PORK Premium Std Farms (MM)

Fiscal 2006 Year-End Highlights: KANSAS CITY, Mo., May 31 /PRNewswire-FirstCall/ -- Premium Standard Farms, Inc. (NASDAQ:PORK) (PSF), a leading vertically integrated provider of pork products, today announced its fourth quarter and year-end results for the period ended March 25, 2006. Fiscal Fourth Quarter Results Net sales for the quarter totaled $218.1 million, compared to $249.8 million during the fourth quarter of fiscal 2005. The decrease is primarily attributed to a 17.4% decline in live hog prices and an 11.2% decline in meat prices, which were partially offset by favorable hedging gains of $11.3 million. Net income for the fiscal fourth quarter was $11.8 million, or $0.37 per diluted share, compared to net income of $23.4 million, or $0.75 per diluted share, for the fiscal fourth quarter of 2005. Net income for the fourth quarter of fiscal 2006 included favorable adjustments arising primarily from changes in estimated benefits from the American Jobs Creation Act and state tax rates, which reduced our full year income tax rate to 31.4% and increased our diluted earnings per share by $0.13. "As we had previously discussed, pork prices have recently been trending downwards to more historical levels. During the fourth quarter, we experienced a sharp decline in pork price levels compared to last year, primarily due to higher overall protein production in the USA. However, this decline was partially offset by favorable hog hedging," commented John Meyer, CEO of Premium Standard Farms. "Internationally, demand remained strong during the fourth quarter of fiscal 2006 as a result of our superior product offering. We continued to show a level of growth that exceeds the healthy industry growth in export sales." Mr. Meyer continued, "While we reported a 4.5% increase in production volume and a 2.9% increase in processing volume for fiscal 2006 over last year, we saw a decline in volume during the fourth quarter in both segments. In addition, margins were lower than expected in our processing segment over the same period last year." Fiscal 2006 Year-End Results Net sales for fiscal 2006 decreased $8.1 million to $919.5 million compared to $927.6 million last year. As expected, the decrease in sales can be attributed to a 12.1% decline in live hog prices and a 6.6% decline in meat prices to more historical levels from the highs in fiscal 2005. The decline in prices of $76.1 million was partially offset by an increase in volume coupled with a significant gain of $24 million related to lean hog futures contracts. Net income in fiscal 2006 was $53.1 million, or $1.70 per diluted share, compared to net income of $67.7 million, or $2.18 per diluted share, during fiscal 2005. Net income for 2006 benefited from an unusually low effective tax rate of 31.4%, a rate which is expected to increase in fiscal 2007. The results for fiscal 2006 included a $21.7 million pre-tax charge from the early extinguishment of debt, representing an after-tax charge of $0.43 per diluted share. In the first quarter of fiscal 2006, the Company retired, through a tender offer, $173 million of 9.25% senior notes previously outstanding, with a combination of cash and $157 million of bank revolving loans. Subsequent to the tender offer, $125 million of revolving loans were converted into a ten- year bank term loan, with the rate fixed at 5.9% through an interest rate swap. Outlook As a result of the increased supply of all meat proteins in the USA, live hog and wholesale pork prices have continued to decline toward more historical levels during the final months of fiscal 2006 and into fiscal 2007, which had been anticipated internally and industry wide. PSF expects to see fiscal 2007 pork prices lower than the levels experienced in fiscal 2006. Internationally, demand for PSF's high quality products and increased utilization at the Company's Clinton, NC, processing plant both contributed to strong export volumes to countries such as Japan, Canada, and Mexico. The Company expects export demand for its products to meet or exceed export growth for the industry, and also plans to expand its development efforts in Latin America and China. Domestically, pork demand has moderated; a trend that is expected to continue in fiscal 2007. In fiscal 2004 and 2005, the protein industry was positively impacted by the low carb diet phenomenon, which translated into significantly higher domestic demand for all proteins. While this trend has subsided, PSF believes it has had a noteworthy positive impact on the amount of protein consumers generally include in their diet. Mr. Meyer noted, "We have always been, and remain committed to producing high quality products and increasing productivity in both our production and processing operations. In fiscal 2007, we will continue to seek out growth opportunities both organically and through acquisitions, and we will focus on operational improvements and increasing our further processing and value-added capabilities." Election of Robert S. Kopriva as Chairman of the Board The company also announced today that its Board of Directors has appointed Robert S. Kopriva as Chairman of the Board. Mr. Kopriva, who has served as a director of PSF since December 2005, will succeed Michael J. Zimmerman, who will remain a director. Mr. Zimmerman has relinquished the Chairman role as a result of his increasing responsibilities as an executive of ContiGroup and the growing time demands as the Chairman of PSF. Mr. Meyer remarked, "Michael has done a tremendous job serving as our Chairman over the last eight years, and on behalf of the Board and management, we would like to thank him for his significant contributions. We are pleased that we will continue to benefit from his vast knowledge and understanding of the protein industry as an ongoing member of our Board." Mr. Kopriva will assume the Chairman role as a non-executive and will continue as a member of the Compensation Committee. Prior to his retirement in June 2005, Mr. Kopriva was a Senior Vice President of Sara Lee Corporation and CEO-Sara Lee Foods. He also held a variety of management positions including President and CEO of Sara Lee's Jimmy Dean Food's division and President of Sara Lee Foods U.S. - Supply Chain. "We are pleased that Bob will be expanding his role at the company by becoming Chairman," concluded Mr. Meyer. "Based on his years of experience in the food industry, we look forward to benefiting from his guidance when implementing our future growth strategies. During the last six months, he has already become an invaluable resource to PSF, which will undoubtedly increase as he takes a more active role with the company." About PSF PSF is one of the largest vertically integrated providers of pork products in the United States, producing consistent, high quality pork products for the retail, wholesale, foodservice, export, and further processor markets. PSF is the nation's second largest pork producer and sixth largest pork processor, with approximately 4,300 employees working at farms and processing facilities in Missouri, North Carolina, and Texas. This news release contains "forward-looking statements" within the meaning of the federal securities laws. Naturally, all forward-looking statements involve risk and uncertainty and actual results or events could be materially different. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our goals will be achieved. Important factors that could cause actual results to differ include: economic conditions generally and in our principal markets; competitive practices and consolidation in the pork production and processing industries; the impact of current and future laws, government regulations and fiscal policies affecting our industry and operations, including environmental laws and regulations, trade embargoes and tariffs; domestic and international transportation disruptions; food safety; the availability of additional capital to fund future commitments and expansion and the cost and terms of financing; outbreaks of disease in our herds; feed ingredient costs; fluctuations in live hog and wholesale pork prices; customer demands and preferences; and the occurrence of natural disasters and other occurrences beyond our control. In light of these risks, uncertainties and assumptions, the forward-looking events discussed might not occur. A copy of the Company's Form 10-K for fiscal 2006 will be available on the internet at http://www.psfarms.com/ . Premium Standard Farms, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) 13 weeks and fiscal years ended March 25, 2006 and March 26, 2005 (in 000's except share and per share data) (Unaudited) 13 Weeks Ended Fiscal Year Ended March 25, March 26, March 25, March 26, 2006 2005 2006 2005 Net sales $218,103 $249,845 $919,540 $927,571 Cost of goods sold 198,828 199,643 785,724 774,512 Gross profit 19,275 50,202 133,816 153,059 Selling, general and administrative expenses 6,223 10,632 26,674 26,068 Loss on early extinguishment of debt - - 21,707 - Other income (286) 49 (839) (826) Operating income 13,338 39,521 86,274 127,817 Interest expense (income): Interest expense 2,042 4,406 9,421 20,314 Interest income (278) (79) (521) (159) Interest expense, net 1,764 4,327 8,900 20,155 Income before income taxes 11,574 35,194 77,374 107,662 Income tax expense (benefit) (180) 11,815 24,264 40,004 Net income $11,754 $23,379 $53,110 $67,658 Unrealized gain on interest rate swap, net of tax 1,335 - 2,748 54 Comprehensive income $13,089 $23,379 $55,858 $67,712 Earnings per share: Basic $0.38 $0.76 $1.71 $2.19 Diluted $0.37 $0.75 $1.70 $2.18 Weighted average number of common shares outstanding: Basic 31,227,554 30,928,593 31,038,044 30,928,593 Diluted 31,485,398 31,142,884 31,324,679 31,088,489 Dividends declared per share $0.06 $- $0.24 $- DATASOURCE: Premium Standard Farms, Inc. CONTACT: Investor, Steve Lightstone, CFO of Premium Standard Farms, Inc., +1-816-472-7675 Web site: http://www.psfarms.com/

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