##### 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 1934
 For the quarterly period ended: December 24, 2005
 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.
  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
 o o o
 o þ




---



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 1A. Risk FactorsItem 2. Changes in SecuritiesItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESEX-10.1:FORM OF RESTRICTED STOCK AWARD AGREEMENTEX-10.2: FORM OF NONQUALIFIED STOCK OPTION AGREEMENTEX-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
December 24, 2005 and March 26, 2005
(in 000s)
(Unaudited)
 December 24,
    
    
    March 26,2005
    
    
    2005ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    4,061
    
    
    $
    10,054Accounts receivable, net
    
    
    37,098
    
    
    
    33,871Inventories
    
    
    169,753
    
    
    
    165,363Deferred income taxes
    
    
    7,517
    
    
    
    8,116Income tax receivable
    
    
    1,084
    
    
    
    Prepaid expenses and other
    
    
    5,376
    
    
    
    5,270Total current assets
    
    
    224,889
    
    
    
    222,674PROPERTY, PLANT, EQUIPMENT AND BREEDING STOCK:Land and improvements
    
    
    102,258
    
    
    
    101,469Buildings
    
    
    298,469
    
    
    
    296,569Machinery and equipment
    
    
    300,686
    
    
    
    284,554Breeding stock
    
    
    44,608
    
    
    
    39,570Construction in progress
    
    
    8,199
    
    
    
    12,193754,220
    
    
    
    734,355Less- accumulated depreciation
    
    
    343,466
    
    
    
    307,979Total property, plant, equipment and breeding stock
    
    
    410,754
    
    
    
    426,376GOODWILL
    
    
    75,998
    
    
    
    75,998OTHER LONG-TERM ASSETS:Deferred financing costs, net
    
    
    2,244
    
    
    
    4,542Other
    
    
    9,521
    
    
    
    7,376Total other long-term assets
    
    
    11,765
    
    
    
    11,918Total assets
    
    $
    723,406
    
    
    $
    736,966LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Checks issued against future deposits
    
    $
    3,806
    
    
    $
    Accounts payable
    
    
    7,615
    
    
    
    6,133Accrued expenses
    
    
    44,228
    
    
    
    49,913Dividends payable
    
    
    911
    
    
    
    Due to related party (including dividends payable of $986
and $0)
    
    
    1,298
    
    
    
    29Federal income tax payable
    
    
    
    
    
    
    975Accrued interest
    
    
    1,016
    
    
    
    4,861Current maturities of long-term debt and capital leases
    
    
    861
    
    
    
    801Total current liabilities
    
    
    59,735
    
    
    
    62,712LONG-TERM LIABILITIES:Long-term debt and capital leases, less current maturities
    
    
    127,698
    
    
    
    175,287Other long-term liabilities
    
    
    6,384
    
    
    
    8,151Deferred income taxes
    
    
    80,491
    
    
    
    83,092Total long-term liabilities
    
    
    214,573
    
    
    
    266,530Total liabilities
    
    
    274,308
    
    
    
    329,242SHAREHOLDERS EQUITY:Common stock
    
    
    316
    
    
    
    309Additional paid-in capital
    
    
    377,653
    
    
    
    373,401Accumulated other comprehensive income, net of tax
    
    
    1,413
    
    
    
    Retained earnings
    
    
    69,716
    
    
    
    34,014Total shareholders equity
    
    
    449,098
    
    
    
    407,724Total liabilities and shareholders equity
    
    $
    723,406
    
    
    $
    736,966
 The accompanying notes are an integral part of the condensed consolidated financial
statements.
 1




---



##### Table of Contents



Premium Standard Farms, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
13 and 39 weeks ended December 24, 2005 and December 25, 2004
(in 000s except share and per share data)
(Unaudited)
 13 Weeks Ended
    
    
    39 Weeks EndedDecember 24,
    
    
    December 25,
    
    
    December 24,
    
    
    December 25,2005
    
    
    2004
    
    
    2005
    
    
    2004Net sales
    
    $
    242,899
    
    
    $
    246,759
    
    
    $
    701,437
    
    
    $
    677,725Cost of goods sold
    
    
    212,306
    
    
    
    198,159
    
    
    
    586,897
    
    
    
    574,869Gross profit
    
    
    30,593
    
    
    
    48,600
    
    
    
    114,540
    
    
    
    102,856Selling, general and administrative expenses
    
    
    7,332
    
    
    
    6,324
    
    
    
    20,451
    
    
    
    15,436Loss on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    21,707
    
    
    
    Other income
    
    
    (197
    )
    
    
    (213
    )
    
    
    (553
    )
    
    
    (875
    )Operating income
    
    
    23,458
    
    
    
    42,489
    
    
    
    72,935
    
    
    
    88,295Interest expense (income):Interest expense
    
    
    2,089
    
    
    
    4,889
    
    
    
    7,379
    
    
    
    15,908Interest income
    
    
    (91
    )
    
    
    (36
    )
    
    
    (243
    )
    
    
    (80
    )Interest expense, net
    
    
    1,998
    
    
    
    4,853
    
    
    
    7,136
    
    
    
    15,828Income before income taxes
    
    
    21,460
    
    
    
    37,636
    
    
    
    65,799
    
    
    
    72,467Income tax expense
    
    
    7,706
    
    
    
    14,640
    
    
    
    24,443
    
    
    
    28,190Net income
    
    $
    13,754
    
    
    $
    22,996
    
    
    $
    41,356
    
    
    $
    44,277Unrealized gain on interest rate swap, net of tax
    
    
    1,202
    
    
    
    
    
    
    
    1,413
    
    
    
    54Comprehensive income
    
    $
    14,956
    
    
    $
    22,996
    
    
    $
    42,769
    
    
    $
    44,331Earnings per share:Basic
    
    $
    0.44
    
    
    $
    0.74
    
    
    $
    1.34
    
    
    $
    1.43Diluted
    
    $
    0.44
    
    
    $
    0.74
    
    
    $
    1.32
    
    
    $
    1.43Weighted average number of common shares
outstanding:Basic
    
    
    31,067,575
    
    
    
    30,928,593
    
    
    
    30,974,874
    
    
    
    30,928,593Diluted
    
    
    31,602,256
    
    
    
    31,106,857
    
    
    
    31,273,279
    
    
    
    31,046,760Dividends declared per share
    
    $
    0.06
    
    
    $
    
    
    
    $
    0.18
    
    
    $
    
 The accompanying notes are an integral part of the condensed consolidated financial statements.
 2




---



##### Table of Contents



Premium Standard Farms, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
39 Weeks ended December 24, 2005 and December 25, 2004
(in 000s)
(Unaudited)
 December 24,
    
    
    December 25,2005
    
    
    2004OPERATING ACTIVITIES:Net income
    
    $
    41,356
    
    
    $
    44,277Adjustments
to reconcile net income to net cash provided by operating activities:Depreciation
    
    
    45,373
    
    
    
    45,507Stock-based compensation
    
    
    741
    
    
    
    Amortization of deferred financing costs
    
    
    377
    
    
    
    791Write-off of deferred financing costs
    
    
    3,945
    
    
    
    Deferred income taxes
    
    
    (2,907
    )
    
    
    16,513Excess tax benefits from share-based payment arrangements
    
    
    (1,690
    )
    
    
    Net gain on sale of property, plant, equipment and breeding stock
    
    
    (5,903
    )
    
    
    (5,463
    )Changes in operating assets and liabilities, net:Accounts receivable
    
    
    (3,227
    )
    
    
    (7,520
    )Inventories
    
    
    (4,390
    )
    
    
    (5,100
    )Prepaid expenses and other assets
    
    
    67
    
    
    
    135Accounts payable, accrued expenses and other liabilities
    
    
    (8,073
    )
    
    
    5,578Net cash provided by operating activities
    
    
    65,669
    
    
    
    94,718INVESTING ACTIVITIES:Purchases of property, plant, equipment and breeding stock
    
    
    (36,728
    )
    
    
    (33,691
    )Proceeds from disposal of property, plant, equipment and breeding
stock
    
    
    12,879
    
    
    
    14,288Net cash used in investing activities
    
    
    (23,849
    )
    
    
    (19,403
    )FINANCING ACTIVITIES:Checks issued against future deposits
    
    
    3,806
    
    
    
    5,123Excess tax benefits from share-based payment arrangements
    
    
    1,690
    
    
    
    Dividends paid
    
    
    (3,758
    )
    
    
    Payments on revolving debt
    
    
    
    
    
    
    (72,272
    )Proceeds from term loan
    
    
    125,000
    
    
    
    Payments for deferred financing costs
    
    
    (953
    )
    
    
    (1,272
    )Repayments on long-term debt
    
    
    (173,598
    )
    
    
    (6,894
    )Net cash used in financing activities
    
    
    (47,813
    )
    
    
    (75,315
    )Net decrease in cash and cash equivalents
    
    
    (5,993
    )
    
    
    CASH AND CASH EQUIVALENTS, beginning of period
    
    
    10,054
    
    
    
    CASH AND CASH EQUIVALENTS, end of period
    
    $
    4,061
    
    
    $
    SUPPLEMENTAL DISCLOSURES:Interest paid
    
    $
    11,040
    
    
    $
    19,999Income tax paid
    
    
    27,718
    
    
    
    11,747Noncash operating activities-Fair value of interest rate swap
    
    
    2,317
    
    
    
    Noncash financing activities-Dividend payable
    
    
    1,897
    
    
    
    Conversion of incentive plan to restricted stock
    
    
    1,829
    
    
    
    
 The accompanying notes are an integral part of the condensed
consolidated financial statements.
 3




---



##### Table of Contents



Premium Standard Farms, Inc. and Subsidiaries
 Note 1  Basis of presentation
      Note 2  Stock-based compensation
  4




---



##### Table of Contents



5




---



##### Table of Contents



13 Weeks Ended
    
    
    39 Weeks EndedDecember 24,
    
    
    December 25,
    
    
    December 24,
    
    
    December 25,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income, as reported
    
    $
    13,754
    
    
    $
    22,996
    
    
    $
    41,356
    
    
    $
    44,277Add: Stock-based compensation expense included in
net income, net of related taxes
    
    
    257
    
    
    
    
    
    
    
    452
    
    
    
    Less: Total stock-based employee compensation expense
determined under fair value based methods for all
awards, net of related taxes
    
    
    257
    
    
    
    
    
    
    
    534
    
    
    
    Pro forma net income
    
    $
    13,754
    
    
    $
    22,996
    
    
    $
    41,274
    
    
    $
    44,277Basic earnings per share, as reported
    
    $
    0.44
    
    
    $
    0.74
    
    
    $
    1.34
    
    
    $
    1.43Basic earnings per share, pro forma
    
    $
    0.44
    
    
    $
    0.74
    
    
    $
    1.33
    
    
    $
    1.43Diluted earnings per share, as reported
    
    $
    0.44
    
    
    $
    0.74
    
    
    $
    1.32
    
    
    $
    1.43Diluted earnings per share, pro forma
    
    $
    0.44
    
    
    $
    0.74
    
    
    $
    1.32
    
    
    $
    1.43
 Employee Stock-Based Incentive Plans
         6




---



##### Table of Contents



Wtd.-Avg.Aggregate
    
    
    RemainingOptions
    
    
    Wtd.-Avg.
    
    
    Intrinsic
    
    
    ContractualOutstanding
    
    
    Exercise Price
    
    
    Value
    
    
    Life (in years)Stock Options:1999 PlanBalance at March
27, 2005
    
    
    952,859
    
    
    $
    11.49Granted
    
    
    
    
    
    
    Exercised
    
    
    (870,002
    )
    
    
    11.49Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Balance at
December 24, 2005
    
    
    82,857
    
    
    $
    11.49
    
    
    $
    327,865
    
    
    
    5.0Options
exercisable at
December 24, 2005
    
    
    27,343
    
    
    $
    11.49
    
    
    $
    108,196
    
    
    
    5.02005 PlanBalance at March
27, 2005
    
    
    
    
    
    $
    Granted
    
    
    197,828
    
    
    
    12.50Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Balance at
December 24, 2005
    
    
    197,828
    
    
    $
    12.50
    
    
    $
    583,593
    
    
    
    9.5Options
exercisable at
December 24, 2005
    
    
    
    
    
    $
    
   39 Weeks EndedDecember 24, 2005Expected option life
    
    6 yearsVolatility
    
    
    40.0
    %Risk-free rate
    
    
    4.2
    %Dividend yield
    
    
    1.5
    %
    7




---



##### Table of Contents



Nonvested stock
    
    
    Wtd.-Avg. Grant-Outstanding
    
    
    Date Fair ValueRestricted Stock Grants:2005 PlanNonvested at March 27, 2005
    
    
    
    
    
    $
    Granted
    
    
    385,485
    
    
    
    12.50Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Nonvested at December 24,
2005
    
    
    385,485
    
    
    $
    12.50
  Note 3  New accounting pronouncements
     8




---



##### Table of Contents



Note 4  Earnings per share
    13 Weeks Ended
    
    
    39 Weeks EndedDecember 24,
    
    
    December 25,
    
    
    December 24,
    
    
    December 25,2005
    
    
    2004
    
    
    2005
    
    
    2004Basic Computation:Net income
    
    $
    13,754
    
    
    $
    22,996
    
    
    $
    41,356
    
    
    $
    44,277Weighted average common
shares outstanding
    
    
    31,067,575
    
    
    
    30,928,593
    
    
    
    30,974,874
    
    
    
    30,928,593Basic earnings per share
    
    $
    0.44
    
    
    $
    0.74
    
    
    $
    1.34
    
    
    $
    1.43Diluted Computation:Net income
    
    $
    13,754
    
    
    $
    22,996
    
    
    $
    41,356
    
    
    $
    44,277Weighted average common
shares outstanding
    
    
    31,067,575
    
    
    
    30,928,593
    
    
    
    30,974,874
    
    
    
    30,928,593Net effect of dilutive stock
options based on the treasury
stock method
    
    
    534,681
    
    
    
    178,264
    
    
    
    298,405
    
    
    
    118,167Outstanding shares for diluted
earnings per share
    
    
    31,602,256
    
    
    
    31,106,857
    
    
    
    31,273,279
    
    
    
    31,046,760Diluted earnings per share
    
    $
    0.44
    
    
    $
    0.74
    
    
    $
    1.32
    
    
    $
    1.43
 Note 5  Derivative instruments and hedging activities
  9




---



##### Table of Contents



Note 6  Goodwill and intangible assets
  Note 7  Inventories
  December 24, 2005
    
    
    March 26, 2005Hogs
    
    $
    146,573
    
    
    $
    147,080Processed pork products
    
    
    16,391
    
    
    
    13,458Packaging and supplies
    
    
    2,524
    
    
    
    1,755Grain, feed additives and other
    
    
    4,265
    
    
    
    3,070$
    169,753
    
    
    $
    165,363
 Note 8  Segment information
  10




---



##### Table of Contents



Pork
    
    Hog
    
    CorporateProcessing
    
    Production
    
    and Other
    
    TotalFor the 13 weeks ended December 24, 2005-Net sales
    
    $
    222,256
    
    
    $
    151,216
    
    
    $
    (130,573
    )
    
    $
    242,899Intersegment sales
    
    
    (597
    )
    
    
    (129,976
    )
    
    
    
    
    
    
    Operating income (loss)
    
    
    6,290
    
    
    
    22,695
    
    
    
    (5,527
    )
    
    
    23,458For the 13 weeks ended December 25, 2004-Net sales
    
    $
    228,700
    
    
    $
    168,580
    
    
    $
    (150,521
    )
    
    $
    246,759Intersegment sales
    
    
    (347
    )
    
    
    (150,174
    )
    
    
    
    
    
    
    Operating income (loss)
    
    
    3,880
    
    
    
    43,516
    
    
    
    (4,907
    )
    
    
    42,489As of and for the 39 weeks ended December 24, 2005-Net sales
    
    $
    626,690
    
    
    $
    467,766
    
    
    $
    (393,019
    )
    
    $
    701,437Intersegment sales
    
    
    (1,752
    )
    
    
    (391,267
    )
    
    
    
    
    
    
    Operating income (loss)
    
    
    12,158
    
    
    
    98,441
    
    
    
    (37,664
    )
    
    
    72,935Assets
    
    
    198,502
    
    
    
    497,672
    
    
    
    27,232
    
    
    
    723,406Goodwill
    
    
    25,020
    
    
    
    50,978
    
    
    
    
    
    
    
    75,998For the 39 weeks ended December 25, 2004-Net sales
    
    $
    629,582
    
    
    $
    459,710
    
    
    $
    (411,567
    )
    
    $
    677,725Intersegment sales
    
    
    (1,604
    )
    
    
    (409,963
    )
    
    
    
    
    
    
    Operating income (loss)
    
    
    18,002
    
    
    
    81,902
    
    
    
    (11,609
    )
    
    
    88,295Year ended March 26, 2005-Assets
    
    $
    196,854
    
    
    $
    507,516
    
    
    $
    32,596
    
    
    $
    736,966Goodwill
    
    
    25,020
    
    
    
    50,978
    
    
    
    
    
    
    
    75,998
 Note 9  Debt Tender and Amendment to Credit Agreement
 1 4 1 4 1 4 1 4 1 4 1 4 1 4
 1 4
 11




---



##### Table of Contents



12




---



##### Table of Contents



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. 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.
  13




---



##### Table of Contents



Other legal matters
   14




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
     15




---



##### Table of Contents



Pork and Hog Prices (December 2002-December 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. Effective in January, 2006 the
USDA will begin reporting a new pork cutout, which replaces the
previous composite pork cutout. The USDA has provided back data which
shows that, on average, the new cutout calculation will be valued
approximately $2 per cwt above the previous cutout. Corn $/Bushel (December 2002-December 2005)
 
 (1)
    
    Based on the monthly average of daily close prices of the Nearby Corn
Futures quoted by the Chicago Board of Trade. 16




---



##### Table of Contents



Soybean Meal $/Ton (December 2002-December 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 December 24, 2005 Compared to the 13 Weeks Ended December 25, 2004
  17




---



##### Table of Contents



For the 13 Weeks Ended
    
    
    Qtr to Qtr ChangeDecember 24, 2005
    
    
    December 25, 2004
    
    
    2005 to 2004
    
    
    %(In millions except percentages)Net SalesProcessing
    
    $
    222.3
    
    
    $
    228.7
    
    
    $
    (6.4
    )
    
    
    (2.8
    )%Production
    
    
    151.2
    
    
    
    168.6
    
    
    
    (17.4
    )
    
    
    (10.3
    )%Intersegment
    
    
    (130.6
    )
    
    
    (150.5
    )
    
    
    19.9
    
    
    
    13.2
    %Total Net Sales
    
    $
    242.9
    
    
    $
    246.8
    
    
    $
    (3.9
    )
    
    
    (1.6
    )%Gross ProfitProcessing
    
    $
    8.0
    
    
    $
    5.0
    
    
    $
    3.0
    
    
    
    60.0
    %Production
    
    
    22.6
    
    
    
    43.6
    
    
    
    (21.0
    )
    
    
    (48.2
    )%Total Gross Profit
    
    $
    30.6
    
    
    $
    48.6
    
    
    $
    (18.0
    )
    
    
    (37.0
    )%Operating Income (Loss)Processing
    
    $
    6.3
    
    
    $
    3.9
    
    
    $
    2.4
    
    
    
    61.5
    %Production
    
    
    22.7
    
    
    
    43.5
    
    
    
    (20.8
    )
    
    
    (47.8
    )%Corporate
    
    
    (5.5
    )
    
    
    (4.9
    )
    
    
    (0.6
    )
    
    
    (12.2
    )%Total Operating Income
    
    $
    23.5
    
    
    $
    42.5
    
    
    $
    (19.0
    )
    
    
    (44.7
    )%
 Consolidated
 Net Sales.
 Gross Profit.
 Selling, General and Administrative Expenses.
 Operating Income.
 Interest Expense, net.
 18




---



##### Table of Contents



Income Tax Expense.
 Segment Analysis
 Pork Processing
   Hog Production
   39 Weeks Ended December 24, 2005 Compared to the 39 Weeks Ended December 25, 2004
  19




---



##### Table of Contents



For the 39 Weeks Ended
    
    
    Year to Year ChangeDecember 24, 2005
    
    
    December 25, 2004
    
    
    2005 to 2004
    
    
    %(In millions except percentages)Net SalesProcessing
    
    $
    626.7
    
    
    $
    629.6
    
    
    $
    (2.9
    )
    
    
    (0.5
    )%Production
    
    
    467.7
    
    
    
    459.7
    
    
    
    8.0
    
    
    
    1.7
    %Intersegment
    
    
    (393.0
    )
    
    
    (411.6
    )
    
    
    18.6
    
    
    
    4.5
    %Total Net Sales
    
    $
    701.4
    
    
    $
    677.7
    
    
    $
    23.7
    
    
    
    3.5
    %Gross ProfitProcessing
    
    $
    16.1
    
    
    $
    21.1
    
    
    $
    (5.0
    )
    
    
    (23.7
    )%Production
    
    
    98.4
    
    
    
    81.8
    
    
    
    16.6
    
    
    
    20.3
    %Total Gross Profit
    
    $
    114.5
    
    
    $
    102.9
    
    
    $
    11.6
    
    
    
    11.3
    %Operating Income (Loss)Processing
    
    $
    12.2
    
    
    $
    18.0
    
    
    $
    (5.8
    )
    
    
    (32.2
    )%Production
    
    
    98.4
    
    
    
    81.9
    
    
    
    16.5
    
    
    
    20.1
    %$
    110.6
    
    
    $
    99.9
    
    
    $
    10.7
    
    
    
    10.7
    %Corporate
    
    
    (16.0
    )
    
    
    (11.6
    )
    
    
    (4.4
    )
    
    
    (37.9
    )%Loss on early extinguishment of debt
    
    
    (21.7
    )
    
    
    
    
    
    
    (21.7
    )
    
    
    *Total Operating Income
    
    $
    72.9
    
    
    $
    88.3
    
    
    $
    (15.4
    )
    
    
    (17.4
    )%
 
 *
    
    Not meaningful Consolidated
 Net Sales.
 Gross Profit.
 Selling, General and Administrative Expenses.
 Operating Income.
 20




---



##### Table of Contents



Interest Expense, net.
 Income Tax Benefit / Expense.
 Segment Analysis
 Pork Processing
   Hog Production
   21




---



##### Table of Contents



Liquidity and Capital Resources
     1 4 1 4 1 4 1 4 1 4 1 4 1 4
   22




---



##### Table of Contents




    
    Approximately $15 million in upgrades and improvements in our processing
operations;
    
    Approximately $10 million in upgrades and improvements in our production
operations, and investments to develop and implement new technologies for improved
waste handling; and
    
    Approximately $11 million in net breedstock purchases.
  23




---



##### Table of Contents



Contractual Cash Obligations
  Critical Accounting Policies
  Inventory valuation of livestock
 Estimates
 Derivative instruments
 24




---



##### Table of Contents



Property, plant, equipment and breeding stock
 Impairment of long-lived assets
 Market Risk
    1 4
 25




---



##### Table of Contents



Item 3. Qualitative and Quantitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
  
 PART
II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
 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. 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
 26




---



##### Table of Contents



Daniel Herrold, et al. and Others Similarly Situated v. ContiGroup
Companies, Inc, Premium Standard Farms, Inc., and PSF Group Holdings, Inc.
  Other legal matters
   
 Item 1A. Risk Factors
  
 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).
 27




---



##### Table of Contents



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.Exhibit 10.1
    
    Form of Restricted Stock award agreement under the 2005 Long-Term
Incentive Plan of Premium Standard Farms, Inc.Exhibit 10.2
    
    Form of Nonqualified Stock Option agreement under the 2005 Long-Term
Incentive Plan of Premium Standard Farms, Inc.
 28




---



##### Table of Contents



SIGNATURES
  Premium Standard Farms, Inc.February 7, 2006
    
    
    
    /s/ Stephen A. LightstoneDate
    
    
    
    Stephen A. LightstoneExecutive Vice President, Chief FinancialOfficer and Treasurer(Principal Financial andAccounting Officer)
 29