PORK Premium Std Farms (MM)

Fiscal Second Quarter 2007 Highlights: KANSAS CITY, Mo., Nov. 2 /PRNewswire-FirstCall/ -- Premium Standard Farms, Inc. (NASDAQ:PORK), a leading vertically integrated provider of pork products, today announced results for its fiscal year 2007 second quarter ended September 23, 2006. Fiscal Second Quarter Results Net sales for the quarter increased 3.4%, or $7.2 million, to $220.4 million, compared to $213.2 million during the second quarter of fiscal 2006. With respect to the same period last year, net sales were positively impacted by a $13.4 million improvement in live hog prices, as well as a $2.3 million improvement year-over-year related to lean hog futures. However, these gains were partially offset by an $8.5 million decrease in production volume, primarily due to the negative impact from health-related issues in the Company's production segment. Net income for the fiscal second quarter was $4.3 million, or $0.13 per diluted share, compared with a net income of $12.2 million, or $0.39 per diluted share, in the same period last year. Net income for the second quarter of fiscal 2007 includes a charge of $1.6 million as a result of costs related to the proposed merger with Smithfield Foods, Inc., as well as $7.4 million in charges for the settlement of a portion of an outstanding legal case and reserves for other similar cases pending, which combined, after-tax totals approximately $0.18 per diluted share in charges. "Despite the current operating environment being more difficult than last year, we are pleased to report solid second quarter results. Our overall results were favorably impacted by rising lean hog prices, and we expect hog prices to continue to remain above historic averages for the remainder of this fiscal year. Our export sales for the second quarter were flat versus very strong growth in the second quarter of last year, when we experienced a 55% increase in export volume. However, we saw a marked improvement in sales growth within our food service channel," commented John Meyer, CEO and President of Premium Standard Farms. "Conversely, our production operations were impacted by health issues across the segment, which reduced production volume by 6.1% year-over-year. We continue to focus on improving health within our production operations and are encouraged by early results of our circovirus vaccination programs currently being implemented. While we expect to see more favorable comparisons in volume toward the end of fiscal 2007 as a result of the improvements made in recent months, we would expect near-term health issues to remain." Mr. Meyer continued, "In the recently published Quarterly Hogs & Pigs Inventory Report, the USDA reported a 1.8% increase in breed stock. Additionally, the industry has started operating at new capacity levels, and as such has been recording the highest daily slaughter levels on record. While we believe these levels are likely to be absorbed by current demand, the increased pork supply levels have put pressure on meat prices in recent months." First Half Fiscal 2007 Results Net sales for the first six months of fiscal 2007 were $426.6 million compared to $458.5 million last year. With respect to the same period last year, net sales were negatively impacted by a $19.8 million decrease in production volume combined with a decline in results related to lean hog futures of $12.7 million. These factors were partially offset by a $0.6 million improvement in live hog and wholesale pork prices. Net income in the first six months of fiscal 2007 was $11.9 million, or $0.37 per diluted share, compared to net income of $27.6 million, or $0.88 per diluted share, in the same period last year. The results for the first six months of fiscal 2007 included a $1.6 million charge for merger-related activities, as well as a $7.4 million charge for the settlement of a portion of an outstanding legal case and reserves for other similar cases pending, which combined, after-tax totals $0.18 per diluted share. Results for the first six months of 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. Operational Results Processing Segment Net sales in the processing segment increased $9.4 million from $195.2 million to $204.6 million in the second quarter of fiscal 2007 compared to the prior year. Processing volume for the second quarter of fiscal 2007 increased 1.6% compared to the same period last year, which was the result of increased capacity utilization at the Company's Clinton, NC facility. This increased volume, combined with a 3.2% improvement in pork product sales prices, were the primary drivers behind the 4.8% increase in overall processing sales. In the second quarter of fiscal 2007, the Company experienced solid sales growth in its food service business. For the six months ended September 23, 2006, sales in the processing segment decreased 2.2% to $395.5 million from $404.4 million in the comparable period last year. This decline was largely the result of a 1.5% decrease in volume processed during the first six months of fiscal 2007, which can be primarily attributed to reduced productivity from the Company's hog production segment. Production Segment Production sales decreased by 1.2% to $143.2 million in the second quarter of fiscal 2007 from $144.9 million in the comparable period last year. This decline can be attributed to a 6.1% decrease in volume across the segment primarily relating to health issues. However, this reduction in volume was partially offset by a 3.8% improvement in hog sale prices. Additionally, during the quarter, the Company benefited from a $2.3 million improvement in results related to lean hog futures contracts compared to the same period in the prior year. Net sales decreased by 13.1% to $274.9 million from $316.5 million in the first six months of fiscal 2007. This primarily resulted from a 6.5% decrease in overall production volume relating to health issues, coupled with a 3.0% decline in live hog sale prices. Premium Standard Farms' results were also negatively impacted during the first six months of fiscal 2007 due to a $12.7 million decrease in results related to lean hog futures contracts recorded compared to the same period in the prior year. In the near-term, the Company expects to see a continued negative impact on production volume due to remaining health issues throughout the segment, but expects to see more favorable results toward the end of fiscal 2007 as a result of improvements made during the year. Fiscal Second Quarter Developments On September 18, 2006, Premium Standard Farms and Smithfield Foods announced their plans to merge. Under the terms of the merger, each share of Premium Standard Farms will be converted into the right to receive 0.678 of a share of Smithfield Foods' common stock plus $1.25 in cash. The transaction is expected to close in the first quarter of calendar 2007, subject to approval by certain regulatory agencies. As discussed in the Company's 8-K filed on September 22, 2006, the Company has settled a portion of an outstanding legal case for the sum of $4.5 million. In connection with and in consideration of this settlement and other similar cases pending, the Company recorded an expense of $7.4 million as a selling, general, and administrative expense. Outlook While hog prices have remained steady since late July and are expected to remain above historic averages for the remainder of the fiscal year, the Company continues to expect lean hog prices and pork prices at levels lower than previously experienced in fiscal 2006. As a result, the Company expects net sales and net income in fiscal 2007 to remain at lower levels than the prior year. The Company's Milan, MO expansion continues to remain on schedule and on budget. As noted in previous releases, this expansion will take the daily maximum processing capacity to 10,000 head per day and enhance plant capacity by 35% and total company capacity by 15%. About Premium Standard Farms Premium Standard Farms 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. Premium Standard Farms 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 litigation, laws and regulations, trade embargoes and tariffs; developments relating to our pending merger with Smithfield, including the costs relating to the proposed merger and disruption from the transaction making it more difficult to maintain relationships with customers, employees or suppliers; uncertainties relating to litigation involving us; 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; the extent to which we are able to manage animal health issues; 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-Q for the second quarter of fiscal 2007 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 and 26 weeks ended September 23, 2006 and September 24, 2005 (in 000's except share and per share data) (Unaudited) 13 Weeks Ended 26 Weeks Ended September September September September 23, 24, 23, 24, 2006 2005 2006 2005 Net sales $220,396 $213,231 $426,554 $458,538 Cost of goods sold 195,760 186,350 383,037 374,590 Gross profit 24,636 26,881 43,517 83,948 Selling, general and administrative expenses 15,612 5,686 22,184 13,119 Loss on early extinguishment of debt 92 - 92 21,707 Other income (264) (72) (479) (356) Operating income 9,196 21,267 21,720 49,478 Interest expense (income): Interest expense 1,759 2,096 3,704 5,291 Interest income (325) (21) (712) (152) Interest expense, net 1,434 2,075 2,992 5,139 Income before income taxes 7,762 19,192 18,728 44,339 Income tax expense 3,493 6,962 6,869 16,737 Net income $4,269 $12,230 $11,859 $27,602 Unrealized gain (loss) on interest rate swap, net of tax (3,212) 1,822 (507) 212 Comprehensive income $1,057 $14,052 $11,352 $27,814 Earnings per share: Basic $0.13 $0.40 $0.38 $0.89 Diluted $0.13 $0.39 $0.37 $0.88 Weighted average number of common shares outstanding: Basic 31,648,502 30,928,524 31,620,574 30,928,524 Diluted 31,837,590 31,332,313 31,822,175 31,236,245 Dividends declared per share $0.06 $0.06 $0.12 $0.12 DATASOURCE: Premium Standard Farms, Inc. CONTACT: Investor contact, Steve Lightstone, CFO, Premium Standard Farms, Inc., +1-816-472-7675 Web site: http://www.psfarms.com/

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