
    
    
    15,366Income tax expense
    
    
    9,774
    
    
    
    5,977Net income
    
    $
    15,372
    
    
    $
    9,389Unrealized (loss) gain on interest rate
swap, net of tax
    
    
    (1,610
    )
    
    
    40Comprehensive income
    
    $
    13,762
    
    
    $
    9,429Earnings per share:Basic
    
    $
    0.50
    
    
    $
    0.30Diluted
    
    $
    0.49
    
    
    $
    0.30Weighted average number of common shares
outstanding:Basic
    
    
    30,928,524
    
    
    
    30,928,593Diluted
    
    
    31,078,513
    
    
    
    31,025,491
 The accompanying notes are an integral part of the condensed consolidated financial statements.
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##### Table of Contents



Premium Standard Farms, Inc. and Subsidiaries
 Condensed Consolidated Statements of Cash Flows
13 Weeks ended June 25, 2005 and June 26, 2004
(in 000s)
(Unaudited)
 June 25,
    
    June 26,2005
    
    2004OPERATING ACTIVITIES:Net income
    
    $
    15,372
    
    
    $
    9,389Adjustments to reconcile net income
to net cash provided by (used in) operating activities:Depreciation
    
    
    14,974
    
    
    
    15,290Amortization of unearned compensation
    
    
    19
    
    
    
    Amortization of deferred financing costs
    
    
    164
    
    
    
    275Write-off of deferred financing costs
    
    
    3,945
    
    
    
    Deferred income taxes
    
    
    3,540
    
    
    
    5,680Net gain on sale of property, plant, equipment and breeding stock
    
    
    (2,302
    )
    
    
    (2,104
    )Changes in operating assets and liabilities, net:Accounts receivable
    
    
    3,209
    
    
    
    (3,048
    )Inventories
    
    
    (2,714
    )
    
    
    (3,785
    )Prepaid expenses and other assets
    
    
    1,678
    
    
    
    95Accounts payable, accrued expenses and other liabilities
    
    
    (11,179
    )
    
    
    (3,979
    )Net cash provided by operating activities
    
    
    26,706
    
    
    
    17,813INVESTING ACTIVITIES:Purchases of property, plant, equipment and breeding stock
    
    
    (13,601
    )
    
    
    (9,272
    )Proceeds from disposal of property, plant, equipment and breeding stock
    
    
    4,661
    
    
    
    5,138Net cash used in investing activities
    
    
    (8,940
    )
    
    
    (4,134
    )FINANCING ACTIVITIES:Checks issued against future deposits
    
    
    11,766
    
    
    
    1,258(Payments on) proceeds from revolving debt, net
    
    
    9,520
    
    
    
    (7,309
    )Proceeds from term loan
    
    
    125,000
    
    
    
    Payments for deferred financing costs
    
    
    (907
    )
    
    
    (1,226
    )Repayments on long-term debt
    
    
    (173,199
    )
    
    
    (6,402
    )Net cash used in financing activities
    
    
    (27,820
    )
    
    
    (13,679
    )Net decrease in cash and cash equivalents
    
    
    (10,054
    )
    
    
    CASH AND CASH EQUIVALENTS, beginning of period
    
    
    10,054
    
    
    
    CASH AND CASH EQUIVALENTS, end of period
    
    $
    
    
    
    $
    SUPPLEMENTAL DISCLOSURES:Interest paid
    
    $
    7,645
    
    
    $
    9,742Income tax paid
    
    
    6,903
    
    
    
    323Noncash operating activities-Fair value of interest rate swap
    
    
    2,636
    
    
    
    Noncash financing activities-Dividend payable
    
    
    1,879
    
    
    
    Conversion of incentive plan to restricted stock
    
    
    1,829
    
    
    
    
 The accompanying notes are an integral part of the condensed consolidated financial statements.
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Premium Standard Farms, Inc. and Subsidiaries
  Note 1  Basis of presentation
      Note 2  Stock-based compensation
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13 Weeks EndedJune 25,
    
    June 26,2005
    
    2004Net income, as reported
    
    $
    15,372
    
    
    $
    9,389Add: Stock-based compensation expense included in
net income, net of related taxes
    
    
    12
    
    
    
    Less: Total stock-based employee compensation expense
determined under fair value based methods for all
awards, net of related taxes
    
    
    17
    
    
    
    Pro forma net income
    
    $
    15,367
    
    
    $
    9,389Basic earnings per share, as reported
    
    $
    0.50
    
    
    $
    0.30Basic earnings per share, pro forma
    
    $
    0.50
    
    
    $
    0.30Diluted earnings per share, as reported
    
    $
    0.49
    
    
    $
    0.30Diluted earnings per share, pro forma
    
    $
    0.49
    
    
    $
    0.30
 Note 3  New accounting pronouncements
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Note 4  Earnings per share
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June 25,
    
    June 26,2005
    
    2004Basic Computation:Net income
    
    $
    15,372
    
    
    $
    9,389Weighted average common
shares outstanding
    
    
    30,928,524
    
    
    
    30,928,593Basic earnings per share
    
    $
    0.50
    
    
    $
    0.30Diluted Computation:Net income
    
    $
    15,372
    
    
    $
    9,389Weighted average common
shares outstanding
    
    
    30,928,524
    
    
    
    30,928,593Net effect of dilutive stock
options based on the treasury
stock method
    
    
    149,989
    
    
    
    96,898Outstanding shares for diluted
earnings per share
    
    
    31,078,513
    
    
    
    31,025,491Diluted earnings per share
    
    $
    0.49
    
    
    $
    0.30
 Note 5  Derivative instruments and hedging activities
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Note 6  Goodwill and intangible assets
  Note 7  Inventories
  June 25, 2005
    
    March 26, 2005Hogs
    
    $
    148,532
    
    
    $
    147,080Processed pork products
    
    
    13,982
    
    
    
    13,458Packaging and supplies
    
    
    1,744
    
    
    
    1,755Grain, feed additives and other
    
    
    3,819
    
    
    
    3,070$
    168,077
    
    
    $
    165,363
 Note 8  Segment information
  Pork
    
    Hog
    
    CorporateProcessing
    
    Production
    
    and Other
    
    TotalAs of and for the 13 weeks ended June 25, 2005-Net sales
    
    $
    209,200
    
    
    $
    171,692
    
    
    $
    (135,585
    )
    
    $
    245,307Intersegment sales
    
    
    (658
    )
    
    
    (134,927
    )
    
    
    
    
    
    
    Operating income (loss)
    
    
    3,568
    
    
    
    52,325
    
    
    
    (27,683
    )
    
    
    28,210Assets
    
    
    191,939
    
    
    
    508,139
    
    
    
    17,877
    
    
    
    717,955Goodwill
    
    
    25,020
    
    
    
    50,978
    
    
    
    
    
    
    
    75,998For the 13 weeks ended June 26, 2004-Net sales
    
    $
    195,909
    
    
    $
    142,469
    
    
    $
    (126,242
    )
    
    $
    212,136Intersegment sales
    
    
    (691
    )
    
    
    (125,551
    )
    
    
    
    
    
    
    Operating income (loss)
    
    
    7,786
    
    
    
    15,883
    
    
    
    (2,666
    )
    
    
    21,003As of March 26, 2005-Assets
    
    $
    196,854
    
    
    $
    507,516
    
    
    $
    32,596
    
    
    $
    736,966Goodwill
    
    
    25,020
    
    
    
    50,978
    
    
    
    
    
    
    
    75,998
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Note 9  Debt Tender and Amendment to Credit Agreement
 1 4 1 4 1 4 1 4 1 4 i.e. 1 4 1 4
 1 4
        9




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Note 10  Litigation
 Environmental matters
   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.
 10




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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
 Daniel Herrold, et al. and Others Similarly Situated v. ContiGroup Companies,
Inc, Premium Standard Farms, Inc., and PSF Group Holdings, Inc.
  Other legal matters
   11




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
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Pork and Hog Prices (June 2002-June 2005)
 
 
 (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 (June 2002-June 2005)
 
 
 (1)
    
    Based on the monthly average of daily close prices of the Nearby Corn
Futures quoted by the Chicago Board of Trade. 13




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Soybean Meal $/Ton (June 2002-June 2005)
 
 
 (1)
    
    Based on the monthly average of daily close prices of the Nearby
Soybean Futures quoted by the Chicago Board of Trade.   Results of Operations
 13 Weeks Ended June 25, 2005 Compared to the 13 Weeks Ended June 26, 2004
  14




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For the 13 Weeks Ended
    
    Qtr to Qtr ChangeJune 25, 2005
    
    June 26, 2004
    
    2005 to 2004
    
    %(In millions except percentages)Net SalesProcessing
    
    $
    209.2
    
    
    $
    195.9
    
    
    $
    13.3
    
    
    
    6.8
    %Production
    
    
    171.7
    
    
    
    142.5
    
    
    
    29.2
    
    
    
    20.5
    %Intersegment
    
    
    (135.6
    )
    
    
    (126.3
    )
    
    
    (9.3
    )
    
    
    (7.4
    )%Total Net Sales
    
    $
    245.3
    
    
    $
    212.1
    
    
    $
    33.2
    
    
    
    15.7
    %Gross ProfitProcessing
    
    $
    4.7
    
    
    $
    8.7
    
    
    $
    (4.0
    )
    
    
    (46.0
    )%Production
    
    
    52.4
    
    
    
    15.6
    
    
    
    36.8
    
    
    
    235.9
    %Total Gross Profit
    
    $
    57.1
    
    
    $
    24.3
    
    
    $
    32.8
    
    
    
    135.0
    %Operating Income (Loss)Processing
    
    $
    3.6
    
    
    $
    7.8
    
    
    $
    (4.2
    )
    
    
    (53.8
    )%Production
    
    
    52.3
    
    
    
    15.9
    
    
    
    36.4
    
    
    
    228.9
    %$
    55.9
    
    
    $
    23.7
    
    
    $
    32.2
    
    
    
    135.9
    %Corporate
    
    
    (6.0
    )
    
    
    (2.7
    )
    
    
    (3.3
    )
    
    
    (122.2
    )%Loss on early extinguishment of debt
    
    
    (21.7
    )
    
    
    
    
    
    
    (21.7
    )
    
    
    *Total Operating Income
    
    $
    28.2
    
    
    $
    21.0
    
    
    $
    7.2
    
    
    
    34.3
    %
 
 *
    
    Not meaningful Consolidated
 Net Sales.
 Gross Profit.
 Selling, General and Administrative Expenses.
 Operating Income.
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Interest Expense, net.
 Income Tax Benefit / Expense.
 Segment Analysis
 Pork Processing
   Hog Production
   Liquidity and Capital Resources
  16




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1 4 1 4 1 4 1 4 1 4 i.e. 1 4 1 4
     17




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
    
    Approximately $17 million in upgrades and improvements in our processing
operations;
    
    Approximately $14 million in upgrades and improvements in our production
operations, and investments to develop and implement new technologies for improved
waste handling; and
    
    Approximately $10 million in net breedstock purchases.
   18




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Contractual Cash Obligations
  Critical Accounting Policies
  Inventory valuation of livestock
 Estimated liabilities,
 Derivative instruments
 Property, plant, equipment and breeding stock
 Impairment of long-lived assets
 Market Risk
  19




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1 4
 
 Item 3. Qualitative and Quantitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
  
 PART
II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Environmental matters
  20




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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
 Daniel Herrold, et al. and Others Similarly Situated v. ContiGroup Companies,
Inc, Premium Standard Farms, Inc., and PSF Group Holdings, Inc.
   21




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Item 2. Changes in Securities
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
    
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibit 31.1
    
    Certification of John M. Meyer, Chief Executive Office, pursuant to
Rule 13a-15(e)/15d-15(e).Exhibit 31.2
    
    Certification of Stephen A. Lightstone, Chief Financial Officer,
pursuant to Rule 13a-15(e)/15d-15(e).Exhibit 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.Exhibit 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.
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SIGNATURES
  PSF GROUP HOLDINGS, INC.August 9, 2005
    
    /s/ Stephen A. LightstoneDate
    
    
    
    Stephen A. LightstoneExecutive Vice President, Chief FinancialOfficer and Treasurer(Principal Financial andAccounting Officer)
 23