sv1

S-1 1 c92944sv1.htm REGISTRATION STATEMENT sv1

Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

PSF GROUP HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)


Delaware	2011	43-1818535
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

805 Pennsylvania Avenue, Suite 200

Kansas City, Missouri 64105

(816) 472-7675

(Address, Including Zip Code, and Telephone Number, Including Area Code, of

Registrant’s Principal Executive Offices)

Stephen A. Lightstone

Executive Vice President, Chief Financial Officer & Treasurer

805 Pennsylvania Avenue, Suite 200

Kansas City, Missouri 64105

(816) 472-7675

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,

of Agent For Service)

With copies to:


John J. Sabl, Esq. Sidley Austin Brown & Wood LLP Bank One Plaza 10 South Dearborn Street Chicago, Illinois 60603 (312) 853-7000		Craig L. Evans, Esq. Shook, Hardy & Bacon LLP 2555 Grand Boulevard Kansas City, Missouri 64108 (816) 474-6550		Dennis M. Myers, P.C. Robert M. Hayward Kirkland & Ellis LLP 200 East Randolph Drive Chicago, Illinois 60601 (312) 861-2000

Approximate date of commencement of proposed sale to the public:

As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o

CALCULATION OF REGISTRATION FEE




Title of Each Class of Securities	Proposed Maximum Aggregate	Amount of
to be Registered	Offering Price(1)	Registration Fee

Common Stock, $0.01 par value	$100,000,000	$11,770


(1)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a) may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

PROSPECTUS (SUBJECT TO COMPLETION)

Issued March 11, 2005

Shares

COMMON STOCK

The selling shareholders are offering shares of our common stock. This is the initial public offering of shares of our common stock and no public market exists for our shares. We anticipate that the initial public offering price will be between $ and $ per share. We will not receive any proceeds from this offering.

We intend to apply to list our common stock on either the New York Stock Exchange or the NASDAQ National Market under the symbol “ .”

Investing in our common stock involves risks. See “Risk Factors” beginning on page 7.

PRICE $ A SHARE

Underwriting

Proceeds to

Price to

Discounts and

Selling

Public

Commissions

Shareholders

Per Share

Total

The selling shareholders have granted to the underwriters the right to purchase up to an additional shares of our common stock to cover over-allotments.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on , 2005.

MORGAN STANLEY

, 2005

TABLE OF CONTENTS


	Page

Prospectus Summary		1
Risk Factors		7
Forward-Looking Statements		19
Dividend Policy		21
Use of Proceeds		21
Capitalization		22
Dilution		23
Selected Historical Consolidated Financial and Other Data		24
Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Business		43
Management		61
Certain Relationships and Related Transactions		70
Principal and Selling Shareholders		72
Description of Capital Stock		75
Shares Eligible for Future Sale		79
Underwriters		82
Validity		85
Experts		85
Where You Can Find More Information		85
Index to Consolidated Financial Statements		F-1

You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with information different from that contained in this prospectus. The selling shareholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

Until , 2005, 25 days after the commencement of this offering, all dealers that buy, sell, or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligations to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

MARKET AND INDUSTRY DATA AND FORECASTS

Market data and certain industry data and forecasts used throughout this prospectus were obtained from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications and surveys. Reports prepared or published by the United States Department of Agriculture (the “USDA”), Informa Economics, the National Pork Producers Council, the Chicago Mercantile Exchange and the Chicago Board of Trade were the primary sources for third-party industry data and forecasts. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based upon our management’s knowledge of the industry, have not been independently verified. Forecasts are particularly likely to be inaccurate, especially over long periods of time. In addition, we do not know what assumptions regarding general economic growth were used in preparing the forecasts we cite. We do not make any representation as to the accuracy of information described in this paragraph. Statements as to our market

position are based on the most currently available market data. While we are not aware of any misstatements regarding our industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus.

FISCAL YEARS

Our fiscal year is the 52 or 53-week period ending on the last Saturday in March. Fiscal year 2001 consisted of 53 weeks. Each of fiscal years 2000, 2002, 2003 and 2004 consisted of 52 weeks. Our fiscal year 2005, which ends March 26, 2005, will consist of 52 weeks. Fiscal years are identified in this prospectus according to the calendar year in which they end. For example, the fiscal year ended March 27, 2004 is referred to as “fiscal year 2004. ”

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary may not contain all the information that you should consider before investing in our common stock. You should carefully read the entire prospectus, including “Risk Factors” and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, in this prospectus “PSF Group Holdings,” “the Company,” “we,” “us,” and “our” refer to PSF Group Holdings, Inc. and its subsidiaries and predecessors.

Our Company

We are 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, further processor and export markets. We have become a recognized leader in the pork industry through our vertically integrated business model that combines modern, efficient production and processing facilities, sophisticated genetics, and strict control over the variables of health, diet and environment. We are the sixth largest pork processor in the United States, with processing facilities in Missouri and North Carolina that have the capacity to process approximately 4.6 million hogs per year. Operating in concert with our processing facilities, we are the second largest owner of sows in the United States, currently producing approximately 4.5 million hogs per year in operations located on approximately 100,000 acres in Missouri, Texas and North Carolina.

We are able to leverage our vertically integrated operations to produce premium and specialty products, which typically command higher prices. We tailor our production process to target discriminating customers willing to pay for high-quality products. We lower our production costs by controlling hog procurement and streamlining logistics, transportation and production schedules. For the twelve months ended December 31, 2004, our business generated total net sales of approximately $859.3 million and net income of approximately $40.8 million.

Industry Overview

Pork products are the largest source of meat protein in the world and the third largest source in the United States. According to the USDA, pork processors in the United States processed approximately 103.4 million hogs in 2004, representing approximately 20.5 billion pounds of pork. US exports of pork products have grown substantially in recent years. From 1995 through 2004, exports increased at an 11% compound annual growth rate, with total exports increasing from 1.3 billion pounds to 2.2 billion pounds. The USDA estimates that pork exports increased by 27% in 2004, a substantially higher growth rate than typically experienced, primarily as a result of increased levels of foreign demand due to a ban by certain foreign countries on the import of U.S. beef related to Bovine Spongiform Encephalopathy (“BSE,” or mad cow disease), the breakout of avian influenza affecting the poultry industry in Asia, favorable currency exchange rates and the continuing development of export markets for U.S. pork.

Historically, the United States pork industry has been divided into two segments: pork processing and hog production. Pork processing is a competitive, but highly concentrated industry with the top ten processors representing approximately 90% of total federally inspected industry capacity as of March 2005. In contrast, hog production, while rapidly consolidating, remains fragmented, with approximately 70,000 hog farms in the United States. The 50 largest U.S. hog producers account for at least 50% of the total U.S. hog production.

The pork industry has historically been highly cyclical in nature due to the natural inverse relationship of prices and production and the tendency of independent hog producers to increase production levels in response to higher hog prices. A typical industry cycle begins with higher hog prices, which leads to incremental production. This, in turn, leads to overproduction, which drives market prices lower. Eventually, lower market prices will generally cause production to moderate or decline which generally leads to higher market prices.

Competitive Strengths

We believe the following competitive strengths position us to enhance our growth and profitability:

Vertically Integrated, Efficient Operations. We believe that we are the most vertically integrated pork processor in the United States, owning and operating each of the key steps of production. 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 is a powerful competitive advantage in the rapidly consolidating pork industry because it allows us to cost-effectively produce value-added products and target discriminating customers willing to pay for high quality.

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 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 “Fresh and Tender” moisture-enhanced 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.

Process Verified Certification. 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. While others in the industry have the certification for parts of their system, we are the only company that has currently received the certification for the entire production and processing supply chain. 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 19 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 23 years of industry experience in production, 31 years in processing, 16 years in technical and food safety and 19 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

Key elements of our strategy include:

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 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 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.

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 10% of our net sales in the first three quarters ended December 25, 2004. 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 will 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.

Company Information

We were incorporated in Delaware on May 8, 1998 as a successor holding company to our business that was originally founded in 1988. Our principal executive offices are located at 805 Pennsylvania Avenue, Suite 200, Kansas City, Missouri 64105. Our telephone number at that location is (816) 472-7675. Our Web site address is http://www.psfarms.com. The information contained on our Web site should not be considered part of this prospectus.

THE OFFERING


Common stock offered by the selling shareholders		shares

Common stock to be outstanding immediately after this offering		shares

Over-allotment shares of common stock offered by the selling shareholders		shares

Use of proceeds		We will not receive any proceeds from this offering. See “Use of Proceeds.”

Proposed New York Stock Exchange or NASDAQ National Market symbol

Except as otherwise noted, the number of shares of common stock to be outstanding after this offering excludes:


	•	shares of common stock reserved for issuance under outstanding options, of which options to purchase shares of common stock are currently exercisable;

	•	shares of common stock reserved for future issuances under our equity incentive plan; and

	•	shares of common stock reserved for issuance under currently exercisable warrants.

Except as otherwise noted, all information in this prospectus gives effect to:


	•	the assumption that the underwriters do not exercise their over-allotment option;

	•	the conversion of our existing two classes of common stock into a single class of common stock prior to the closing of this offering and, in connection therewith, a for stock split;

	•	the contemplated merger of PSF Group Holdings, Inc. with and into its wholly owned subsidiary, Premium Standard Farms, Inc.; and

	•	the effectiveness of our amended and restated certificate of incorporation and restated bylaws.

Summary Historical Financial and Other Data

The following table sets forth our selected historical consolidated financial information and other data for the periods presented. The consolidated financial information for the fiscal years ended March 25, 2000, March 31, 2001, and March 30, 2002, was derived from our consolidated financial statements, which have been audited by Arthur Andersen LLP, independent public accountants, which has ceased operations. The consolidated financial information presented for the fiscal years ended March 29, 2003 and March 27, 2004, was derived from our consolidated financial statements, which have been audited by Deloitte & Touche LLP, independent registered public accounting firm. The consolidated financial information presented for the 39 weeks ended December 27, 2003 and December 25, 2004, was derived from our unaudited consolidated financial statements. The unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which we consider necessary for a fair presentation of the financial position and the results of operations for these periods. Operating results for the 39 weeks ended December 25, 2004, are not necessarily indicative of the results that may be expected for the entire year ending March 26, 2005. This data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus.


		Fiscal Year Ended(1)(2)														39 Weeks Ended

		March 25,			March 31,		March 30,			March 29,			March 27,			December 27,			December 25,
		2000			2001		2002			2003			2004			2003			2004

		(dollars in thousands, except share and per share data)
Statement of Operations Data:
Net sales		$	306,266		$	540,576	$	674,946		$	608,414		$	730,737		$	549,207		$	677,725
Cost of goods sold			265,929			456,184		589,183			631,870			696,751			520,002			574,869

	Gross profit		40,337			84,392		85,763			(23,456	)		33,986			29,205			102,856
Selling, general and administrative expenses			18,830			19,413		21,551			18,267			17,397			12,658			15,436
Impairment of fixed assets			5,000			—		—			—			—			—			—
Goodwill amortization(3)			2,040			2,436		—			—			—			—			—
Other (income) expense, net			(47	)		1,210		(558	)		(2,293	)		(597	)		(461	)		(875	)

	Operating (loss) income		14,514			61,333		64,770			(39,430	)		17,186			17,008			88,295
Interest expense, net			21,500			23,952		20,404			23,745			24,700			18,768			15,828
Loss on early extinguishment of debt			—			—		2,192			—			—			—			—
Income tax (benefit) expense			(1,699	)		15,367		16,809			(24,575	)		(2,923	)		(685	)		28,190

	Net (loss) income	$	(5,287	)	$	22,014	$	25,365		$	(38,600	)	$	(4,591	)	$	(1,075	)	$	44,277

Earnings (loss) per share(4):
	Basic	$			$		$			$			$			$			$
	Diluted
Shares used to calculate earnings (loss) per share:
	Basic
	Diluted


	Fiscal Year Ended(1)(2)										39 Weeks Ended

	March 25,		March 31,		March 30,		March 29,		March 27,		December 27,		December 25,
	2000		2001		2002		2003		2004		2003		2004

	(dollars in thousands)
Other Data:
Capital expenditures	$	23,669	$	43,224	$	96,232	$	35,505	$	41,884	$	33,474	$	33,691
Pounds of pork sales (millions)		345.84		603.88		675.02		737.95		786.22		593.71		617.39
Total hogs processed (millions)		1.92		3.02		3.66		4.07		4.28		3.23		3.31
Balance Sheet Data (At Period End):
Working capital	$	51,698	$	119,764	$	120,097	$	139,523	$	164,750	$	73,661	$	160,873
Total assets		584,498		773,440		807,639		779,062		760,014		761,863		744,692
Total long-term debt and capital leases (including current portion)		175,997		267,216		272,782		305,184		287,084		278,537		206,817
Shareholders’ equity		319,668		357,837		383,567		344,295		340,012		343,481		384,343


(1)	The financial information presented for the years ended March 31, 2001, March 30, 2002, March 29, 2003, and March 27, 2004, and the 39 weeks ended December 27, 2003 and December 25, 2004, reflect our acquisition of The Lundy Packing Company on August 25, 2000 and our acquisition of Premium Standard Farms of North Carolina, Inc. on September 22, 2000, both of which were accounted for in accordance with the purchase method of accounting. See “Business— Our History.”
(2)	Our fiscal year is the 52 or 53-week period ending on the last Saturday in March. Fiscal year 2001 consisted of 53 weeks, whereas each of fiscal years 2000, 2002, 2003 and 2004 consisted of 52 weeks.
(3)	In accordance with Statements of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Intangible Assets,” we discontinued amortizing goodwill over the estimated useful life beginning in fiscal year 2002.
(4)	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.

RISK FACTORS

You should carefully consider the risks described below before making an investment decision. 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. In such case, you may lose all or part of your original investment.

Risk Factors Related To Our Business

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

Our revenues are primarily derived from the sale of pork and pork products. Historically, the United States pork industry has been highly cyclical due to the natural inverse relationship of hog prices and production levels and the tendency of independent hog producers to increase production in response to higher hog prices. A typical cycle begins with higher hog prices, which leads to incremental production. This, in turn, leads to overproduction, which drives market prices lower. Eventually, lower prices will generally cause production levels to moderate or decline which generally leads to higher market prices. From 1995 through 2004, the USDA 185# pork cutout price, which is a standard measure for determining current market prices of pork primal cuts, ranged from a monthly low of $37.97 per hundred weight to a monthly high of $84.49 per hundred weight, and averaged $63.53 per hundred weight. Over the same period, the price for hogs ranged from a monthly low of $22.31 per hundred weight to a monthly high of $83.07 per hundred weight, and averaged $52.11 per hundred weight, in each case based on the lean hog prices published by the Chicago Mercantile Exchange, or CME. The cyclical nature of the pork industry is likely to continue and as a result, we may experience periods of overcapacity, declining prices and operating losses at times in the future. Our results for the first three quarters ended December 25, 2004 reflect favorable industry conditions, with the USDA 185# pork cutout price averaging $76.51 per hundred weight and hog prices, based on prices published by the CME, averaging $75.41 per hundred weight during that period. It is unlikely that the current favorable price environment will be sustained over time.

A significant portion of the products we sell are commodities and the most important factor that impacts the selling prices for these products is the relative balance between the supply and demand for pork and other meat products, particularly beef and poultry. Because of the length of the production cycle, there is relatively little ability of hog producers to adjust their production levels in the short-term. Because market conditions beyond our control determine the prices for our commodity products, the price for these products may fall below our cash production costs. We cannot assure you that future fluctuations in the supply and demand for pork products will not have a material adverse effect on our results of operations and financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Overview.”

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

Our business can be negatively affected by increased costs of our feed components, which consist primarily of corn and soybean meal. In the first three quarters of fiscal year 2005, our purchases of feed components comprised approximately 34.7% of our total cost of goods sold. The cost and supply of feed components are determined by constantly changing market forces of supply and demand, which are driven by matters over which we have no control, including weather, current and projected worldwide grain stocks and prices, grain export prices and supports and governmental agricultural policies. From 1995 through 2004, the price of corn ranged from a low of $1.93 per bushel to a high of $4.81 per bushel, and averaged $2.51, based on the daily close of the Nearby Corn Futures quoted by the Chicago Board of Trade, or CBOT. During the same period, the price of soybean meal ranged from a low of $128.80 per ton to a high of $315.38 per ton, and averaged $190.58 per ton, as measured by the daily close of the Nearby Soybean Futures quoted by the CBOT. Increases in the prices of our feed components would likely adversely affect our operating margins. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Overview” and— “Components of Revenue and Expenses— Cost of Goods Sold.”

Changes in consumer preference could adversely affect our business.

The food industry in general is subject to changing consumer trends, demands and preferences. Recent favorable price levels may reflect in part the interest of many consumers in high protein, low carbohydrate diets. It appears that consumer interest in these diets is decreasing, which could adversely affect our pork product and hog prices and, consequently, our results of operations. Our products compete with other protein sources, such as beef and poultry, and other foods. Trends within the food industry change often and failure to identify and react to changes in these trends could lead to, among other things, reduced demand and price reductions for our products, and could have a material adverse effect on our results of operations and financial condition. In addition, we do not have any other material lines of business or other sources of revenue to rely upon if we are unable to efficiently process and sell pork products or if the market for pork declines. This lack of diversification means that we may not be able to adapt to changing market conditions or withstand any significant decline in the pork industry.

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

In recent years, the trend among our retail, further processor and foodservice customers, such as supermarkets, pork processors, warehouse clubs and foodservice distributors, has been towards consolidation. Consolidation, along with the entry of mass merchants into the grocery industry, have resulted in customers with increasing negotiating strength who tend to exert pressure on us with respect to pricing terms, product quality and new products. As our customer base continues to consolidate, competition for the business of fewer customers is expected to intensify. If we do not negotiate favorable arrangements with our customers and implement appropriate pricing to respond to these trends, or if we lose existing large customers, our profitability could decrease.

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

We experienced operating and net losses of approximately $39.4 million and $38.6 million, respectively, in fiscal year 2003 and a net loss of $4.6 million in fiscal year 2004. The fiscal year 2003 net losses were due primarily to low pork prices resulting from an increased supply of pork and other meat proteins in the North American market, primarily resulting from the Russian ban on U.S. poultry imports. The fiscal year 2004 net loss was due primarily to the continuation of these trends, higher grain costs and an increased hog supply. There can be no assurance as to our ability to generate positive cash flow or net income in future periods. If we are unable to generate positive cash flow in the future, we may not be able to make required payments on our debt obligations.

On July 2, 1996, we filed a plan of reorganization under Chapter 11 of the United States Bankruptcy Code, due primarily to start-up costs and the low level of initial production at our Milan, Missouri processing plant, as well as the rapid expansion of our Missouri and Texas operations. The reorganization became effective on September 17, 1996, and our business emerged from Chapter 11. Our current corporate form resulted from the restructuring. See “Business— Our History.”

Our hedging activities may hurt our operating results.

We enter into futures, forward and option contracts with respect to such commodities as hogs and grains as part of our price-risk management techniques. These contracts do not qualify as hedges for financial reporting purposes. Consequently, these instruments are marked to market and included in net sales (in the case of hog contracts) or cost of goods sold (in the case of grain contracts) on a monthly basis. Therefore, losses on these contracts adversely affect our reported operating results.

We utilize hog futures to hedge future pork product sales. These contracts may result in market risk due to fluctuations in hog prices. Our hedging transactions tend to limit our ability to participate in gains from favorable commodity price fluctuations.

We purchase a portion of our feed ingredient requirements in advance at fixed prices in order to hedge our short-term exposure to future price fluctuations. We use futures, forward and options contracts, to help establish adequate supplies of future grain requirements and to reduce the risk of market fluctuations. These contracts may result in market risk due to fluctuations in the grain markets. In periods of declining commodity prices, our advance purchases and hedging transactions could result in our paying more for feed components than our competitors. Thus, the use of such instruments may limit our ability to participate in cost savings from declining feed prices.

For further discussion of the risks associated with commodity prices, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Results of Operations” and — “Quantitative and Qualitative Disclosures About Market Risk.”

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

We operate in a highly competitive environment and face significant competition in all of our markets. Some of our competitors, such as Smithfield Foods, which is the largest pork producer and processor, possess significantly greater financial, technical and other resources than we do. Some of our larger competitors may be able to decrease pricing of pork products in the markets in which we operate. The hog processing and production industries are rapidly consolidating, and the consolidation process may lead to more vertically integrated pork producers. We could experience increased price competition for our pork products and lose existing customers if other vertically integrated hog and pork processing companies gain market share. When hog prices are lower than our hog production costs, our non-integrated pork processing competitors may have a cost advantage because those competitors could purchase less expensive hogs from third-party suppliers, while we would have to continue to use hogs produced by our own hog production operations. We cannot assure you that we will have sufficient resources to compete effectively in our industry. See “Business— Competition.”

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

Our largest customer accounted for approximately 5% of our total revenues for the three quarters ended December 25, 2004. During the same period, our ten largest customers accounted for approximately 32% of our total revenues. We expect that these customers will continue to account for a substantial portion of our revenues for the foreseeable future. We generally do not have long-term contracts with most of our major customers and, as a result, such customers could significantly decrease or cease their business with us with limited or no notice. If we lose major customers, or if there is a decline in the amount of pork products or hogs they purchase from us, our cash flow, market share and profits would be adversely affected. A number of our customers are also competitors and could choose to terminate or alter their purchases from us for competitive or other reasons.

In addition, our export sales are predominately focused on Japan, and our sales to Japanese customers represented approximately 5% of our total revenues during the three quarters ended December 25, 2004. A majority of our Japanese exports were sold through a relationship with a Japanese trading partner, to whom we sell exclusively certain chilled pork products produced at our Milan, Missouri plant that are destined for the Japanese market. The contract with this trading partner comes up for renewal in December 2005. If we lose our relationship with this Japanese trading partner, our results of operations could be adversely affected.

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.

Export sales have become increasingly important to us in recent years, especially to Japan, and we intend to continue to expand our international sales. In the three quarters ended December 25, 2004, exports accounted for approximately 10% of our net sales. The markets for our products in countries outside of the United States vary in several material respects from markets in the United States. These variances include differences in pork consumption levels and marketing and distribution practices. Our exports to Japan have benefited from the Japanese ban on the import of U.S. beef. Any change in this policy resulting in substantial

U.S. beef exports to Japan could adversely affect the volume and pricing of our export sales to Japan. In fiscal year 2003, the Russian ban on the importation of poultry products from the United States resulted in an increased supply of poultry in the United States markets, causing beef and pork prices to decline substantially in 2003, which hurt our fiscal year 2003 results. In addition, the Mexican government instituted an anti-dumping investigation in 2004 with respect to the U.S. pork industry’s export of hams to Mexico. This investigation is ongoing and its results cannot be predicted. An adverse determination in this matter could substantially harm our exports to Mexico.

Our international activities also pose other risks not faced by companies that limit themselves to United States markets. These risks include:


	•	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; and

	•	different regulatory structures and unexpected changes in regulatory requirements.

We cannot assure you that we will be successful in identifying international expansion opportunities or that we will be able to further penetrate and compete effectively in international markets.

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.

Sow herd productivity and feed efficiency are important measures by which we evaluate the performance of our production operations. Sow productivity is commonly calculated as the number of offspring per sow per year that reach 45 to 50 pounds and measures the performance of our breeding, gestation, farrowing and nursery operations. Changes in sow productivity can have a material effect on profitability and margins because a substantial portion of the costs of operating a sow unit are either fixed or related to the number of sows. Sows generally have approximately six litters during their reproductive lives, and are most productive on average during the third and fourth litters. Rapid expansion of our sow herd could adversely affect our sow herd productivity because the additional sows will be less productive in their earlier litters. Sow productivity also can be influenced by a number of other factors, including the number and quality of our employees, the health condition of our herds and their mortality rate, genetics and environment.

Feed efficiency is commonly measured in terms of feed conversion ratios. A feed conversion ratio is calculated by the number of pounds of feed, which consists primarily of corn and soybean meal, consumed to produce a pound of live weight in hogs in our finishing units. It is a measure of the performance of our hog-finishing operations. Changes in feed efficiency affect per head feed consumption. As a result, they affect the aggregate cost of feed, which is the primary cost component in our hog-production operations. A number of factors influence feed efficiency, including, the capacity and use of our finishing facilities, the number and quality of our employees, the health condition of our animals, genetics, and the nutrient value of available feed ingredients.

Because of the many factors involved, we cannot assure you that existing herd productivity and feed efficiency levels will be maintained in the future. We also cannot assure you that any decline in those levels

will not have a material adverse effect on our costs, operating margins or ability to compete with other hog producers.

Outbreaks of disease can adversely affect our revenues and operating margins and the recent results of our Texas facility have been adversely affected by Porcine Reproductive and Respiratory Syndrome.

The outbreak of disease and other events could significantly restrict our ability to conduct our operations. The productivity and profitability of any hog operation depends, to a great extent, on the ability to maintain animal health and control disease. Disease can reduce the number of offspring weaned per sow and hamper the growth of hogs to finished size. Diseases can be spread from other infected hogs, in feed, in trucks, by rodents or birds, by people visiting the farms or through the air. We experience outbreaks of certain diseases, including Transmittable Gastroenteritis (“TGE”), and Porcine Reproductive and Respiratory Syndrome (“PRRS”), a respiratory disease commonly affecting swine herds, in our facilities, and may experience additional severe outbreaks in the future. Any such outbreaks could have a material adverse effect on our business, financial condition and results of operations. Our recent operating results have been adversely affected by PRRS issues in our Texas facility. See “Business— Processing and Production Operations— Texas.”

We also face the risk of outbreaks of other diseases that have not affected our herds previously, including foot-and-mouth disease, which is a highly contagious viral disease affecting swine, cattle, sheep and goat herds. Until the outbreaks of the disease previously reported in Europe, which have led to the destruction of thousands of animals, foot-and-mouth disease had been primarily limited to Africa, the Middle East, Asia and South America. Although foot-and-mouth disease is generally not lethal in adult pigs, mortality is common when younger pigs are infected. If we experience an outbreak of foot-and-mouth disease, we will likely be required to destroy all of our herd that has the potential of being infected. If this occurs, our business, financial condition and results of operations would be adversely affected.

In addition, an outbreak of disease could result in governmental restrictions on the import and export of our pork products to or from our suppliers, facilities or customers even if our herds were not infected with such disease. This could result in the cancellation of orders by our customers and create adverse publicity that may have a material adverse effect on our business, financial condition and results of operations. Furthermore, any outbreak of livestock disease in the United States may result in a loss of consumer confidence in the protein products affected by the particular disease, adverse publicity and the imposition of export restrictions. For example, in December 2003, a single case of BSE, a disease affecting cattle but not hogs, was discovered in the State of Washington. As a result, beef imports from the United States have been banned by many foreign countries, including Japan, the largest importer of U.S. beef. This incidence of BSE continues to have a material negative effect on the beef industry.

Outbreaks of livestock disease in foreign countries may also affect the market for protein products in the United States. For example, in May 2003, a BSE outbreak in Canada resulted in a U.S. import restriction on live cattle from Canada. The resulting drop in the live cattle supply in the United States led to increased prices for live cattle and has placed continuing pressure on margins in the beef industry. Similar events could occur in the pork industry.

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.

Our operations are subject to various federal, state, local and foreign environmental, health, safety and other laws and regulations, including those governing air emissions and wastewater discharges and, in some jurisdictions, odor. Among other things, these laws and regulations impose standards and limitations on our waste treatment lagoons, water treatment facilities and new construction projects and regulate the management of animal waste from our hog production facilities. We cannot assure you, however, that we will at all times operate in compliance with environmental requirements, and if we fail to comply with such requirements, we could incur material penalties, fines and damages, and negative publicity.

Environmental, health, and safety laws and regulations are subject to amendment, to the imposition of new or additional requirements and to changing interpretations by governmental agencies or courts. In particular, environmental laws and regulations may become more stringent for our industry. Additionally, various citizen and advocacy groups have been advocating changes in animal handling and environmental practices in the industry. We anticipate increased regulation by various governmental agencies and continued advocacy and enforcement by citizen groups concerning food safety, the use of medication in feed formulations, the disposal of animal by-products, air and wastewater discharges and the compliance status of our contract growers. More stringent requirements could result in changes in industry practices that could increase our costs and reduce margins.

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

In order to settle enforcement actions and citizen suits, we entered into consent decrees with the State of Missouri, and with the federal government, and a citizens group, and a voluntary agreement with the State of North Carolina. The decrees required us to pay penalties to settle past alleged regulatory violations, and require us to research, develop, and implement new technologies for environmental controls at our Missouri operations. As a result of these decrees, we will be required to invest approximately $33 million in environmental controls by 2010 deadline, of which we have spent $6.5 million as of December 25, 2004. We expect to spend approximately $4.5 million on environmental controls in the last quarter of fiscal year 2005, and expect to spend about $4.0 million in fiscal year 2006, and roughly $4.0 million in fiscal year 2007. If we fail to make the required investments, we may incur material penalties, fines and damages, and negative publicity. We may also be required to make additional investments at our North Carolina operations under the voluntary agreement.

We are subject to North Carolina’s moratorium on expansion of hog operations.

North Carolina enacted a moratorium on the construction of farms with more than 250 hogs or the expansion of existing large farms in North Carolina. In 2003, the moratorium was extended until 2007. North Carolina is concerned about the use of waste treatment lagoons and spray fields for the disposal of swine waste, especially in areas of that state are prone to flooding or hurricanes. It is anticipated that this moratorium will be extended until more effective technologies are developed to protect the environment. The moratorium limits us from expanding our North Carolina production operations. It is possible that lagoons and spray fields could be banned in North Carolina in the future, leading to increased competition for growers and disruption to our North Carolina 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.

Because of the nature of our operations, we are subject to the risk of environmental claims, including nuisance claims by neighboring property owners. We face the risk of nuisance lawsuits even if we are operating in compliance with applicable regulations. We are currently a defendant in several suits, including one class action suit, based on the law of nuisance relating to our hog production facilities in Missouri. We believe we have defenses to these actions and intend to vigorously defend them, although we cannot assure you that our defenses in these matters will be successful, or that additional nuisance claims will not arise in the future. See “Business — Legal Proceedings.”

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

The occurrence of unanticipated natural disasters could adversely affect our business in many ways, including the following:


	•	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;

• 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.

The packaging, marketing and distribution of food products entails an inherent risk of product liability and product recall and the resultant adverse publicity. Pork products may be subject to contamination by disease producing organisms or pathogens, such as Listeria monocytogenes or Salmonella species. These pathogens are generally found in the environment and as a result, there is a risk that they, as a result of food processing, could be present in our processed pork products. These risks may not be eliminated by adherence to good manufacturing practices and finished product testing. We may be subject to significant liability if the consumption of any of our products causes injury, illness or death. We could be required to recall certain of our products in the event of contamination, adverse test results or damage to the products. In addition to the risks of product liability or product recall due to deficiencies caused by our processing and production operations, we may encounter the same risks if any third party tampers with our products. We may be required to perform product recalls, and product liability claims may be asserted against us in the future. We have little, if any, control over proper handling procedures once our products have been shipped for distribution. As a result, these pathogens can also be introduced to our products as a result of improper handling or temperature controls at the further processor, foodservice or consumer level. Even if a product is not contaminated when it leaves our facility, illness and death may result if the pathogens are not eliminated or are introduced at such further processor, foodservice or consumer level. Any claims that may be made may create adverse publicity that would have a material adverse effect on our ability to market our products successfully. Even an inadvertent shipment of contaminated products is a violation of law and may lead to increased risk of exposure to product liability claims, product recalls and increased scrutiny by federal and state regulatory agencies and may have a material adverse effect on our business, reputation, prospects, results of operations and financial condition.

Our product liability insurance coverage may not adequately protect us from all of the liabilities and expenses that we incur in connection with such events. If we were to suffer a loss that is not adequately covered by insurance, our results of operations and financial condition would be adversely affected.

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.

In February 2002, the U.S. Senate initially passed a Farm Bill that included a provision known as the “Johnson Amendment,” which would have prohibited meat packers, like us, from owning or controlling livestock intended for slaughter for more than fourteen days prior to slaughter. The U.S. House of Representatives passed a different version of the Farm Bill that did not contain any provision similar to the Johnson Amendment. Similar legislation affecting our operations may be adopted at the federal or state levels in the future. Such legislation, if adopted and applicable to our current operations, would have a material adverse impact on our business, financial condition and results of operations. See “Business— Regulation.”

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.

Several states have enacted “corporate farming laws” that restrict the ability of corporations to engage in farming activities. Missouri is among these states, but Texas and North Carolina currently are not. Missouri’s corporate farming law in many cases bars corporations from owning agricultural land and engaging in farming activities. At the time of ContiGroup Companies, Inc.’s (“ContiGroup”) acquisition of its interest in us in 1998, ContiGroup submitted the proposed ownership structure to the Office of the Attorney General of the State of Missouri for its review. At that time, the Office of the Attorney General indicated that it had no objection to our current structure under the corporate farming laws. There can be no assurance, however, that this position will be maintained in the future as our operations continue and develop. While we believe our operations currently comply with the Missouri corporate farming law and its existing exemptions, the Missouri laws could be subject to challenge or amendment by Missouri governmental bodies in the future, which could have a material adverse effect on our business, financial conditions and results of operations. Further, even with the exemptions, the corporate farming laws of many states, including Missouri, restrict our ability to expand beyond the counties in which we currently operate.

In addition to Missouri’s “corporate farming law,” Missouri law also prohibits a person who is not a citizen or resident of the United States from holding a controlling interest in a business that owns land used for farming. A controlling interest in us is not currently, and we anticipate will not be immediately after this offering, held by a foreign person or entity in violation of this law. Our certificate of incorporation includes provisions intended to prevent foreign ownership in violation of this law. These provisions, however, may not effectively prevent a foreign person or entity from acquiring a controlling interest in us after the offering. See “Description of Capital Stock — Foreign Ownership Restriction.” If a foreign person or entity acquires a controlling interest in us, it could have a material adverse effect on our business and the rights of such foreign person with respect to its investment in our common stock.

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

We require a substantial amount, and as we continue to expand our business we will require additional amounts, of water, electricity and natural gas to produce and process our products. The prices of water, electricity and natural gas fluctuate significantly over time, due to supply and other factors, and impact our cost structure. We may not be able to pass on increased costs of production to our customers. As a result, increases in the cost of water, electricity or natural gas would substantially harm our business, financial condition and results of operations. In addition, the unavailability of these resources could hamper our operations.

Our transportation costs are a material portion of the cost of our products. We primarily ship our products and receive our inputs via truck and rail. Exports to Japan and certain other countries involve ocean freight as well. The costs associated with the transportation of our products and inputs fluctuate with the price of fuel and the capacity of our transportation sources. Increases in costs of transportation would negatively affect our profitability.

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

As of December 25, 2004, our outstanding indebtedness was $206.8 million. We expect that our indebtedness, including borrowings under our credit agreement, may increase from time to time in the future for various reasons, including fluctuations in operating results, capital expenditures and possible acquisitions. Our consolidated indebtedness level could materially affect our business because:


	•	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;


	•	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.

In addition, our credit agreement requires us to meet specified financial ratios and limits our ability to enter into various transactions. If we default on any of our indebtedness, or if we are unable to obtain necessary liquidity, our indebtedness would be due and payable immediately and our business could be adversely affected.

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.

Our employees are not represented by any labor union. However, there have been efforts to unionize our work force in the past and there could be attempts to do so in the future. In addition, we have experienced high turnover in our Missouri production and processing employees in the past, and our location in rural Missouri limits our ability to find replacement workers for those operations. Our Missouri operations are currently located in five sparsely populated counties in which we employed approximately 2,150 people at December 25, 2004. As a result, we have a limited pool of potential replacement workers for those operations.

Any significant deterioration of employee relations, increase in labor costs, slowdowns or work stoppages, or shortages of labor at any of our locations, whether due to union activities, employee turnover or otherwise, could have a material adverse effect on our business, financial condition and results of operations. See “Business— Employees.”

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

We believe our continued success depends on the collective abilities and efforts of our senior management. We do not maintain key person life insurance policies on any of our employees. The loss of one or more key personnel, such as our executive officers, could have a material adverse effect on our results of operations. Additionally, if we are unable to find, hire and retain needed key personnel in the future, our results of operations could be materially and adversely affected.

We are subject to risks associated with future acquisitions.

An important element of our growth strategy is the acquisition and integration of complementary businesses in order to broaden product offerings, capture market share and improve profitability. We will not be able to acquire other businesses if we cannot identify suitable acquisition opportunities, obtain financing on acceptable terms or reach mutually agreeable terms with acquisition candidates. The negotiation of potential acquisitions, as well as the integration of an acquired business, could require us to incur significant costs and cause diversion of our management’s time and resources. Future acquisitions by us could result in:


	•	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.

Some or all of these items could have a material adverse effect on our business. The businesses we acquire in the future may not achieve sales and profitability that justify our investment. In addition, to the extent that consolidation becomes more prevalent in our industry, the prices for suitable acquisition candidates may increase to unacceptable levels and limit our growth.

You are unlikely to be able to seek remedies against Arthur Andersen LLP, our former independent auditor.

Our consolidated financial statements for the fiscal years ended prior to March 29, 2003 were audited by Arthur Andersen LLP, our former independent auditor. In June 2002, Arthur Andersen LLP was convicted of federal obstruction of justice charges in connection with its destruction of documents. Arthur Andersen LLP has ceased operations and is no longer in a position to reissue its audit reports or to provide consent to include financial statements reported on by it in this prospectus. Because Arthur Andersen LLP has not reissued its reports and because we are not able to obtain a consent from Arthur Andersen LLP, you will be unable to sue Arthur Andersen LLP for material misstatements or omissions, if any, in this prospectus, including the financial statements covered by its previously issued reports. Even if you have a basis for asserting a remedy against, or seeking to recover from, Arthur Andersen LLP, we believe that it is unlikely that you would be able to recover damages from Arthur Andersen LLP.

Risks Related to this Offering

Substantial influence by ContiGroup Companies, Inc. could adversely affect our other shareholders.

After this offering, ContiGroup will own approximately % of our outstanding common stock, or approximately % of our outstanding common stock if the underwriters’ over-allotment option is exercised in full. As a result, it will have the ability to exert substantial influence over all matters submitted to our shareholders for approval, including the election and removal of directors and any merger, consolidation, or sale of our assets. It also will have the ability to exert significant influence on our management and affairs. This concentration of ownership may delay or prevent a change in control; impede a merger, consolidation, takeover, or other business combination involving us; discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us; or result in actions that may be opposed by other shareholders, including those who purchase shares in this offering. Currently four of our directors, including our Chairman, have been elected by ContiGroup. In addition, our General Counsel is also an officer of ContiGroup and, as such, may have interests that conflict with yours. ContiGroup currently owns and may in the future own businesses that directly or indirectly compete with ours.

In addition, ContiGroup has entered into transactions with us and may from time to time in the future enter into transactions with us. As a result, it may have interests that are different from, or in addition to, its interest as shareholder in our Company. Such transactions may adversely affect our results of operations or financial condition. See “Certain Relationships and Related Transactions.”

Fluctuations in our operating results may negatively impact our stock price.

Given the cyclical nature of our business, including its substantial dependence on commodity prices, our revenue, margins, and operating results have varied in the past and are likely to fluctuate significantly in the future. Our operating expense levels are based on our expectations for future revenue. If actual revenue is below management’s expectations, or if our expenses increase before revenues do, both gross margins and operating results would be materially and adversely affected. Because of these fluctuations, it is possible that our operating results or other operating metrics may fail to meet the expectations of stock market analysts and investors. If this happens, the market price of our common stock is likely to decline.

There has been no prior public market for our common stock and it is possible that no trading market will develop.

Prior to this offering, there has been no public market for our common stock. We cannot predict the extent to which investor interest in our common stock will lead to an active trading market or how liquid that market might become. If no trading market develops, you may not be able to sell your shares of our common stock purchased in this offering at an acceptable price or at all. The market price of the common stock may decline below the initial public offering price. The initial public offering price for the shares has been

determined by negotiations between us and the underwriters and may not indicate prices that will prevail in the trading market following the completion of this offering. See “Underwriters.”

The future sale of shares of our common stock may negatively affect our stock price.

If our shareholders sell substantial amounts of our common stock in the public market following this offering, the market price of our common stock could fall. We, along with our officers, directors and the holders of substantially all of our shares of common stock, have agreed that they will not sell, directly or indirectly, any common stock without the prior written consent of Morgan Stanley & Co. Incorporated, the managing underwriter in this offering, for a period of 180 days from the date of this prospectus (or up to approximately 30 days longer in certain circumstances). However, Morgan Stanley & Co. Incorporated may, in its sole discretion and at any time or from time to time, without notice, release all or any portion of the securities subject to the lock-up agreements. In addition, ContiGroup is expected to beneficially own approximately % of our outstanding shares upon completion of this offering. The market price of our common stock could fall if ContiGroup or another major shareholder sells substantial amounts of our common stock. After this offering, we will have shares of common stock outstanding. Of these shares, all of the shares being offered pursuant to this prospectus, as well as a significant number of other shares, are expected to be freely tradable. Sales of substantial amounts of common stock (including shares issued in connection with future acquisitions that may be issued with registration rights) may adversely affect the prevailing market price for our common stock and could impair our ability to obtain additional capital by offering equity securities. See “Shares Eligible for Future Sale.”

Our amended and restated certificate of incorporation and restated bylaws, as well as Delaware law, contain provisions that may inhibit potential acquisition bids, discourage merger offers or prevent changes in our management, which may adversely affect the market price of our common stock.

We have adopted provisions in our amended and restated certificate of incorporation and restated bylaws that will become effective upon the closing of this offering and that could delay or prevent a change in control, such as:


	•	authorizing the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares to thwart a takeover attempt;

	•	prohibiting our shareholders from acting by written consent, thereby requiring all shareholder actions to be taken at a meeting of our shareholders;


	•	permitting our bylaws to be amended by the affirmative vote of the holders of at least two-thirds of the outstanding shares of our voting stock;

	•	limiting the ability of our shareholders to call special meetings and establishing advance notice provisions for nominations for election to the board of directors or for proposing matters to be acted upon at meetings of shareholders; and

	•	classifying our board of directors so that only one-third of our directors are elected each year, so that it would take three successive annual meetings to replace all of the directors.

In addition, Section 203 of the Delaware General Corporation Law may inhibit potential acquisition bids for our Company. Upon completion of this offering, we will be subject to Section 203, which regulates corporate acquisitions and limits the ability of a holder of 15% or more of our stock from acquiring the rest of our stock. Under Delaware law a corporation may opt out of the anti-takeover provisions, but we do not intend to do so.

These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction even if such a transaction may be desired by our shareholders.

You will incur immediate and substantial dilution and may experience further dilution.

The initial public offering price of our common stock is substantially higher than the net tangible book value per share of the outstanding common stock. If you purchase common stock in this offering, you will

incur immediate and substantial dilution in the net tangible book value per share of the common stock from the price you pay for the stock. To the extent that option or warrant holders exercise outstanding options or warrants to purchase common stock, there may be further dilution. Moreover, there can be no assurance that we will not raise additional funds through future sales of our common stock. Any such financing may result in additional dilution to our shareholders. See “Dilution.”

FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements” within the meaning of Section 17A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. When used in this prospectus, the words “anticipates,” “believes,” “expects,” “plans,” “intends,” “may,” “will” and similar expressions identify such forward-looking statements. Although we believe that such statements are based on reasonable assumptions, these forward-looking statements are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected. These factors, risks and uncertainties include, among others, the following:


	•	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;

	•	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 effect if certain financial statements audited by Arthur Andersen LLP are later determined to contain false information.

The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus, including under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” We expressly disclaim any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in our views or expectations, or otherwise. We make no prediction or statement about the performance of our shares of common stock. You are cautioned not to rely on forward-looking statements.

DIVIDEND POLICY

We have never paid a cash dividend on our common stock. We currently are prohibited from paying dividends under our existing bank credit agreement and have limited or no ability to pay dividends at this time under the restricted payment covenant calculation under the indenture relating to our 9¹/4% senior notes. Our board of directors intends to consider the payment of dividends from time to time if appropriate modifications can be made to our credit arrangements. The payment of future dividends will depend on our earnings, cash needs, terms of debt agreements and other factors our board of directors deems relevant from time to time.

USE OF PROCEEDS

All shares in this offering are being sold by the selling shareholders and, consequently, we will not receive any proceeds from this offering. Affiliates of Morgan Stanley & Co. Incorporated, the managing underwriter of this offering, are selling shares of common stock in the offering. See “Principal and Selling Shareholders” and “Underwriters.”

CAPITALIZATION

The following table sets forth our capitalization as of December 25, 2004. We have not adjusted our capitalization for the offering because we are not receiving any proceeds from the offering.

You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.


			As of
			December 25, 2004

			(unaudited)
			(in thousands, except
			share data)
Long-term debt:
Revolving credit agreement(1)			$	30,228
9¹/4% senior notes due 2011 (net of unamortized discount of $1.1 million)				173,900
Capital leases				2,689

		Total long-term debt and capital leases	$	206,817
Shareholders’ equity:
Common stock, $.01 par value; shares authorized; shares issued and outstanding(2)(3)
Preferred stock; $.01 par value; shares authorized; no shares issued or outstanding				—
Additional paid-in capital(2)(3)
Retained earnings				10,633

	Total shareholders’ equity			384,343

	Total capitalization		$	591,160


(1)	Our existing credit agreement provides for revolving credit borrowings of up to $175.0 million. As of December 25, 2004, we had $133.6 million available for borrowing under our revolving credit agreement.
(2)	Common stock and additional paid-in capital reflects a for stock split completed in , 2005.
(3)	The number of shares of common stock to be outstanding after this offering excludes:


	•	shares of common stock reserved for issuance under outstanding options, of which options to purchase shares of common stock are currently exercisable;
	•	shares of common stock reserved for future issuances under our equity incentive plan; and
	•	shares of common stock reserved for issuance under currently exercisable warrants.

DILUTION

Dilution is the amount by which the offering price paid by the purchasers of the common stock offered hereby will exceed the net tangible book value per share of common stock after the offering. Net tangible book value per share is determined at any date by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of common stock deemed to be outstanding at that date. Our net tangible book value as of December 25, 2004 was $299.5 million or $ per share of our common stock. This represents an immediate dilution of $ per share to new investors (based on an assumed initial public offering price of $ per share).

The following table summarizes, on an as adjusted basis as of December 25, 2004, the total number of shares of our common stock, the total consideration paid and the average price per share paid by existing shareholders and new investors, calculated before deducting the underwriting discounts and commissions and estimated offering expenses based on an assumed initial public offering price of $ per share.


						Total
		Shares Purchased				Consideration
										Average Price
		Number	Percent			Amount	Percent			Per Share

		(in thousands, except per share data)
Existing shareholders					%	$			%	$

New investors

	Total			100.0	%	$		100.0	%	$

If the underwriters exercise their over-allotment option in full, the following will occur:


	•	the number of shares of our common stock held by existing shareholders will decrease to approximately % of the total number of shares of our common stock outstanding after this offering; and

	•	the number of shares of our common stock held by new investors will increase to , or approximately % of the total number of shares of our common stock outstanding after this offering.

The foregoing discussion and tables are based upon the number of shares of our common stock issued and outstanding on December 25, 2004 and exclude shares of our common stock issuable upon exercise of options and warrants outstanding on December 25, 2004. As of that date, there were shares of our common stock issuable upon exercise of outstanding options at a weighted average exercise price of $ per share and shares of our common stock issuable upon the exercise of warrants at a weighted average exercise price of $ per share. To the extent the options or warrants are exercised and the underlying shares of common stock are issued, there will be further dilution to new investors. See “Risk Factors,” “Capitalization,” “Management,” “Description of Capital Stock” and the notes to our consolidated financial statements included elsewhere in this prospectus.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA


		Fiscal Year Ended(1)(2)														39 Weeks Ended

		March 25,			March 31,		March 30,			March 29,			March 27,			December 27,			December 25,
		2000			2001		2002			2003			2004			2003			2004

		(dollars in thousands, except share and per share data)
Statement of Operations Data:
Net sales		$	306,266		$	540,576	$	674,946		$	608,414		$	730,737		$	549,207		$	677,725
Cost of goods sold			265,929			456,184		589,183			631,870			696,751			520,002			574,869

	Gross profit		40,337			84,392		85,763			(23,456	)		33,986			29,205			102,856
Selling, general and administrative expenses			18,830			19,413		21,551			18,267			17,397			12,658			15,436
Impairment of fixed assets			5,000			—		—			—			—			—			—
Goodwill amortization(3)			2,040			2,436		—			—			—			—			—
Other (income) expense, net			(47	)		1,210		(558	)		(2,293	)		(597	)		(461	)		(875	)

	Operating income (loss)		14,514			61,333		64,770			(39,430	)		17,186			17,008			88,295
Interest expense, net			21,500			23,952		20,404			23,745			24,700			18,768			15,828
Loss on early extinguishment of debt			—			—		2,192			—			—			—			—
Income tax (benefit) expense			(1,699	)		15,367		16,809			(24,575	)		(2,923	)		(685	)		28,190

	Net (loss) income	$	(5,287	)	$	22,014	$	25,365		$	(38,600	)	$	(4,591	)	$	(1,075	)	$	44,277

Earnings (loss) per share(4):
	Basic	$			$		$			$			$			$			$
	Diluted
Shares used to calculate earnings (loss) per share:
	Basic
	Diluted
Other Data:
Capital expenditures		$	23,669		$	43,224	$	96,232		$	35,505		$	41,884		$	33,474		$	33,691
Pounds of pork sales (millions)			345.84			603.88		675.02			737.95			786.22			593.71			617.39
Total hogs processed (millions)			1.92			3.02		3.66			4.07			4.28			3.23			3.31
Balance Sheet Data (At Period End):
Working capital		$	51,698		$	119,764	$	120,097		$	139,523		$	164,750		$	73,661		$	160,873
Total assets			584,498			773,440		807,639			779,062			760,014			761,863			744,692
Total long-term debt and capital leases (including current portion)			175,997			267,216		272,782			305,184			287,084			278,537			206,817
Shareholders’ equity			319,668			357,837		383,567			344,295			340,012			343,481			384,343


(1)	The financial information presented for the years ended March 31, 2001, March 30, 2002, March 29, 2003, and March 27, 2004, and the 39 weeks ended December 27, 2003 and December 25, 2004, reflect our acquisition of The Lundy Packing Company on August 25, 2000 and our acquisition of Premium

Standard Farms of North Carolina, Inc. on September 22, 2000, both of which were accounted for in accordance with the purchase method of accounting. See “Business— Our History.”

(2) Our fiscal year is the 52 or 53-week period ending on the last Saturday in March. Fiscal year 2001 consisted of 53 weeks, whereas each of fiscal years 2000, 2002, 2003 and 2004 consisted of 52 weeks.

(3) In accordance with Statements of Financial Account Standards No. 142 (“SFAS 142”), “Goodwill and Intangible Assets,” we discontinued amortizing goodwill over the estimated useful life beginning in fiscal year 2002.

(4) 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.

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 consolidated financial statements, including the notes thereto, and the other financial information appearing elsewhere in this prospectus. 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.” For additional information regarding some of the risks and uncertainties that affect our business and the industries in which we operate and that apply to an investment in our common stock, please read “Risk Factors.” Our actual results may differ materially from those estimated or projected in any of these forward-looking statements.

Overview

Historically, the United States pork industry has been highly cyclical in nature due to the natural inverse relationship of prices and production and the tendency of independent hog producers to increase production levels in response to higher hog prices. A typical cycle begins with higher hog prices, which leads to incremental production. This, in turn, leads to overproduction, which drives market prices lower. Eventually, lower market prices will generally cause production to moderate or decline which generally leads to higher market prices. Because of the length of the production cycle, there is relatively little ability of hog producers to adjust their production in the short-term, although some changes in supply may occur through net increases or decreases of pork products held in freezers.

We operate in two business segments— pork processing and hog production. The costs of pork processors are highly dependent on the cost of hogs, and net sales are determined in large part by the prices they receive (cut-out prices) for pork products. Conversely, cost of goods sold from hog production is determined in large part by the costs of feed, primarily corn and soybean meal, and net sales from hog production are highly dependent on the prices the producer receives for hogs. Sales of hogs from our production segment are transferred to our processing segment at daily market prices. High feed prices can negatively impact production results since these increases can raise the costs to the producer. Given the volatility of prices of these commodities, the results of both our segments can vary substantially.

The prices for all of these commodities are volatile and the spreads between these prices vary substantially. High prices for hogs normally hurt the profitability of processing operations unless pork prices increase sufficiently to offset these cost increases. On the other hand, hog producers tend to record better results when prices for hogs are high, especially in relation to grain prices. As a result of changes in the hog and pork prices, results of our pork processing segment in certain periods may be better or worse than results for our production segment.

The following graphs set forth various hog, pork and grain price data for recent periods and illustrate the volatility in market prices.

Pork and Hog Prices (April 2001-December 2004)


(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 price, a standard measure for determining current market prices of pork primal cuts that is published by the USDA.

Corn $/Bushel (April 2001-December 2004)


(1)	Based on the daily close of the Nearby Corn Futures quoted by the Chicago Board of Trade.

Soybean Meal $/Ton (April 2001-December 2004)


(1)	Based on the daily close of the Nearby Soybean Futures quoted by the Chicago Board of Trade.

On December 28, 2004, the USDA issued its Hogs and Pigs Inventory Report that indicated a 0.7% decrease in the breeding herd and current hog inventories just fractionally above the year-ago level. Continued strong demand has kept hog prices at relatively high levels for the three quarters ended December 25, 2004. Ongoing strength in hog prices is contingent on continued or increased demand for pork products or a reduced supply of hogs in the future.

On December 10, 2004, the USDA issued a crop production report, estimating a record corn crop of 11.7 billion bushels, up 1.6 billion bushels from the prior year. In the same report, the USDA forecasted a record 3.2 billion bushel soybean crop, which is 700 million bushels greater than the previous year. Both of these estimates of production have reduced the near-term prices of corn and soybean meal, the primary ingredients in our feed rations.

Components of Revenue and Expenses


	*Net Sales*

Our net sales are generated from the sale of pork products to retailers, wholesalers, foodservice suppliers, further processors, export buyers, and to a lesser extent the sale of hogs to other pork processors. Sales of hogs from our production segment are transferred to our processing segment at daily market prices. In fiscal year 2004, sales of pork products accounted for approximately 90% of our net sales, with the remaining 10% coming from sales of hogs to outside processors.

Pork product sales are of primal cuts, such as hams, loins, bellies, butts, picnics and ribs, and to a lesser extent cooked pork, further processed pork and pork by-products. Primal cuts are also converted further into boneless items or, in our North Carolina operations, further processed into items such as smoked hams, sliced bacon and microwave cooked bacon. Our processing revenues are primarily driven by the operating rate of our facilities and the value that we extract from the hogs that we process. For our fiscal years ended March 30, 2002, March 29, 2003 and March 27, 2004, we processed 3.7 million, 4.1 million and 4.3 million hogs, respectively. Our Missouri processing plant is currently capable of processing 7,400 hogs per day and our North Carolina processing plant is currently capable of processing up to 10,000 hogs per day, depending on seasonality. The value that we extract from hogs processed is primarily driven by pork prices, processing yields and to a lesser extent, by product mix, as premium products, boneless and further processed products generate higher prices and operating margins.

Wholesale pork prices fluctuate seasonally and cyclically due to changes in supply and demand for pork. We believe that our vertical integration allows us to obtain higher prices for our products than our more commodity-oriented competitors.

We utilize hog futures to hedge future pork product sales. While this may tend to limit our ability to participate in gains from favorable commodity price fluctuation, it also tends to reduce earnings volatility and secure future margins. Our hedging contracts relating to hogs are marked to market monthly. Consequently, any gains or losses on these instruments are reflected in net sales. See “Quantitative and Qualitative Disclosures About Market Risk.”

Historically, hog prices have experienced cyclical and seasonal supply and demand fluctuations. Revenue from the sale of hogs is driven by the number of hogs sold (in excess of what our processing facilities require), the average weight, and the current market price (including any quality premiums). Our excess hogs are sold to other processors.


	*Cost of Goods Sold*

Our cost of goods sold is driven primarily by several key factors. For our pork processing operations, the main costs (excluding hogs) are labor, packaging, utilities, facility and freight expenses. Given the high fixed costs required to build, maintain and operate a processing plant, unit costs are impacted by processing volumes. The costs associated with our North Carolina pork processing facility reflect the fact that approximately one-quarter of the hogs processed at this facility are purchased at market prices from independent local farmers under long-term supply contracts.

For our hog production operations, the main costs are feed, labor, utilities, and facility expenses which include maintenance, depreciation and contract grower fees. The costs associated with feed generally represent 50% to 60% of the total cost to raise a hog depending on the price of corn and soybean meal, which constantly fluctuates. Increases in the price of these commodities result in increases in our feed costs, while decreases reduce our feed costs. The relative impact of price changes in these commodities varies based on the percentage that each makes up in our feed composition. Our hedging contracts relating to grains are marked to market monthly. Consequently, any gains or losses on these instruments are reflected in cost of goods sold. See “Quantitative and Qualitative Disclosures About Market Risk.” We are proactive in recognizing opportunities to improve our cost structure and strive to be one of the lowest cost producers in the industry.


	*Selling, General and Administrative Expenses*

Selling, general and administrative expenses consist primarily of compensation and benefits for company-employed sales people as well as trade promotions, advertising, commissions and other marketing costs. General and administrative costs consist primarily of general management, accounting, information technology and legal expenses.


	*Interest expense, net*

Interest expense, net consists of (i) interest expense (primarily on our bank indebtedness and 9¹/4% senior notes), including any amortization of deferred financing costs, less (ii) interest income.


	*Other income (expense)*

Other income (expense) primarily includes income (expense) from our 50% ownership interest in L&H Farms, a hog production facility in North Carolina, and Oldham’s LLC, a sow processing facility in Kansas. It also includes the minority interest of a partner in our majority-owned subsidiary, L&S Farms, LLC, a hog production facility in North Carolina, and, in fiscal year 2003, the proceeds paid to us from a favorable settlement of litigation. For additional information on our joint ventures, see Note 6 to our consolidated audited financial statements included elsewhere in this prospectus.

Results of Operations


	*39 Weeks Ended December 25, 2004 Compared to 39 Weeks Ended December 27, 2003*

The following table presents selected historical financial information for our processing and production segments for the three quarters ended December 25, 2004 and December 27, 2003. The two columns under period-to-period change show the dollar and percentage change from the first three quarters ended December 25, 2004 to the first three quarters ended December 27, 2003. Intersegment sales are based on daily market prices.


			For the 39 Weeks Ended						Period-to-Period Change

									39 Weeks			Percentage
			December 27, 2003			December 25, 2004			2004 to 2005			Change(1)

			(unaudited)
			(in millions, except percentages)
Net Sales:
	Processing		$	495.5		$	629.6		$	134.1			27.1	%
	Production			341.0			459.7			118.7			34.8	%
	Intersegment			(287.3	)		(411.6	)		(124.3	)		(43.3	)%

		Total Net Sales	$	549.2		$	677.7		$	128.5			23.4	%

Gross Profit:
	Processing		$	29.1		$	21.1		$	(8.0	)		(27.5	)%
	Production			0.1			81.8			81.7			NM

		Total Gross Profit	$	29.2		$	102.9		$	73.7			252.4	%

Operating Income:
	Processing		$	26.5		$	18.0		$	(8.5	)		(32.1	)%
	Production			0.1			81.9			81.8			NM
	Corporate			(9.6	)		(11.6	)		(2.0	)		(20.8	)%

		Total Operating Income	$	17.0		$	88.3		$	71.3			419.4	%


(1)	NM— not meaningful

Consolidated

Net Sales. Net sales increased by $128.5 million, or 23.4%, to $677.7 million in the first three quarters of fiscal year 2005 from $549.2 million in the comparable period last year. The increase was attributed to an increase in prices of $135.0 million, combined with an increase in volume of $8.3 million, partially offset by a $14.8 million charge recorded in net sales for hog futures contracts. Overall, hog and wholesale pork prices increased compared to the prior period despite larger than expected supplies of pork industry wide. Several factors including a decrease in production of beef, the continuing effect of the first case of BSE in a cow in the United States, the avian influenza virus affecting the poultry industry and diet trends among Americans kept demand for pork products strong. See “Segment Analysis” below for comments on changes in sales by business segment.

Gross Profit. Gross profit increased by $73.7 million, or 252.4%, to $102.9 million in the first three quarters of fiscal year 2005 from $29.2 million in the comparable period last year. As a percentage of net sales, gross profit increased to 15.2% in the first three quarters of fiscal year 2005 from 5.3% in the comparable period last year. The current year gross profit increase is primarily the result of higher hog and wholesale pork prices as mentioned above, partially offset by a 8.9% increase in costs to produce our products during the first three quarters of fiscal year 2005 compared to the same period last year.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $2.7 million, or 21.9%, to $15.4 million in the first three quarters of fiscal year 2005 from $12.7 million in

the comparable period last year. Selling, general and administrative expenses as a percentage of net sales were 2.3% in the first three quarters of fiscal years 2004 and 2005. The dollar increase is primarily attributable to accruals relating to bonuses and incentive plans, which reflect our improved profitability made during the second and third quarters of fiscal year 2005.

Operating Income. Operating income increased by $71.3 million, or 419.4%, to $88.3 million in the first three quarters of fiscal year 2005 from $17.0 million in the comparable period last year. The increase is attributable to the factors mentioned above.

Interest Expense, net. Interest expense, net, decreased by $3.0 million, or 15.7%, to $15.8 million in the first three quarters of fiscal year 2005 from $18.8 million in the comparable period last year. The decrease is attributed to less average total debt outstanding during the first three quarters of fiscal year 2005 compared to the same period in the prior year. See “Liquidity and Capital Resources” below for more information.

Income Tax Expense (Benefit). Our effective tax rate was 38.9% in the first three quarters of fiscal year 2005 and in the comparable period last year.

Segment Analysis


	*Pork Processing*

Net Sales. Net sales increased $134.1 million, or 27.1%, to $629.6 million in the first three quarters of fiscal year 2005 from $495.5 million in the comparable period last year. The increase resulted from a 24.3% increase in pork product sales prices, combined with a 2.2% increase in volume processed compared to the same period last year. The increase in volume was primarily attributable to an increase in Saturdays worked at both of our processing facilities, the need for which resulted from increased productivity at our production facilities which provided more hogs for processing.

Gross Profit. Gross profit decreased by $8.0 million, or 27.5%, to $21.1 million in the first three quarters of fiscal year 2005 from $29.1 million in the comparable period last year. While overall sales prices increased 24.3%, our cost to purchase hogs increased by 38.0%. In absolute dollars, the cost increase of the hogs outpaced the sales increase of the pork products by $4.7 million compared to the same period last year. Other processing costs, especially freight, increased $3.3 million, or 0.4% on a per head basis, compared to the same period in the prior year.

Operating Income. Operating income decreased by $8.5 million, or 32.1%, to $18.0 million in the first three quarters of fiscal year 2005 from $26.5 million in the comparable period last year. The decrease was attributed to the factors mentioned above.


	*Hog Production*

Net Sales. Net sales increased by $118.7 million, or 34.8%, to $459.7 million in the first three quarters of fiscal year 2005 from $341.0 million in the comparable period last year. The increase primarily resulted from a 36.4% increase in hog sales prices, coupled with a 2.6% increase in volume attributable to increases in production in Missouri and North Carolina and partially offset by a decrease in production in Texas due to health issues. As mentioned above, losses recorded for hog futures contracts had a $14.8 million negative impact on the change in net sales. Intersegment sales to our pork processing segment transferred at market prices are eliminated in the Consolidated Statements of Operations and Comprehensive (Loss) Income.

Gross Profit. Gross profit increased by $81.7 million to $81.8 million in the first three quarters of fiscal year 2005 from $0.1 million in the comparable period last year. The increase was primarily the result of higher hog sales prices as mentioned above, partially offset by an 8.2% increase in hog production costs on a per hundred weight basis. The majority of the increase in hog production cost was due to higher feed input costs compared to the same period last year and, to a lesser extent, production deficiencies in Texas due to the impact of health issues. Feed input costs were 34.6% of cost of goods sold in the first three quarters of fiscal year 2005, compared to 32.7% for the same period of fiscal year 2004.

Operating Income. Operating income increased by $81.8 million to $81.9 million in the first three quarters of fiscal year 2005 from $0.1 million in the comparable period last year. The increase is attributed to the factors mentioned above.


	*Fiscal Year Ended March 27, 2004 Compared to the Fiscal Year Ended March 29, 2003*

The following table represents selected historical financial information for our processing and production segments for the fiscal years ended March 29, 2003 and March 27, 2004. The columns under year-to-year change show the dollar and percentage change from the respective fiscal years ended March 29, 2003 and March 27, 2004. Intersegment sales are based on market prices.


			Fiscal Year Ended						Year-to-Year Change

												Percentage
			March 29, 2003			March 27, 2004			2003 to 2004			Change(1)

			(in millions, except percentages)
Net Sales:
	Processing		$	553.5		$	663.5		$	110.0			19.9	%
	Production			357.2			453.6			96.4			27.0	%
	Intersegment			(302.3	)		(386.4	)		(84.1	)		(27.8	)%

		Total Net Sales	$	608.4		$	730.7		$	122.3			20.1	%

Gross Profit:
	Processing		$	39.8		$	38.2		$	(1.6	)		(4.0	)%
	Production			(63.3	)		(4.2	)		59.1			93.4	%

		Total Gross Profit	$	(23.5	)	$	34.0		$	57.5			NM

Operating Income (Loss):
	Processing		$	34.4		$	34.7		$	0.3			0.9	%
	Production			(63.1	)		(4.2	)		58.9			93.3	%
	Corporate			(10.7	)		(13.3	)		(2.6	)		(24.3	)%

		Total Operating Income (Loss)	$	(39.4	)	$	17.2		$	56.6			NM


(1)	NM— not meaningful

Consolidated Results

Net Sales. Net sales increased by $122.3 million, or 20.1%, to $730.7 million in fiscal year 2004 from $608.4 million in fiscal year 2003. The increase was attributed to an increase of prices of $105.3 million, which includes a $3.9 million increase in gains recorded for hog futures contracts, combined with an increase in volume of $17.0 million. Overall, hog and wholesale pork prices increased compared to the prior period despite an increase in pork produced compared to the prior year. Demand for pork products has been very high due to a decrease in production of competing proteins, the discovery of the first case of BSE in a cow in the United States, the Avian Influenza virus affecting the poultry industry, and trends in diet among Americans in general. See “Segment Analysis” below for comments on changes in sales by business segment.

Gross Profit. Gross profit increased by $57.5 million to $34.0 million in fiscal year 2004 from a loss of $23.5 million in fiscal year 2003. As a percentage of net sales, gross profit increased to 4.7% in fiscal year 2004 from (3.9)% in fiscal year 2003. This increase was due to the increase in sales prices mentioned above, offset with a 7.3% increase in costs to produce our products. See “Segment Analysis” below for comments on changes in gross profit by business segment.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $0.9 million, or 4.9%, to $17.4 million in fiscal year 2004 from $18.3 million in fiscal year 2003. This change

was primarily attributable to decreased legal fees. Selling, general and administrative expenses decreased as a percentage of net sales to 2.4% in fiscal year 2004 from 3.0% in fiscal year 2003.

Operating Income (Loss). Operating income increased by $56.6 million to $17.2 million in fiscal year 2004 from an operating loss of $(39.4) million in fiscal year 2003. The increase was attributable to the factors mentioned above.

Interest Expense, net. Interest expense, net, increased by $1.0 million, or 4.0%, to $24.7 million in fiscal year 2004 from $23.7 million in fiscal year 2003. The increase was attributed to an increase in total interest-bearing debt outstanding and increased amortization of deferred financing costs which are charged to interest expense related to recent bank credit amendments, offset slightly by lower interest rates on our variable rate debt. See “Liquidity and Capital Resources” below for more information.

Income Tax Benefit. Our effective tax rate was 38.9% in the fiscal years 2004 and 2003.

Segment Analysis


	*Pork Processing*

Net Sales. Net sales increased $110.0 million, or 19.9%, to $663.5 million in fiscal year 2004 from $553.5 million in fiscal year 2003. The increase resulted from a 14.0% increase in pork product sales prices, combined with a 5.1% increase in volume processed compared to the same period last year. Substantially all of the increase in volume was attributable to increased capacity utilization at our Clinton, North Carolina processing plant.

Gross Profit. Gross profit decreased by $1.6 million, or 4%, to $38.2 million in fiscal year 2004 from $39.8 million in fiscal year 2003. The decrease primarily resulted from lower margins on pork products resulting from 21.7% higher hog costs from internal transfers and external purchases, partially offset with higher volume through the plants. Freight costs increased by $4.1 million, or 15.5%, as a result of higher volume shipped and higher charges incurred to transport the product. Processing costs on a per unit basis were comparable for fiscal years 2004 and 2003.

Operating Income. Operating income increased by $0.3 million to $34.7 million in fiscal year 2004 from $34.4 million in fiscal year 2003. The increase was attributed to the factors mentioned above.


	*Hog Production*

Net Sales. Net sales increased by $96.4 million, or 27.0%, to $453.6 million in fiscal year 2004 from $357.2 million in fiscal year 2003. The increase primarily resulted from a 22.9% increase in hog sales prices, combined with a 2.4% increase in volume attributable primarily to the effects of increased contract production in North Carolina. As mentioned above, gains recorded for hog futures contracts had a $3.9 million positive impact on the change in net sales. Intersegment sales to our pork processing segment transferred at market prices are eliminated in the Consolidated Statements of Operations and Comprehensive (Loss) Income.

Gross Profit. Gross profit increased by $59.1 million to a loss of $4.2 million in fiscal year 2004 from a loss of $63.3 million in fiscal year 2003. The increase was primarily the result of a higher volume of hogs produced and higher hog sales price mentioned above. Hog production costs per hundredweight were 6.1% higher during fiscal year 2004 compared to fiscal year 2003. The majority of the increase in hog production costs was due to higher feed input costs compared to the same period last year and, to a lesser extent, production deficiencies in Texas due to the impact of health issues.

Operating Loss. Operating loss improved by $58.9 million to an operating loss of $4.2 million in fiscal year 2004 from an operating loss of $63.1 million in fiscal year 2003. The increase is attributed to the factors mentioned above.


	*Fiscal Year Ended March 29, 2003 Compared to the Fiscal Year Ended March 30, 2002*

The following table presents selected historical financial information for our processing and production segments for the fiscal years ended March 30, 2002 and March 29, 2003. The columns under year-to-year change show the dollar and percentage change from the respective fiscal years ended March 30, 2002. Intersegment sales are based on market prices.


			Fiscal Year Ended						Year-to-Year Change

												Percentage
			March 30, 2002			March 29, 2003			2002 to 2003			Change(1)

			(in millions, except percentages)
Net Sales:
	Processing		$	597.3		$	553.5		$	(43.8	)		(7.3	)%
	Production			440.8			357.2			(83.6	)		(19.0	)%
	Intersegment			(363.1	)		(302.3	)		60.8			16.7	%

		Total Net Sales	$	675.0		$	608.4		$	(66.6	)		(9.9	)%

Gross Profit:
	Processing		$	26.0		$	39.8		$	13.8			53.1	%
	Production			59.8			(63.3	)		(123.1	)		NM

		Total Gross Profit	$	85.8		$	(23.5	)	$	(109.3	)		NM

Operating Income (Loss):
	Processing		$	23.0		$	34.4		$	11.4			49.6	%
	Production			59.5			(63.1	)		(122.6	)		NM
	Corporate			(17.7	)		(10.7	)		7.0			39.5	%

		Total Operating Income (Loss)	$	64.8		$	(39.4	)	$	(104.2	)		NM


(1)	NM— not meaningful

Consolidated

Net Sales. Net sales decreased by $66.6 million, or 9.9%, to $608.4 million in fiscal year 2003 from $675.0 million in fiscal year 2002. The decrease was attributed to a decrease of prices of $91.6 million, which includes a $9.7 million increase in gains recorded for hog futures contracts, which was offset by an increase in volume of $25.0 million. Wholesale pork prices were severely impacted by several factors, including, an increased supply of pork industry wide, compounded by an increased supply of all meat proteins. Much of the increase in meat proteins was attributed to the Russian ban on poultry imports from the United States, which was lifted in fiscal year 2003, but was subject to ongoing negotiations regarding import requirements. Although the ban has been lifted, the effects of it as well as the increase in hog production industry-wide for the year continued to have a negative impact on hog and wholesale pork prices during fiscal year 2003. See “Segment Analysis” below for comments on changes in sales by business segment.

Gross Profit. Gross profit decreased by $109.3 million, to a loss of $23.5 million in fiscal year 2003 from a profit of $85.8 million in fiscal year 2002. As a percentage of net sales, gross profit decreased to (3.9)% in fiscal year 2003 from 12.7% in fiscal year 2002. This decrease was due to the decrease in sales prices mentioned above coupled with a 3.4% increase in costs to produce our products. See “Segment Analysis” below for comments on changes in gross profit by business segment.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $3.2 million, or 14.9%, to $18.3 million in fiscal year 2003 from $21.5 million in fiscal year 2002. The majority of the decrease was attributable to decreased bonus and long-term incentive plan accruals for fiscal year 2003. Selling, general and administrative expenses decreased as a percentage of net sales to 3.0% in fiscal year 2003 from 3.2% in fiscal year 2002.

Operating Income (Loss). Operating income decreased by $104.2 million, to an operating loss of $39.4 million in fiscal year 2003 from an operating income of $64.8 million in fiscal year 2002. The decrease was attributable to the factors mentioned above.

Interest Expense, net. Interest expense, net, increased by $3.3 million, or 16.2%, to $23.7 million in fiscal year 2003 from $20.4 million in fiscal year 2002. The increase was attributed to an increase in total interest-bearing debt outstanding and increased amortization of deferred financing costs which are charged to interest expense related to recent bank credit amendments, offset slightly by lower interest rates on our variable rate debt. See “Liquidity and Capital Resources” below for more information.

Income Tax Expense (Benefit). Our effective tax rate was 38.9% in the fiscal year 2003 compared to an effective rate of 39.9% in fiscal year 2002. The difference was primarily attributable to the utilization of state income tax credits.

Segment Analysis


	*Pork Processing*

Net Sales. Net sales decreased $43.8 million, or 7.3%, to $553.5 million in fiscal year 2003 from $597.3 million in fiscal year 2002. The decrease resulted from a 16.2% decrease in pork product sales prices, partially offset by an 11.1% increase in volume processed compared to the same period last year. The increase in volume was primarily attributable to the expansion at our Clinton, North Carolina plant completed in late fiscal year 2002, which increased capacity from 6,500 hogs per day to 10,000 hogs per day.

Gross Profit. Gross profit increased by $13.8 million, or 53.1%, to $39.8 million in fiscal year 2003 from $26.0 million in fiscal year 2002. The increase primarily resulted from higher margins on pork products due to lower hog prices coupled with higher volume through the plants. Processing costs increased 1.2% during fiscal year 2003 compared to fiscal year 2002, primarily the result of increased depreciation expense related to the North Carolina processing plant expansion and added emphasis on higher cost value-added products.

Operating Income. Operating income increased by $11.4 million, or 49.6%, to $34.4 million in fiscal year 2003 from $23.0 million in fiscal year 2002. The increase was attributed to the factors mentioned above.


	*Hog Production*

Net Sales. Net sales decreased by $83.6 million, or 19.0%, to $357.2 million in fiscal year 2003 from $440.8 million in fiscal year 2002. The decrease primarily resulted from a 22.0% decrease in net hog sales prices, partially offset by a 3.9% increase in volume attributable to the effects of our Texas sow herd expansion and additional contract production. As mentioned above, gains recorded for hog futures contracts had a $9.7 million positive impact on the change in net sales. Intersegment sales to our pork processing segment transferred at market prices are eliminated in the Consolidated Statements of Operations and Comprehensive (Loss) Income.

Gross Profit. Gross profit decreased by $123.1 million to a loss of $63.3 million in fiscal year 2003 from a gross profit of $59.8 million in fiscal year 2002. The decrease was a combination of the decrease in net hog sales prices mentioned above, coupled with an increase in costs of $39.5 million, $14.7 million of which related to increased volume and $24.8 million of which related to increased costs. Overall, hog production costs were 6.2% higher on a per hundred weight basis in fiscal year 2003 compared to fiscal year 2002, with the majority of the increase caused by higher feed costs, lower values on culled animals and a lower weight per animal marketed.

Operating Income (Loss). Operating income decreased by $122.6 million to an operating loss of $63.1 million fiscal year 2003 from an operating income of $59.5 million in fiscal year 2002. The decrease was attributed to the factors mentioned above.

Unaudited Quarterly Information and Seasonality

The following represents the unaudited quarterly results of operations for our last seven completed fiscal quarters. All amounts are expressed in thousands.


	Fiscal Year 2004											Fiscal Year 2005

	First			Second		Third			Fourth			First		Second		Third

	(unaudited)
Net sales	$	171,132		$	178,310	$	199,766		$	181,529		$	212,136	$	218,831	$	246,759
Gross profit		7,532			12,632		9,043			4,779			24,277		29,980		48,600
Net (loss) income		(1,741	)		1,417		(751	)		(3,516	)		9,389		11,894		22,996

Our quarterly operating results are influenced by seasonal fluctuations in the price of our primary feed components, corn and soybean meal, and by seasonal fluctuations in wholesale pork prices and hog prices. The prices we pay for our feed components are generally lowest in August, September and October, which corresponds with the corn and soybean harvests. Generally, the prices for these commodities will increase over the following months leading up to the next harvest due to the increased storage costs. As a result, our costs in the production side of our business tend to increase during this period.

Hog and wholesale pork prices are similarly affected by seasonal factors. It generally takes approximately 11 months from conception for a hog to reach market weight, and because sows are generally less productive in summer months as a result of seasonal conditions, there are generally fewer hogs available in the summer months. This decrease in supply of hogs generally causes hog and wholesale pork prices to be higher on average during these months. Conversely, there are generally more hogs available in the months of October, November and December, which generally causes hog and wholesale pork prices to be lower on average during these months.

As a result of these seasonal and quarterly fluctuations, we believe that comparisons of our sales and operating margins between quarters within a single fiscal year are not necessarily as meaningful as longer term comparisons and cannot be relied upon as indicators of our future performance.

Liquidity and Capital Resources

Our primary sources of financing have been cash flow from operations, bank borrowings and a senior note offering that was completed in fiscal year 2002. Our ongoing operations will require the availability of funds to service debt, fund working capital and make capital expenditures on our facilities. We expect to finance these activities through cash flow from operations and from amounts available under our credit agreement.

Net cash flow provided by operating activities was $94.7 million and $46.3 million for the first three quarters ended in fiscal years 2005 and 2004, respectively. The improvement in the first three quarters of fiscal year 2005 compared to the same period last year was primarily due to an increase in net income and the use of net operating loss carryforwards to reduce cash tax payments. Net cash flow provided by and (used in) operating activities was $41.7 million, ($17.4) million and $80.5 million in fiscal years 2004, 2003 and 2002, respectively. The increase in fiscal year 2004 was attributed to a decrease in net loss over fiscal year 2003, the change in deferred taxes and a decrease in working capital requirements partially offset by an increase in non-cash gains on the sales of fixed assets.

Net cash flow used in investing activities was $19.4 million and $19.9 million for the first three quarters ended in fiscal years 2005 and 2004, respectively. Net cash used in investing activities consisted of $33.7 million and $33.5 million for capital expenditures relating to property, plant and equipment and breeding stock during the first three quarters ended in fiscal years 2005 and 2004, respectively. We received proceeds from disposal of property, plant, equipment and breeding stock of $14.3 million and $13.6 million during the first three quarters ended in fiscal years 2005 and 2004, respectively, primarily representing culled breeding stock. The increase in proceeds is directly related to the increase in hog sales prices which help determine the cull sow sale prices.

Net cash flow used in investing activities was $23.5 million, $25.9 million and $81.3 million in fiscal years 2004, 2003 and 2002, respectively. In fiscal year 2004, net cash used in investing activities was spent as follows:


	•	Approximately $10 million was spent for continuing improvements of our pork processing facilities;

	•	Approximately $5 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.

In fiscal year 2004, 2003 and 2002, we received proceeds from disposal of property, plant, equipment and breeding stock of $18.4 million, $11.7 million and $14.9 million, respectively. During fiscal years 2004, 2003 and 2002, disposal of property, plant, equipment and breeding stock consisted primarily of culled breeding stock.

Net cash flow used in financing activities was $75.3 million and $26.4 million for the first three quarters ended in fiscal years 2005 and 2004, respectively. During the first three quarters of fiscal year 2005 and 2004, excess cash generated was used to pay down outstanding debt.

Net cash flow (used in) and provided by financing activities was ($18.2) million, $36.1 million and ($0.6) million in fiscal years 2004, 2003 and 2002, respectively. During fiscal year 2004, excess cash generated was used to pay down outstanding debt. During fiscal year 2003, we borrowed money to fund working capital needs and capital expenditures. In the first quarter of fiscal year 2002, we issued $175 million of 9¹/4% senior notes, which were used to retire $137.9 million of 11% senior secured payment-in-kind notes on July 7, 2001. An associated 1% prepayment penalty on these PIK notes was also paid on July 7, 2001. With the remaining proceeds, we also prepaid $25 million of bank term debt, made a $6.3 million quarterly payment on bank term debt and paid down $4.0 million on our credit agreement. The 9¹/4% senior notes contain customary covenants and are redeemable by us under certain circumstances.

On April 9, 2004, we entered into our existing senior credit agreement with our bank group. The credit agreement provides for a $175 million revolving line of credit. The balance of the previous line of credit, as well as the outstanding term debt at the date of closing, became the opening balance outstanding under the credit agreement. Obligations under the credit agreement are secured by liens on substantially all of our assets. In addition to customary financial covenants, the credit agreement contains restrictions on, among other things, encumbrance or disposal of assets, acquisitions, additional indebtedness, capital investment, payment of subordinated debt and payment of dividends. In addition to fees payable under credit facilities of this type, amounts borrowed under the credit agreement bear interest at fluctuating rates selected by us. These rates are based on the agent bank’s prime rate (the Federal Funds Rate plus one half of one percent) or LIBOR plus, in each case, an applicable margin, which were at 0.25% and 1.75% at December 25, 2004, respectively, determined by our leverage ratio. All borrowings under the credit agreement mature on April 9, 2009. All of our outstanding borrowings under the credit agreement have been classified as long-term on the consolidated balance sheets as of March 27, 2004 and December 25, 2004. At December 25, 2004, we were in compliance with all covenants under the credit agreement.

Total indebtedness at December 25, 2004 was $207.9 million, as compared to $278.5 million at December 27, 2003, excluding unamortized discount on our 9¹/4% senior notes of $1.1 million and $1.2 million, respectively. At December 25, 2004, we had $30.2 million outstanding under the credit agreement, $11.2 million in letters of credit and $133.6 million available for borrowing under the credit agreement.

In fiscal year 2005, we expect to spend approximately $31 million on net capital expenditures as follows:


	•	Approximately $9 million in upgrades and improvements in our processing operations;

	•	Approximately $13 million in upgrades and improvements in our production operations, and investments to develop and implement new technologies for improved waste handling; and

	•	Approximately $9 million in net breedstock purchases.

In fiscal year 2006, we expect to spend approximately $41 million on net capital expenditures as follows:


	•	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.

We believe that available borrowings under our credit agreement and internally generated funds will be sufficient to support our working capital, capital expenditures and debt service requirements for the foreseeable future. Our ability to generate cash, however, is subject to a certain extent to general economic, financial, competitive, legislative, regulatory and other factors beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available under the credit agreement in an amount sufficient to enable us to pay our existing indebtedness, or to fund our other liquidity needs.

If we consummate any material acquisitions or expand our operations, we may need to seek additional sources of funding, which might potentially come from the issuance of additional equity, debt or the pursuit of joint ventures to the extent that such options are available. Acquisitions or further expansion of our operations could cause our leverage to increase. To finance any acquisition or joint venture, we may use availability under the credit agreement, equity financing or other financing alternatives available at the time.

Contractual Cash Obligations

The following table represents a summary of our contractual cash obligations as of March 27, 2004. Other than the execution of a contract to build the fertilizer plant for approximately $9.6 million, there have been no significant developments with respect to our contractual cash obligations since March 27, 2004.


	Payments due by period

					1-3		4-5		More than
Contractual Cash Obligations	Total		Current		Years		Years		5 Years

	(in thousands)
Credit agreement and senior notes	$	283,750	$	—	$	—	$	—	$	283,750
Interest on 9¹/4% senior notes		116,685		16,188		32,375		32,375		35,747
Capital lease obligations		3,334		833		1,957		536		8
Operating leases		23,746		6,083		9,117		4,995		3,551
Unconditional purchase obligations(1)		7,597		7,597		—		—		—

Total contractual cash obligations	$	435,112	$	30,701	$	43,449	$	37,906	$	323,056


(1)	Represents forward grain purchase contracts.

The following amounts are not included in above table:

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 11% of our hog production segment’s cost of goods sold for fiscal year 2004. 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 1,730,000 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 the soon to be completed fertilizer plant in northern Missouri that will convert 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.

Critical Accounting Policies

In preparing the consolidated financial statements in accordance with generally accepted accounting principles, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the date of the consolidated financial statements and during the reporting period. Actual results may differ from those estimates due to the complexity and subjectivity of those estimates. Management has identified the accounting policies it believes to be the most important as inventory valuation of livestock, estimated liabilities, accounting for derivative instruments, estimated useful lives of property, plant, equipment and breeding stock, and impairment of long-lived assets.

Inventory valuation of livestock is calculated based on a standard cost model for each geographic hog production region. This model is based on the current year’s budgeted costs and inventory projections at each age and phase of the production cycle, adjusted to actual costs and reduced to the lower of actual cost or market monthly. Management believes this method for valuing livestock most accurately represents actual inventory costs.

Estimated liabilities, such as self-insured workers’ compensation and health insurance, bonuses, and legal obligations are based on information received from third parties and management estimates. These obligations are provided for when a liability has been incurred or a loss is probable and the amount is reasonably estimable. Actual costs may vary from estimates we make. Management believes the estimates are reasonable based on current information.

Derivative instruments are accounted for in accordance with Financial Standards Board Statement No. 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities.” Because of the complexity involved in qualifying for hedge treatment for our commodity contracts, we mark these exchange-traded contracts to market with the resulting gain or loss recorded in net sales for hog contracts or cost of goods sold for all other commodity contracts. This may result in large fluctuations in our earnings depending on the volume of commodity contracts and their corresponding volatility.

Property, plant, equipment and breeding stock are depreciated on a straight-line basis over the estimated useful lives of the assets. The useful lives of the assets are based upon management’s expectations. We periodically review the assets for changes in circumstances which may impact their useful lives.

Impairment of long-lived assets is periodically reviewed using historical cash flows as well as current estimates of future cash flows and/or appraisals. This assessment process requires the use of estimates and assumptions which are subject to a significant degree of judgment. In addition, we periodically assess the recoverability of goodwill and other intangible assets, which requires us to make assumptions regarding the future cash flows and other factors to determine the fair value of the assets. If these assumptions change in the future, we may be required to record impairment charges for these assets.

Quantitative and Qualitative Disclosures About Market Risk

Our operating results are influenced by fluctuations in the price of our primary feed components, corn and soybean meal, and by fluctuations in hog and wholesale pork sales prices. The cost and supply of feed components and hog and wholesale pork sales prices are determined by constantly changing market forces of supply and demand, which are driven by matters over which we have no control, including weather, current and projected worldwide grain stocks and prices, grain export prices and supports, hog production, consumer

demand and governmental agricultural policies. In our hog production segment we use forward contracts, as well as futures and options contracts, to establish adequate supplies of future grain requirements, to help secure margins and to help reduce the risk of market fluctuations. To help secure margins and minimize earnings volatility in our pork processing segment, we utilize hog futures to hedge future pork product sales. While this may tend to limit our ability to participate in gains from favorable commodity price fluctuation, it also tends to reduce earnings volatility and secure future margins.

For the first three quarters ended December 25, 2004, and December 27, 2003 we recognized losses under SFAS 133 of $9.0 million and gains of $5.8 million, respectively, in net sales for losses and gains related to hog futures and losses of $3.1 million and gains of $3.0 million, respectively, in costs of goods sold relating to the hedging of feed components and outside hog purchases at processing facilities. For open futures contracts, we use a sensitivity analysis technique to evaluate the effect that changes in the market value of commodities will have on these commodity derivative instruments. As of December 25, 2004, the potential change in fair value of exchange-traded contracts, assuming a 10% change in the underlying commodity price, would be $7.9 million.

The table below sets forth fair values of futures and options, and gross contract or notional amounts of forward contracts, in place as of March 27, 2004 (all amounts in thousands except contract quantity and wtd.-avg. price/unit):


	Contract		Volumes		Wtd.-avg.		Fair
	Quantity		Units		Price/Unit		Value

Futures Contracts
Corn purchases— long		230		bushels	$	3.10	$	(9	)
Soybean meal purchases— long		61		tons		234.81		4,142
Soybean meal sales— short		5		tons		176.50		(330	)
Lean hog sales— short		17,920		pounds		0.66		(616	)
Lean hog purchases— long		8,880		pounds		0.66		62
Wheat sales— short		180		bushels		3.80		(65	)
Option Contracts
Corn puts— short		9,500		bushels	$	2.73	$	(395	)
Corn calls— long		6,000		bushels		3.00		1,349
Meal calls— long		10		tons		250.00		608
Meal puts— short		15		tons		206.67		(9	)
Lean hog calls— long		7,000		pounds		0.67		274
Lean hog puts— short		7,000		pounds		0.60		(45	)
Lean hog calls— short		2,000		pounds		0.65		(50	)


	Contract		Volumes		Wtd.-avg.		Notional
	Quantity		Units		Price/Unit		Amount

Forward Contracts
Corn		1,565		bushels	$	3.00	$	4,698
Meal		8		tons		285.53		2,352
Milo		174		bushels		3.14		547

We also are exposed to changes in interest rates. The credit agreement has variable interest rates. Interest rate changes therefore generally do not affect the market value of such debt but do impact the amount of our interest payments and, therefore, our future earnings and cash flows. Assuming other factors are held constant, a 1% change in interest rates would have an approximately $0.3 million impact on interest expense. Conversely, for fixed rate debt, interest rate changes do not impact future cash flows and earnings, but do impact the fair market value of such debt, assuming other factors are held constant. During the fiscal year ended March 30, 2002, we entered into an interest rate swap agreement to convert the variable base interest rate of our bank term debt to a fixed rate of 3.0125% plus the agent bank’s applicable margin (2.0% at

maturity). The swap matured on September 30, 2004. The swap was accounted for as a cash flow hedge under SFAS 133. During the first three quarters ended December 25, 2004, we recognized a $0.1 million gain, net of tax, into Accumulated Other Comprehensive Loss, Net of Tax for the market value of the swap.

The 9¹/4% senior notes had a fair value of approximately $187.3 million as of December 25, 2004 based on inter-dealer prices, as compared to the book value of $175.0 million as of December 25, 2004.

New Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 151 (“SFAS 151”), “Inventory Costs— an Amendment of ARB No. 43 Chapter 4.” SFAS 151 requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling be recognized as current-period charges rather than being included in inventory regardless of whether the costs meet the criterion of abnormal as defined in ARB 43. SFAS 151 is applicable for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company will adopt this standard beginning the first quarter of fiscal year 2006 and does not believe the adoption will have a material impact on its financial statements as such costs have historically been expensed as incurred.

In December 2004, FASB issued SFAS No. 153 (“SFAS 153”), “Exchanges of Nonmonetary Assets— an amendment of APB Opinion No. 29” which addresses the measurement of exchanges of nonmonetary assets and eliminates the exception from fair value accounting for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of an entity are expected to change significantly as a result of the exchange. This statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005 and is not expected to have a significant impact on the Company’s financial statements.

In December 2004, FASB issued SFAS No. 123 (revised 2004) (“SFAS 123R”), “Share-Based Payment.” SFAS 123R sets accounting requirements for “share-based” compensation to employees, requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees and disallows the use of the intrinsic value method of accounting for stock compensation. SFAS 123R is applicable for all interim and fiscal periods beginning after June 15, 2005. This statement is effective for the Company beginning the second quarter of fiscal year 2006 and is not expected to have a significant impact on its financial statements with respect to currently issued stock options, but could have a significant impact with respect to options issued in the future.

In December 2004, FASB issued FASB Staff Position 109-1 (“FSP 109-1”) “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” FSP 109-1 specifies that a qualified production activities deduction should be accounted for as a special deduction in accordance with SFAS 109. FSP 109-1 was effective upon issuance. The Company is currently evaluating the impact this deduction will have on its results of operations or financial position for fiscal year 2005 and subsequent years.

BUSINESS

Overview

Industry Overview

Pork products are the largest source of meat protein in the world and the third largest source in the United States. According to the USDA, pork processors in the United States processed approximately 103.4 million hogs in 2004, representing approximately 20.5 billion pounds of pork. US exports of pork products have grown substantially in recent years. From 1995 through 2004, exports increased at an 11% compound annual growth rate, with total exports increasing from 1.3 billion pounds to 2.2 billion pounds. The USDA estimates that pork exports increased by 27% in 2004, a substantially higher growth rate, primarily as a result of increased levels of foreign demand due to a ban by certain foreign countries on the import of U.S. beef related to BSE, the breakout of avian influenza affecting the poultry industry, favorable exchange rates and the continuing development of export markets for U.S. pork. Countries showing substantial increases include Mexico, China, Russia and South Korea.

The prices for all of these commodities are volatile and the spreads between these prices vary substantially. High prices for hogs normally hurt the profitability of processing operations unless pork prices increase sufficiently to offset these cost increases. On the other hand, hog producers tend to record better results when prices for hogs are high, especially in relation to grain prices. Therefore, results of our processing segment in certain periods may be better or worse than results for our production segment, and vice versa.

The following graphs set forth various hog, pork and grain price data for recent periods and illustrate the volatility in market prices.

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 price, a standard measure for determining current market prices of pork primal cuts that is published by the USDA.

The costs of pork processors are highly dependent on the cost of hogs, and net sales are determined in large part by the prices they receive for pork products. Conversely, net sales from hog production are highly dependent on the prices the producer receives for hogs while the cost of goods sold is determined in large part by the cost of feed. High feed prices can negatively impact production results since these increases can raise the costs to the producer. The graphs below demonstrate how prices for corn and soybean meal, which are the primary components of our feed costs, have fluctuated over the last 10 years ended December 31, 2004.

Corn $/Bushel


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

Soybean Meal $/Ton


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

Historically, the United States pork industry has been divided into two segments: pork processing and hog production. As a vertically integrated supplier of pork products, we operate in both industry segments.

Pork Processing

The U.S. pork processing industry is highly concentrated, with the top ten processors representing over 90% of total federally inspected industry capacity as of March 2005, and the industry is highly competitive. Although customers in the retail, wholesale, foodservice, further processor and export markets have different product specifications and service requirements, processors generally compete on the basis of the price and quality of their product. We believe that this consolidation has been driven by a number of factors, including the desire to achieve economies of scale in purchasing, processing and regulatory compliance and the increased concentration among grocery retailers and other customers.

The processing industry is geographically concentrated in the hog producing regions of the U.S., particularly the Midwest and portions of the Southeast. Due to the substantial degree of fragmentation of the hog production industry, processing operations typically are extremely large relative to the producers that supply them. As a result, non-integrated processors must acquire each day’s supply of hogs from a large number of suppliers, many of whom use varying genetics, feeding programs and growing environments. We believe that this dichotomy between the hog requirements of processors and the fragmentation and variation of hog production makes it relatively difficult for non-integrated pork processors to produce consistent, high-quality products.

Hog Production

The hog production industry, although consolidating, remains substantially fragmented and can be characterized by large variations in costs of production and quality of hogs produced. As a result, a large portion of the industry is generally characterized by fewer hogs per sow per year, higher feed-to-gain

conversion ratios, higher costs of production, lower quality and less consistent hogs brought to market. Breeding and farrowing are more efficient in the Spring and Fall, resulting in fluctuating seasonal production and prices.

According to the USDA, the number of U.S. hog producers has declined by more than 85% over the last 20 years while the average size of production facilities has increased dramatically. We believe that as the hog production industry moves to more sophisticated production techniques, the pressures on marginal producers will intensify. In the last several years, a number of operations have emerged which are based on large-scale, scientific and management-intensive production of hogs. These operations have grown rapidly. We expect that the hog production industry will see continued consolidation and integration in the future. We believe that this consolidation is being driven by a number of factors, including (1) the substantial investments in equipment, improved breeding herds and process improvements required to achieve economies of scale, meet customers’ demand for product quality and consistency and comply with animal welfare and environmental regulation, and (2) the increasing concentration among processors.

Competitive Strengths

We believe the following competitive strengths position us to enhance our growth and profitability:


	•	Vertically Integrated, Efficient Operations. We believe that we are the most vertically integrated pork processor in the United States, owning and operating each of the key steps of production. In fiscal 2004, 99% of the hogs used by our Milan, Missouri processing plant were sourced from our Missouri hog production operation. During the same period, approximately 73% of hogs used by our Clinton, North Carolina processing plant were supplied by our owned and contracted North Carolina hog production operations, with the remaining 27% 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.


	•	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 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 “Fresh and Tender” moisture-enhanced 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 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. While others in the industry have the certification for parts of their system, we are the only company that has currently received the certification for the entire production and processing supply chain. 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 19 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 23 years of industry experience in production, 31 years in processing, 16 years in technical and food safety and 19 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

We are pursuing a strategy designed to increase our sales margins and returns on invested capital. Key elements of our strategy include:


	•	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 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 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.

	•	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 10% of our net sales in the first three quarters ended December 25, 2004. 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 will continue to evaluate those opportunities that fit strategically with our objective of producing more processed meats and other high quality, value-added products. We believe that the consummation of this offering may help us in executing our acquisition strategy.

• 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

Our hog production business was originally founded in 1988. In 1994, we completed construction of our Missouri processing plant. Due primarily to start-up costs at the Missouri farms and plant, as well as rapid expansion of our Texas operations, our predecessor filed for bankruptcy reorganization under Chapter 11 on July 2, 1996. In September 1996, the reorganization became effective and our business emerged from Chapter 11.

Since emerging from bankruptcy, we have expanded our business in two significant ways. On May 13, 1998, we expanded our Missouri operations in a series of transactions with ContiGroup. In these transactions, ContiGroup purchased a 51.0% ownership interest in our outstanding common stock for $182.3 million. In exchange, we purchased the North Missouri farms hog production operations then owned by ContiGroup for $75.0 million. These transactions allowed us to operate the Milan, Missouri plant at full capacity.

In fiscal year 2001, we expanded our operations through two acquisitions in North Carolina. On August 25, 2000, we acquired The Lundy Packing Company and its subsidiaries, which consisted of hog production and pork processing operations. On September 22, 2000, we acquired Premium Standard Farms of North Carolina from ContiGroup. In the latter transaction, ContiGroup received cash and additional shares of our common stock, bringing its overall ownership to 53.1% of our outstanding common stock.

PSF Group Holdings, Inc. is a holding company that conducts all of its operations through its direct wholly owned subsidiary, Premium Standard Farms, Inc., and other indirect subsidiaries. To simplify our corporate structure, we intend to merge PSF Group Holdings with and into Premium Standard Farms which will result in our shareholders owning stock in the principal operating company rather than stock of the current holding company that has restricted access to cash flow from operations and would nullify the impact of restrictions on intercompany dividend distributions.

Products, Marketing and Customers

We market our pork products to retail, wholesale, foodservice and further processor customers in the U.S. and abroad. We focus on discriminating customers in these markets. We primarily market our products as chilled and frozen pork, sold to:


	•	Retailers, retail distributors and wholesalers (accounting for 46% of our total processing sales in the first three quarters ended December 25, 2004) 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 3% of our total processing sales in the first three quarters ended December 25, 2004) 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 40% of our total processing sales in the first three quarters ended December 25, 2004) 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 11% of our total processing sales in the first three quarters ended December 25, 2004) 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.

We are increasingly emphasizing value-added products, such as boneless products, marinated pork, moisture-enhanced pork, sliced bacon, microwave cooked bacon, smoked hams, sausage and other processed meats. Our vertical integration and control also allows us to produce specialty products. These include our “Fresh and Tender” moisture-enhanced pork, KenKo-Ton “healthy pork” for the Japanese market and “Natural Excellence” antibiotic-free pork.

Our North Carolina plant includes further-processing facilities that produce smoked hams, sliced and microwave cooked bacon, and sausage. We continue to focus on increasing our activities in the processed meat area.

Our marketing strategy seeks to capitalize on the quality of the pork derived from our controlled supply of high-quality consistent hogs and modern processing operations allowing us to sell fresh and processed pork at prices that reflect a premium to those received by competitors selling lower quality products. Our pork processing facilities have been designed to enhance the realization of this quality by converting standard pork cuts to value-added products through boning, trimming and other further processing. Furthermore, we target specialty, export and ethnic markets, in which there is a higher demand for certain pork products. In order to capitalize on a differentiated product, we have been certified to use the USDA Process Verified seal in connection with our Missouri and North Carolina processing operations.

We sell to domestic customers directly and through regional distributors. In marketing to the retail channel, we target independent regional supermarkets seeking to differentiate themselves with “meat-case destination” premium quality pork. Our target market for further processors includes companies with established food brands that demand consistent, high quality, differentiated product.

We are increasingly targeting foodservice customers that demand consistent, high-quality product and are attracted to the traceability, food safety and animal welfare associated with the “Process Verified” certification of our product. We believe that the foodservice industry represents a growth opportunity for us.

Our international marketing efforts are directed toward a number of countries, but are predominantly focused on Japan, which ascribes significant value to our premium, process-controlled products. In the first three quarters ended December 25, 2004, our sales to Japanese customers represented about 5% of our total sales. Sales to international markets other than Japan, especially Mexico and Canada, accounted for approximately 5% of our total sales in the first three quarters ended December 25, 2004. International sales are made both through distributors and directly to customers. Most of our Japanese exports are sold through a relationship with a Japanese trading partner, to whom we sell exclusively certain chilled pork products produced at our Milan, Missouri plant that are destined for the Japanese market. The contract with this trading partner comes up for renewal in December 2005.

Through our sales and marketing efforts are primarily focused on sales of pork products, we also sell excess hogs from our production facilities to other pork processors. In this respect, we have long-term contracts with two major pork processors, who purchase substantially all of the hogs produced at our Texas facilities.

The remainder of our excess hog production is sold in privately negotiated transactions. Finally, both of our facilities sell by-products primarily to the feed processing and pet food industries.


	Processing and Production Operations


	*Overview*

Our processing and production operations are organized as three separate pods located in Missouri, Texas and North Carolina. Our Missouri and North Carolina pods each combine processing plants and hog production facilities. Our Texas pod has only hog production operations. The geographic separation of our pods enhances biosecurity and puts us closer to our customers and feed grain suppliers, allowing us to minimize shipping costs. Shipping, via truck, is important in a number of aspects of hog production, particularly the delivery of feed to hog production units, the shipment of feeder pigs to finishing units, and the shipment of finished hogs to processing plants. We utilize our own truck fleet and related transportation facilities for hauling feed and hogs, which allows us to reduce the risk of disease and enhances the scheduling and process coordination that our integrated approach provides. Please read Note 11 to our audited consolidated financial statements included elsewhere in this prospectus for financial information relating to our operating segments.


	*Pork Processing*

We maintain pork processing facilities in Missouri and North Carolina. In fiscal year 2004, 99% of the hogs processed by our Missouri processing plant came from our Missouri hog production operations. During fiscal year 2004, approximately 73% of hogs used by our North Carolina processing plant were supplied by our North Carolina hog production operations, with the remaining 27% supplied through contracts with independent producers, which produce hogs in accordance with our genetic, feed and other production specifications. To help ensure the safety and quality of our products, we use the USDA’s Hazard Analysis of Critical Control Points methodology to identify food safety hazards in our operations. This approach uses a team of technically trained individuals who are familiar with the processes to be evaluated. Each separate point in the process is identified and any hazards associated with them are assessed. Methods for monitoring the quality and safety of products as they move through these points are then developed and implemented.

The quality management points listed below provide the basis for our Process Verified program. In November of 1998, we became the first company in the pork industry to receive approval for this program from the USDA-Agricultural Marketing Service. This approval gave accreditation to the first Process Verified program which extends from live animal production through processing. While other pork companies have since received approval of their own Process Verified programs, we believe ours is the most comprehensive, encompassing live animal production through processing.

The Process Verified program is modeled after ISO-9000 requirements that are adapted for the livestock industry, and is administered by the USDA Agricultural Marketing Service, Livestock and Seed Division. We have designated six process points throughout our process to represent our program. These quality management points are summarized as follows:


	•	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.

Our automated processing operations have been designed to achieve the benefits of vertical integration that are not available to non-integrated hog producing or pork processing competitors. Some of these benefits are as follows:


	•	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.

We believe that by controlling our own high quality, consistent hog supply, we can be among the more efficient processors in the industry and produce a consistent high-quality product whose value will be recognized in the market.

The design of our Missouri and North Carolina processing facilities reflect four key objectives:


	•	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*

Our sow production facilities house herds ranging from 1,100 to 3,300 sows per unit. On average, a staff of five people is required for 1,100 sows. A typical sow production unit consists of four connected buildings, each with a specialized function— breeding, gestation, farrowing and nursery.

The production process begins in the breeding barn, where sows are artificially inseminated. Artificial insemination maximizes breeding efficiency and productivity and allows us to utilize genetic stock that maximizes our overall productivity and quality. After four weeks, conception is verified using ultrasound technology. From the breeding barn, sows are moved to the gestation barn where they are vaccinated and placed on a special diet. The gestation period is 114-days. During this period, the sows receive a specialized diet and careful attention to health and disease control in order to improve the size and health of their litters. In our gestation buildings, sows are carefully monitored and individually fed according to body weight. A few days prior to delivery, sows are moved to the farrowing barn where they give birth to an average litter of approximately 10 offspring. Sows nurse their offspring for three weeks before they are returned to the breeding barn. At approximately 12 to 15 pounds, the offspring are moved to the nursery for a six-to-seven week period. This step requires high levels of nutrition, environmental control and minimization of disease and health risks. An increasing portion of our operations use the wean-to-finish production method where nursery pigs are transported directly to modified grow/ finish sites, skipping the traditional time spent in a nursery.

In the next phase of production, offspring are transferred from the nursery in our sanitized trailers to our grow/finish complexes or contract growers for growth from approximately 50 pounds to a target market weight of 260 pounds. Our grow/finish complexes are comprised of temperature-controlled barns, each housing 950 to 1,200 hogs. A manager in charge of the complex is responsible for monitoring hog welfare and health, as well as equipment. Efficiency in finishing operations is affected by the health and environment of the hogs and the formulation of the feed. These factors, as well as the genetics of the hog, can have a substantial impact on

the feed-to-gain conversion ratio (the pounds of feed required to add a pound of weight) and the average daily gain. Specialized crews support the complex managers by assisting with loading and unloading hogs, health care, and sanitation. Hogs generally remain at the grow/ finish complexes for approximately 17 weeks, gaining an average of approximately 1.7 pounds per day, until they reach market weight and are transported to a processing facility.

Because diet is a critical factor in the efficient production of hogs and affects the quality of the final products, we have established five of our own feed mills. We can typically access feed grains on a cost-effective basis and manufacture and deliver feed to our facilities at a lower cost than we can buy it from commercial feed mills. In North Carolina, where we rely to some extent on commercial feed mills, we have established cost-effective toll milling arrangements with select mills. Due to excess milling capacity in North Carolina, we are generally able to purchase feed from these vendors on terms that help us remain a low cost producer. Our Missouri production facilities generally have our lowest feed costs because they are located close to the larger grain producing areas. Our feed costs are relatively higher in our North Carolina and Texas facilities due to higher transportation costs. Our feed mills and toll milling arrangements allow us to optimize production of our customized diets to a greater degree than would typical arrangements with third-party feed mills, which operate on a cost plus basis and provide feeds for many types of customers and animals. We achieve this through “least cost” formulations based on available feed ingredients. For example, while corn is the primary ingredient in hog feed, a large number of other grains, proteins, fats and supplements may be added, and the content and mix of feed ingredients can be managed to improve nutrition, feed-to-gain ratios and meat quality. The combined annual capacity of our five company-owned feed mills is approximately 1.4 million tons. These mills provided approximately 73% of the total feed/components used in our production operations (measured in tons) during the first three quarters ended December 25, 2004.


	*Biosecurity*

We seek to reduce the risk of disease transmission through a number of methods, including geographic separation of, and restricted access to, production facilities, strict sanitation procedures (including thermal sanitation of livestock trailers), high health genetic stock and constant monitoring and response. All units are restricted access, “shower in/ shower out” facilities. If it is necessary for a manager or worker to enter a unit other than their designated unit, a mandatory 24 to 96-hour waiting period is required. Feed purity and truck cleanliness are continually inspected and monitored. Operating procedures within the facilities are designed to stop the spread and lessen the viability of infection agents during all phases of the production process.

We also attempt to control the risk of disease through the selection of high-health breeding stock. When disease is found, treatment is implemented to lessen its impact on performance and to prevent its spread to other facilities.


	*Missouri*

Our Missouri pod has both processing and production operations. The Missouri processing facility is located at Milan, Missouri and employed approximately 1,000 people as of December 25, 2004, with the capacity to process 7,400 hogs daily (on an eight hour shift) or about 2.0 million hogs per year. To help ensure the safety and quality of our products, the processing facility incorporates several innovative systems, including a new dual carbon dioxide anesthetizing system, which we believe provides improved animal handling and enhanced meat quality.

We are exploring a possible 2-stage expansion of the Missouri facility. The first stage would involve improvements to increase the daily capacity of the facility to process approximately 10,000 hogs daily. The second phase would entail construction of facilities to support two shifts of processing. Engineering work on this potential expansion is proceeding, but we have not yet committed to this expansion proposal. Management believes that the additional hogs required for this expansion could be sourced from existing independent hog producers, who would adopt our Process Verified requirements.

The Missouri production operation, based at Princeton, employed approximately 1,200 people as of December 25, 2004. A 116,000-sow herd produces approximately 2.1 million hogs per year. Eighty-two sow

units, five nursery units and ninety-one finishing units are located on farms in five counties in Northwest Missouri. We also have grower relationships with ContiGroup and other independent growers who raise our livestock under long-term contracts that require them to follow our Process Verified requirements. See “Certain Relationships and Related Transactions.”


	*North Carolina*

Our North Carolina pod has both processing and production operations. The North Carolina processing facility is located at Clinton and employed approximately 1,200 people at December 25, 2004, processing up to 10,000 hogs daily, depending on seasonality, or up to 2.6 million hogs per year. In fiscal year 2003, we completed a major renovation which increased processing capacity and included the installation of a new dual carbon dioxide anesthetizing system. As a result, we believe the plant is one of the most advanced facilities of its kind in the United States.

The North Carolina production operation, based at Clinton, employed approximately 300 people as of December 25, 2004. A 76,000-sow herd as of December 25, 2004 produces approximately 1.4 million hogs per year. Contractual arrangements for purchasing weaned pigs produce an additional 500,000 hogs per year. There are nine sow units, three nursery units and four finishing units located on farms we own in various counties throughout the state. Most of the production operations in North Carolina are conducted on farms that are not owned by us. Instead, we have long-term contract grower agreements with local farmers who provide the land, buildings and labor needed. These grower arrangements are managed by our hog production field supervisors. The hogs are owned by us, are raised according to our specifications using our genetics, feed and supplies, and are delivered to our North Carolina processing facility. Since these arrangements allow us to control the process, from a hog’s initial genetic makeup to the pork product ultimately produced, we consider them to be a part of our integrated operations notwithstanding the fact that we do not own the farms.

In addition to the production operations discussed above, we purchase approximately 500,000 hogs annually for our North Carolina processing operations that are not supplied by our production operations. These hogs are obtained pursuant to long-term supply arrangements with a limited number of external hog suppliers who have agreed to follow our Process Verified requirements.


	*Texas*

Our Texas pod has only production operations. These operations are headquartered at Dalhart, Texas and employed approximately 300 people as of December 25, 2004. A 34,000-sow herd is designed to produce approximately 600,000 hogs per year. Twenty-three sow units, six nursery units and eight finishing units are located on farms in Dallam and Hartley counties. Substantially all the hogs produced are sold under two long-term contracts with major processors.

In fiscal year 2003, we completed the addition of a new 10,000 sow and wean-to-finish operation at our Texas facilities. Our Texas production facilities are located on approximately 54,000 acres with adequate space and all environmental and land use permits required for further expansion.

We have been experiencing health issues in our Texas hog production operations in recent periods due to PRRS, which is common in swine herds in the United States. PRRS has had a negative effect on reproduction and general herd health in these operations, which has decreased production volume and increased costs. We are currently operating a health-improvement program intended to stabilize the impact of PRRS in the system. This program has increased pigs born alive per sow and improved health performance in recent quarters. There can be no assurance these measures will continue to be successful. See “Risk Factors — Outbreaks of disease can adversely affect our revenues and operating margins and the recent results of our Texas facility have been adversely affected by Porcine Reproductive Respiratory Syndrome.”


	Research and Development

We use an applied research strategy designed to allow rapid and early implementation of technologies in production, nutrition and processing. This effort is driven by our technical team, some of whom have advanced

degrees in nutrition, veterinary science, meat science, health assurance and animal welfare. This team also uses an extensive network of outside scientists and other contacts to enable us to access the latest technology.

We continually seek to improve the genetics of our production herds and to produce hogs that are the highest quality commercially available. Our female and male breeding stock are purchased from several of the world’s leading hog genetics suppliers, which employ extensive research efforts in molecular genetics, biosecurity, food safety and meat quality to help ensure strong genetic lineage.

We routinely evaluate alternate genotypes to validate and compare them to existing products. In addition, we conduct intense research trials to further develop existing genotypes to meet economic and customer demands for composition and quality. These arrangements enhance the quality of our genetics and diversify our genetic sources. We also incorporate careful computer-based monitoring of the breeding performance of all our breedstock to improve breeding patterns and remove sub-optimal parents from the herd.

We have recently entered into a proprietary sire line genetics improvement program with Sygen (PIC), the largest hog genetics firm. This program focuses on quality characteristics of the meat and improved performance traits.

We also have been a leader in the implementation of new technologies at our processing facilities. For example, we were the first U.S. company to introduce the use of European-designed carbon dioxide anesthesia systems in pork processing to reduce livestock stress and increase meat quality and yields. Today, both of our processing facilities employ this technology. Specially designed trucks and holding areas also enhance the welfare and handling of our hogs. In addition, we use rapid chilling technologies to improve product quality traits like color, texture and moisture retention. We continue to explore additional ways to utilize robotics and ergonomic enhancements in our processing operations.

We are committed to install improved wastewater, air and odor technology at all of our finisher farms in northern Missouri by 2010. See “Business— Regulation.” Included in this commitment is the soon to be completed fertilizer plant in northern Missouri that will convert waste at one of our production facilities into useable commercial grade fertilizer. We believe that this facility, which is scheduled to begin operations in the summer of 2005, will be the first plant to commercially produce an odorless, dried pellet fertilizer at a livestock production facility.


	Competition

The pork industry is highly competitive and we compete with many other pork processors and hog producers of varying sizes. Our products also compete with a large number of other protein sources, including beef, chicken, turkey and seafood. However, our principal competition comes from other large pork processors. We believe that the principal areas of competition in the pork industry are price, quality, product distribution and brand loyalty. We believe that we are the sixth largest hog processor in the United States with a number of competitors, including Smithfield Foods (the largest pork processor) being substantially larger than we are. We believe that we are the second largest producer of hogs in the United States, but are substantially smaller than the leader, Smithfield Foods. Some of our competitors are larger than us, have greater financial and other resources and enjoy wider recognition for their branded products.


	Intellectual Property

We hold several trademark and other intellectual property rights. For example, we have registered the names “Premium Farms,” “Natural Excellence,” “Premium Standard Farms,” “Premium Standard Certified,” “Fresh from the Farm Taste,” “Carolinian,” “Lundy’s,” “Tomahawk Farms,” “Signature Cuisine” and “Gold Banner” with the United States Patent and Trademark Office. We have also registered “Premium Standard Farms” in some of the foreign countries to which we sell our products. In addition to trademark protection, we attempt to protect our unregistered marks and other proprietary information under trade secret laws, employee and third-party non-disclosure agreements and other laws and methods of protection.


	Employees

We had approximately 4,200 employees as of December 25, 2004, of which approximately 2,100 were in processing, approximately 1,800 were in production and approximately 300 were in administration. None of our employees are subject to collective bargaining arrangements, although there can be no assurance that employees will not enter into such agreements in the future. We generally consider our employee relations to be good.


	Regulation


	*Environmental, Health and Safety*

Our operations are subject to federal, state, and local environmental, health, and safety laws and regulations, including those governing air emissions and wastewater discharges and, in some jurisdictions, odor. Among other things, these laws and regulations impose standards and limitations on our waste treatment lagoons, water treatment facilities and new construction projects and regulate the management of animal waste from our hog production facilities. We also have been and are subject to lawsuits from neighboring property owners in Missouri based on the law of nuisance.

We are committed to promoting environmental stewardship, and we strive to comply with environmental, health and safety requirements and to improve our environmental performance on a continuing basis. We cannot assure you, however, that we will at all times operate in compliance with environmental requirements, and if we fail to comply with such requirements, we could incur material penalties, fines and damages, and negative publicity.

Environmental, health, and safety laws and regulations are subject to amendment, to the imposition of new or additional requirements and to changing interpretations by governmental agencies or courts. In particular, environmental laws and regulations may become more stringent for our industry. Additionally, various citizen and advocacy groups have been advocating changes in animal handling and environmental practices in the industry. Although we believe we are a leader in installing advanced environmental controls, more stringent requirements could result in changes in industry practices that could increase our costs and reduce margins.

In 2003, EPA issued Effluent Limitation Guidelines for Concentrated Animal Feeding Operations. These regulations require animal feeding operations to obtain wastewater permits and implement nutrient management plans. A U.S. Court of Appeals recently invalidated certain provisions of these regulations. In any event, our facilities and related operating procedures already comply with or exceed most of these requirements, and we do not anticipate any material costs in complying with these rules.

The State of Missouri promulgated a rule that came into effect on January 1, 2002 to regulate odor emissions from large animal feeding operations such as ours. This rule required us to develop plans to reduce odor emissions and to submit such plans to state authorities, which we have done. This rule also required us to make certain changes to reduce odors at the property line to certain established levels. The Company does not anticipate material costs to comply with the rule as promulgated.


	*Environmental Consent Decrees and Agreements*

In order to settle enforcement actions and citizen suits, and to ensure that we, the regulatory agencies, and independent experts all agree that we are implementing appropriate advanced technology, we have entered into consent decrees with the State of Missouri, and with the federal government and a citizens group, and signed a voluntary agreement with the State of North Carolina. The decrees have generally required that we pay penalties to settle past alleged regulatory violations, and the decrees and the voluntary agreement require that we research, develop, and implement new technologies for environmental controls at our Missouri and North Carolina operations.

In 1999, we entered into a consent decree to settle a suit filed by the State of Missouri. The settlement required us to invest $25 million in capital expenditures on what was characterized in the decree as “Next

Generation Technology” for researching, installing and operating improved technology to control wastewater, air and odor emissions from our Missouri farms. Our proposed technologies were to be approved by a panel of independent university experts and were to be completed by 2004. In 2002, the State of Missouri filed a suit against us for alleged new violations of air and water regulations. We settled that matter by entering into a second consent decree in 2004. The 2004 consent decree required us to pay a civil penalty of $333,000. It also modified the 1999 consent decree by extending the schedule to implement Next Generation Technology from 2004 until 2010, to ensure that the technology we install will be effective in reducing impacts to the environment. As a result of the 2004 consent decree, we now estimate that we will invest approximately $33 million in Next Generation Technology by the 2010 deadline, of which $6.5 million has been spent as of December 25, 2004.

In 2001, we entered into a consent decree with a citizens group and the United States to resolve alleged violations of the Clean Air Act, Clean Water Act and the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). This consent decree was built upon the 1999 consent decree with the State of Missouri referenced above and requires that the Next Generation Technology we employ meet certain performance standards, such as a 50 percent reduction in nitrogen concentration of the effluent applied to area fields over a prescribed time period. We paid a civil penalty in the amount of $350,000 in connection with this settlement.

In 2000, we voluntarily entered into an agreement with the Attorney General of North Carolina. Under this agreement, we committed to implement “Environmentally Superior Technologies” for the management of swine waste at our company-owned farms after an independent panel determined that such technologies are both effective and economically feasible to construct and operate. Environmentally Superior Technologies are generally identified as waste treatment technologies that meet certain performance standards with respect to release of materials into the environment. We also paid $2.5 million to a fund for the development of such technologies, for environmental enhancement activities and for the defrayal of costs incurred by the state related thereto. We have met all of our commitments to date under this agreement and continue to work closely with the state’s designated representative at North Carolina State University in the development of Environmentally Superior Technologies.

On January 21, 2005, EPA announced the opportunity for animal feeding operations to enter into an agreement regarding air emissions from animal feeding operations. The agreement is known as the “Air Quality Compliance Agreement.” The purpose of the agreement is to allow EPA to monitor the operations and gather data for future regulations. Participating parties would pay a civil penalty. In exchange for this, the parties will receive a limited conditional release and covenant not to sue for any past violations and future violations of applicable environmental air emission laws until such time as EPA establishes emission methodologies enabling AFOs to certify compliance. EPA’s proposal is not yet final, and we are evaluating whether we will participate in this program. Our Missouri operations would not be eligible because they are subject to the consent decrees described above. As proposed by EPA, the amount of the civil penalty that would be assessed in order for our North Carolina and Texas operations to participate would not be expected to exceed $100,000. If we decide to participate in the program, we do not anticipate that the penalty and required compliance actions will have a material adverse effect on us.


	*Environmental Capital Expenditures*

We have incurred, and will continue to incur, significant capital and operating expenditures to comply with environmental requirements and our obligations under the consent decrees. We expect to spend approximately $4.5 million, primarily on Next Generation environmental controls, in the last quarter of fiscal year 2005, and expect to spend about $4.0 million in fiscal year 2006, and roughly $4.0 million in fiscal year 2007. The fiscal year 2005 expenditures were primarily for the construction of Next Generation Technology in the form of a fertilizer plant in northern Missouri that will convert hog waste into commercial grade fertilizer. Our fiscal year 2006 and fiscal year 2007 expenditures will be primarily for Next Generation upgrades at certain additional farm locations.


	*North Carolina Moratorium*

In 1997, North Carolina enacted a moratorium on the construction of farms with more than 250 hogs or the expansion of existing large farms in the North Carolina. In 2003, the moratorium was extended until 2007. North Carolina is concerned about the use of waste treatment lagoons and spray fields for the disposal of swine waste, especially in areas of that state that are prone to flooding or hurricanes. It is anticipated that this moratorium will be extended until more effective technologies are developed to protect the environment. Currently, we do not expect that the North Carolina moratorium will have a material adverse effect on us.


	*2003 BSE Case*

On December 23, 2003, a case of BSE was confirmed in a dairy cow in the State of Washington. On December 30, 2003, the USDA announced additional safeguards to further minimize the risk for human exposure to BSE in the United States. World markets reacted to this event and several countries banned the import of beef products from the United States, pending further investigation and action by the U.S. beef industry. For the most part, these bans continue today and have caused a moderation of beef prices in the U.S. since the discovery. The U.S. Congress has reacted by considering potential legislation that includes banning “downer” livestock from the food chain, re-assessing country-of-origin labeling, implementing mandatory animal identification and traceability requirements, and requiring potential changes in the current practice of feeding animal by-products. At this time, it is uncertain what impact these events may have on the pork industry.


	*Nuisance Lawsuits*

We are defendants in several lawsuits based on the law of nuisance in Missouri, including one class action lawsuit. We believe we have good defenses to these actions and intend to vigorously defend them. These lawsuits are described in more detail in “Business — Legal Proceedings.”


	*ContiGroup Indemnity*

The Company indemnified its majority shareholder, ContiGroup, Inc., against any liabilities, including environmental liabilities, relating to the Missouri operations at the time that ContiGroup sold its Missouri hog production facilities to the Company and made its initial investment in 1998. This indemnification obligation currently extends to the Company’s obligations under the State of Missouri consent decree and the pending nuisance suits, as well as any potential future claims regarding our Missouri operations.


	*Other Regulatory Matters*

In February 2002, the U.S. Senate initially passed a Farm Bill that included a provision known as the “Johnson Amendment,” which would have prohibited meat packers, like us, from owning or controlling livestock intended for slaughter for more than fourteen days prior to slaughter. The U.S. House of Representatives passed a different version of the Farm Bill that did not contain any provision similar to the Johnson Amendment. A Conference Committee was convened for the Farm Bill, composed of members of both the House and the Senate. This Conference Committee rejected the Johnson Amendment and approved a uniform Farm Bill without the Johnson Amendment or any similar provision.

If the Johnson Amendment had become law, it may have had a material adverse effect on our vertically integrated business. It may have caused us to consider a restructuring of our operations. We, along with industry groups, succeeded in educating lawmakers as to the adverse effects and unintended consequences of the Johnson Amendment, leading to its subsequent rejection by the Conference Committee. We and others in the industry will continue efforts to educate lawmakers, but the parties advocating passage of the Johnson Amendment continue to propose similar legislation. If a provision like the Johnson Amendment became law, it could have a material adverse effect on us.

The Country of Origin Labeling requirements became law pursuant to the Farm Security and Rural Investment Act of 2002, but implementation of the labeling requirements has been delayed. Due to our vertical integration, we do not anticipate any material compliance problems.

At the time of ContiGroup’s acquisition of its interest in us in 1998, ContiGroup submitted the proposed ownership structure to the Office of the Attorney General of the State of Missouri for its review. At that time, the Office of the Attorney General indicated that it had no objection to our current structure under the corporate farming laws. There can be no assurance, however, that this position will be maintained in the future as our operations continue and develop.

In addition to Missouri’s “corporate farming law,” Missouri law prohibits a person who is not a citizen or resident of the United States from holding a controlling interest in a business that owns land used for farming. A controlling interest in us is not currently, and we anticipate will not be immediately after this offering, held by a foreign person or entity in violation of this law. Our certificate of incorporation includes provisions intended to prevent foreign ownership in violation of this law. These provisions, however, may not effectively prevent a foreign person or entity from acquiring a controlling interest in us after the offering. See “Description of Capital Stock — Foreign Ownership Restriction.”

Properties and Facilities


	*Pork Processing*

We own two pork processing facilities located in Missouri and North Carolina. Combined, these two facilities have the capacity to process approximately 4.6 million hogs per year.

The Missouri facility has a processing capacity of 7,400 hogs per day and is one of the most modern and technically advanced facilities of its kind. Substantially all of the hogs processed at this plant are produced by our Missouri hog production operation.

In fiscal year 2003, we completed a major renovation of our North Carolina processing facility which increased its processing capacity. The facility is now capable of processing up to 10,000 hogs daily, depending on seasonality and market conditions, and we believe it is now, along with our Missouri processing plant, one of the most advanced facilities of its kind in the United States. The majority of the hogs processed at the facility are provided by our North Carolina hog production operations with the remainder being sourced from outside suppliers.


	*Hog Production*

We have a combination of owned, contracted and leased hog production facilities which support approximately 270,000 sows and their respective offspring. As detailed below, there are three geographic areas where our hog production operations are located.

The Missouri production operation has a 116,000-sow herd which produces approximately 2.1 million hogs per year. The production facilities are located on approximately 45,000 acres and are supported by three owned feedmills with a combined annual capacity of 960,000 tons per year. Of these 45,000 acres, approximately 7,200 acres are owned by ContiGroup but the facilities located thereon are owned by us. See “Certain Relationships and Related Transactions.”

The Texas production operation has a 34,000-sow herd which is designed to produce approximately 600,000 hogs per year. The production facilities are located on approximately 54,000 acres and are supported by one owned feedmill with an annual capacity of 180,000 tons per year.

The North Carolina production operation has a 76,000-sow herd which produces approximately 1.4 million hogs per year. Most of the production operations in North Carolina are conducted on farms that are not owned by us. The hogs, however, are owned by us. Our North Carolina production operations are supported by one owned feedmill with an annual capacity of 224,000 tons per year and through an arrangement with a large feedmill operator for the rest of our feed requirements.


	*Headquarters*

Our corporate office is located in Kansas City, Missouri, and consists of approximately 18,000 square feet of leased space. This lease has an initial term expiring in July 2013.

All of our facilities are subject to liens under our credit agreement.

Legal Proceedings

Two suits based on the law of nuisance were filed against ContiGroup and us during the second quarter of fiscal year 2003 in the Circuit Court of Jackson County, Kansas City, Missouri (Steven Adwell, et al. vs. PSF, et al., and Michael Adwell, et al. vs. PSF, et al.). Two other suits based on the law of nuisance were filed in March of 2004 by the same attorney (Fred Torrey, et al. vs. PSF, et al., and, Doyle Bounds, et al. vs. PSF, et al.). Two additional suits were filed in May 2004 in Daviess County Circuit Court, Gallatin, Missouri entitled Vernon Hanes et al. v. Premium Standard Farms, Inc. et al., and Steve Hanes et al. v. Premium Standard Farms, Inc., et al. There are multiple plaintiffs in each suit, who claim to live near swine farms owned or under contract with us. The plaintiffs allege that odors from these farms interfered with their right to use and have quiet enjoyment of their respective properties and are seeking unspecified damages. We believe we have good defenses to these actions and intend to vigorously defend these suits.

In May 2004 the same lawyer who filed the Adwell, Bounds and Torrey lawsuits filed a class action lawsuit (Daniel Herrold, et al. and Others Similarly Situated v. ContiGroup Companies, Inc, Premium Standard Farms, Inc., and PSF Group Holdings, Inc.) in the Circuit Court of Jackson County, Kansas City, Missouri. The action seeks to create a class of plaintiffs living within 10 miles of our farms in northern Missouri, including contract grower farms, who are alleged to have suffered interference with their right to use and have quiet enjoyment of their respective properties and are seeking unspecified damages. We have removed this case to the U.S. District Court in Kansas City, Missouri. We believe we have good defenses to this action and intend to vigorously defend this suit.

In addition, we are involved from time to time in routine litigation incidental to our business. Although no assurance can be given as to the outcome or expense associated with any of these routine proceedings, we believe that none of the proceedings currently pending should, individually or in the aggregate, have a material adverse effect on our financial statements.

MANAGEMENT

Executive Officers and Directors

The names, ages and positions of our executive officers and directors as of , 2005, are set forth below:


Name	Age		Position(s)

John M. Meyer		42	Chief Executive Officer and Director
Robert W. Manly		52	President
Stephen A. Lightstone		59	Executive Vice President, Chief Financial Officer and Treasurer
Gerard J. Schulte		55	General Counsel and Secretary
Dennis D. Rippe		51	Vice President, Controller and Assistant Secretary
Calvin R. Held		49	Vice President Processing Operations
Richard L. Morris		54	Vice President Sales and Marketing
Michael J. Zimmerman		54	Chairman of the Board and Director
Vart K. Adjemian		62	Director
Paul J. Fribourg		51	Director
Ronald E. Justice		60	Director
Maurice L. McGill		68	Director
Dean A. Mefford		64	Director
Michael A. Petrick		43	Director

John M. Meyer has been a Director and our Chief Executive Officer since May 1998. Prior to May 1998, he spent 15 years with ContiGroup, most recently as Vice President and General Manager of ContiGroup’s pork division. While with ContiGroup, Mr. Meyer served in the sales, credit and financial services functions.

Robert W. Manly has been our President since October 1996. From April 1986 to October 1996, Mr. Manly served as Executive Vice President of Smithfield Foods, Inc., a meat producer and processor. He also served as President and Chief Operating Officer of the Smithfield Packing Company, a subsidiary of Smithfield Foods from June 1994 to June 1995. Mr. Manly held the position of Assistant to the President of IBP, Inc., a meat producer and processor from January 1981 to April 1986.

Stephen A. Lightstone has been our Executive Vice President, Chief Financial Officer and Treasurer since August 1998. From 1983 to 1998, Mr. Lightstone was with Payless Cashways, Inc., a building materials retailer, most recently serving as Senior Vice President, Chief Financial Officer and Treasurer.

Gerard J. Schulte has been our General Counsel and Secretary since July 1998. Mr. Schulte has been Vice President and Assistant General Counsel of ContiGroup Companies, the majority shareholder of the Company prior to the offering, since February 2001, and previously served as Vice President and General Counsel of ContiIndustries, an operating group of ContiGroup Companies, since 1990.

Dennis D. Rippe has been our Vice President, Controller and Assistant Secretary since January 1999. Prior to that date, Mr. Rippe had been our Vice President Finance and Administration-Operations (Missouri) since February 1997.

Calvin R. Held has been our Vice President of Processing Operations since April 2004. Prior to that date, Mr. Held was the Company’s Vice President of Milan, Missouri Processing Operations from December 1994 to April 2004 and was Controller of Farm Production and the Milan, Missouri Plant from August 1992 to December 1994. From 1978 to 1992, Mr. Held was with Jimmy Dean Foods, a division of the Sara Lee Corporation, a manufacturer and marketer of consumer products.

Richard L. Morris has been our Vice President of Sales and Marketing since November 2003. Prior to joining the Company, Mr. Morris was a consultant with Morris Group, a consulting company, from September 2002 to November 2003, and prior to that spent 22 years with Sara Lee Corporation, a manufacturer and

marketer of consumer products, and affiliates from February 1980 to August 2002, most recently as Vice President of Distributor Sales-Meat and Bakery with Sara Lee Foodservice.

Michael J. Zimmerman has been our Chairman of the Board of Directors since May 1998. Mr. Zimmerman has been Executive Vice President and Chief Financial Officer of ContiGroup Companies since 1999. From 1996 to 1999, he served as Senior Vice President— Investments and Strategy of ContiGroup Companies and President of its ContiInvestments subsidiary. Prior to joining ContiGroup in 1996, he was a Managing Director of Salomon Brothers Inc.

Vart K. Adjemian has been a Director since September 1999. Mr. Adjemian has been Executive Vice President and Chief Operating Officer of ContiGroup since February 2001. From 1999 to February 2001, he served as Executive Vice President of ContiGroup and as Chief Executive Officer of the ContiIndustries, an operating group of ContiGroup. From 1998 to 1999, he was Senior Vice President of ContiGroup, and from 1996 to 1998, he was President of the Commodity Marketing Group of ContiGroup.

Paul J. Fribourg has been a Director since May 1998. Mr. Fribourg has served as Chairman, President and Chief Executive Officer of ContiGroup since 1999. From 1997 to 1999, he served as Chairman, President and Chief Executive Officer of Continental Grain and, from 1996 to 1997, he served as Chief Operating Officer of Continental Grain.

Ronald E. Justice has been a Director since September 1996. Mr. Justice has been an Adjunct Professor in Business Studies at Brookhaven College since April 2001. He served as Executive Vice President of Operations of Consolidated Container Company, a producer of plastic containers for consumer products, from September 1998 to April 2000. Mr. Justice was the Senior Vice President of Operations of Scotts Co., a supplier and marketer of consumer lawn and garden care products, from July 1995 to September 1998.

Maurice L. McGill has been a Director since September 1996. Mr. McGill has served as the President of Wirmac Corp., a private investment company, since 1986 and as a general partner of McGill Partners, a private investment company, since 1989.

Dean A. Mefford has been a Director since September 1996. From January 1999 to February 2001, he served as Chairman of the Board of Doubletime Corporation and from October 1999 to May 2000 he served as the Interim President of Ocean Spray Corp., a producer of fruit drinks and foods. Mr. Mefford served as President and Chief Executive Officer of Viskase Corporation, a manufacturer of flexible packaging and meat casings, from 1994 to 1998.

Michael A. Petrick has been a Director since May 1998. Mr. Petrick is a Managing Director of Morgan Stanley & Co. Incorporated, the managing underwriter of this offering, and has been with Morgan Stanley since 1989. Mr. Petrick also serves as a director of Sunbeam Corporation, a manufacturer of small appliances, DigitalGlobe Inc, an imaging and information company, V2 Music, an independent record label, and TVN Entertainment Corporation, a digital content aggregation, management, distribution and service company. Mr. Petrick will resign as a director of our Company prior to the closing of this offering.

Our Board of Directors

Our board of directors has the power to appoint officers. Each officer will hold office for the term determined by the board of directors and until such person’s successor is chosen and qualified or until such persons resignation, removal or death.

Our board currently consists of eight persons, at least a majority of whom will satisfy the independence requirements of the New York Stock Exchange or NASDAQ National Market. We expect to add one or more new directors shortly after the consummation of this offering. In compliance with the requirements of the Sarbanes-Oxley Act of 2002, the New York Stock Exchange or NASDAQ National Market listing standards and SEC rules and regulations, we expect that the directors on our audit, nominating and governance and compensation committees over time will be independent and a majority of our board will be independent.

We currently have two classes of common stock designated as Class A common stock and Class B common stock. The holders of shares of our Class A Common Stock are entitled to elect 4 members to our board of directors, and the holders of our Class B Common Stock are entitled to elect 5 members to our board of directors. Prior to completion of this offering, we intend to convert these two classes of common stock into a single class and, in connection therewith, eliminate the distinctions relating to rights to elect directors. See “Description of Capital Stock.”

There are no family relationships among any of our directors or executive officers.

Our amended and restated certificate of incorporation, which will become effective prior to completion of this offering, provides that our board of directors will be divided into three classes. The term of office of directors assigned to Class I will expire at the annual meeting of shareholders in 2006 and at each third succeeding year thereafter. The term of office of directors assigned to Class II will expire at the annual meeting of shareholders in 2007 and at each third succeeding annual meeting thereafter. The term of office of directors assigned to Class III will expire at the annual meeting of shareholders in 2008 and at each third succeeding annual meeting thereafter. Our board has resolved that , and will serve as Class I directors, , and will serve as Class II directors and , and will serve as Class III directors.

This classification of the board of directors may delay or prevent a change of control of our Company or in our management. See “Description of Capital Stock— Anti-takeover Effects of Certain Provisions of Delaware Law and Our Amended and Restated Certificate of Incorporation and Restated Bylaws.”

Committees of the Board of Directors

Upon the completion of the reorganization merger, we will have an audit committee and a compensation committee. Each such committee has three or more members, who serve at the pleasure of the Board of Directors. We expect that we also will establish a nominating and corporate governance committee prior to the completion of this offering.

Compensation Committee. The Compensation Committee is responsible for reviewing and making recommendations to the Board of Directors with respect to compensation of executive officers, other compensation matters and awards under the 1999 Equity Incentive Plan. Currently, Messrs. Zimmerman, Fribourg and Mefford serve on the Compensation Committee. Mr. Zimmerman is chairman of the committee.

Audit Committee. The Audit Committee is responsible for reviewing our financial statements, audit reports, internal financial controls and the services performed by Premium Standard Farms’ independent public accountants, and for making recommendations with respect to those matters to the Board of Directors. Currently, Messrs. McGill, Adjemian and Justice serve on the Audit Committee. The board has determined that Mr. McGill, the current chairman of the committee, qualifies as an “audit committee financial expert” within the meaning of the regulations of the SEC.

Nominating and Governance Committee. We expect that prior to this offering, our board will designate a nominating and governance committee that will consist of at least three directors. The nominating and governance committee will be responsible for the oversight of and assist our board of directors in developing and recommending governance practices and selecting the director nominees to stand for election at annual meetings of our shareholders.

Code of Ethics

We have adopted a code of professional ethics for our Chief Executive Officer, Chief Financial Officer, Controller, Director of Corporate Accounting and Finance, and other employees of the finance organization.

Compensation of Directors

Premium Standard Farms has agreed to pay each person who is a member of its board of directors $1,000 per meeting, plus reimbursement of reasonable out-of-pocket expenses incurred in connection with the performance of duties as a director. In addition, each director who is not affiliated with ContiGroup receives $20,000 per year in exchange for his or her services. Members of the Audit and Compensation Committees receive an additional $1,000 per meeting. In addition, the Chairman of the Audit Committee receives an additional $5,000 per year. Directors of PSF Group Holdings receive no separate compensation for service on the Board of Directors. Following the completion of this offering, each person who is a member of our Board of Directors will receive . In addition, members of the Audit, Compensation and Nominating and Governance Committees will receive .

We have adopted an Equity Incentive Plan that permits options, stock appreciation rights, restricted stock, performance units and performance shares to be granted to the employees, non-employee directors and consultants of PSF Group Holdings and its affiliates (including Premium Standard Farms). As of the date of this prospectus, there have been no grants to non-employee directors of Premium Standard Farms or its affiliates under the Equity Incentive Plan.

Compensation Committee Interlocks and Insider Participation

During the last completed fiscal year, Messrs. Zimmerman, Fribourg and Mefford served on the compensation committee. None of the members of our compensation committee is currently or was formerly an officer or employee of PSF Group Holdings or Premium Standard Farms. There are no compensation committee interlocks and no insider participation in compensation decisions that are required to be reported under the rules and regulations of the Securities Exchange Act of 1934, as amended.

Executive Compensation

The following summary compensation table summarizes compensation information with respect to our Chief Executive Officer and our four other most highly compensated executive officers for our three most recent fiscal years. In this prospectus, these individuals are referred to as our “named executive officers.”

Summary Compensation Table


								Long-Term
								Compensation

				Annual				Number of
				Compensation				Securities		Long-Term
		Fiscal						Underlying		Incentive		All Other
Name and Principal Position		Year		Salary		Bonus		Options		Payouts		Compensation(1)

John M. Meyer			2004	$	315,000	$	—		—	$	—	$	8,000
	Chief Executive Officer		2003		315,082		—		—		—		9,562
			2002		308,846		314,000		—		—		6,903
Robert W. Manly			2004		300,000		—		—		—		8,690
	President		2003		300,336		—		—		—		9,400
			2002		293,846		265,170		—		—		6,954
Stephen A. Lightstone			2004		260,000		—		—		—		9,084
	Executive Vice President,		2003		260,639		—		—		—		8,969
	Chief Financial Officer		2002		256,923		212,139		—		—		7,154
	and Treasurer
Jere Null(2)			2004		210,000		35,000		—		—		9,578
	Vice President,		2003		209,136		—		—		—		4,692
	Processing Operations		2002		204,231		74,995		—		—		106,540
David H. James(3)			2004		200,000		—		—		—		8,000
	Vice President,		2003		199,019		—		—		—		8,323
	Production Operations		2002		195,000		81,423		—		—		6,974


(1)	Consists of employer contributions to the 401(k) plan and premiums for group-term life and accidental death and dismemberment insurance. In the case of Mr. Null only, the amounts listed also include $100,000 in fiscal year 2002 related to a non-recurring payment which was payable in recognition of benefits forfeited from a former employer.
(2)	Mr. Null resigned in April 2004.
(3)	Mr. James resigned in April 2004.

Stock Option Grants in Last Fiscal Year

There were no options granted to our named executive officers in fiscal year 2004.

Aggregated Option Exercises in Last Fiscal Year and Year-End Option Values

None of our named executive officers exercised any options in fiscal year 2004. Set forth below is information relating to the number of options held by our named executive officers as of the end of fiscal year 2004:

Number of Securities

Value of Unexercised In-

Underlying Unexercised

The-Money Options/SARS

Options at Fiscal Year-End

at Fiscal Year-End($)(1)

Name

Exercisable

Unexercisable

Exercisable

Unexercisable

John M. Meyer

—

Robert W. Manly

—

Stephen A. Lightstone

—

Jere Null

—

David H. James

—


(1)	The fiscal year-end value of unexercised in-the-money options listed below has been calculated based on the assumed initial public offering price of $ per share, less the applicable exercise price per share, multiplied by the number of shares underlying such options.

Compensation Plans


	*1999 Equity Incentive Plan*

We adopted our 1999 Equity Incentive Plan in April 2000. The plan was established to attract, motivate and retain our employees and our affiliates, including Premium Standard Farms, and to further our growth and financial success and our affiliates by aligning the interests of participants with the interests of our shareholders.

The plan is administered by a committee of non-employee directors appointed by our Board. The plan provides for awards in the form of stock options, stock appreciation rights, restricted stock, performance units and performance shares, as determined by the committee. All employees and non-employee directors, as well as certain non-employee advisors and consultants, are eligible to receive awards under the plan. A total of shares of our Class A or Class B Common Stock may be issued pursuant to the plan. Awards vest upon a change in control of us, as defined in the plan.

Options granted under the 1999 Equity Incentive Plan may be either incentive stock options or nonqualified stock options, as determined by the committee. No participant can be granted options with respect to more than shares in any fiscal year. The terms of any option will be determined by the committee, but no stock option may be exercised later than 10 years after the date of grant. The award agreement may provide that we have the right to repurchase the stock if the grantee terminates employment.

The committee may also grant stock appreciation rights, restricted stock, performance units, or performance shares to eligible individuals, from time to time, in amounts as it may determine. Each stock appreciation right or performance share relates to one share of our Class A or Class B Common Stock. No participant can be granted stock appreciation rights covering more than shares in any fiscal year, and no participant can be awarded more than performance shares or restricted shares, or performance units with an initial value of more than $ in any fiscal year. The value of a performance unit will be at the discretion of the committee.


	*Long-Term Incentive Plan*

We have established a long-term incentive plan under which awards may be made. The plan is a rolling three-year plan based on three years of performance. There currently are two outstanding performance periods: (1) the three-fiscal year period which commenced April 1, 2003 and (2) the three-fiscal year period which commenced April 1, 2004. Those generally eligible for the plan are senior managers with responsibility for leadership and accountability for long-term growth and earnings as determined by the compensation committee. The plan establishes both a formula-based incentive pool and a discretionary awards pool. Incentive pool awards, constituting two-thirds of the plan awards, were determined at the plan’s inception, and discretionary pool awards, constituting one-third of the plan awards, will be determined at the end of each performance period. At the beginning of each three-year period, each participant is assigned a percentage of such participant’s base salary payable during the applicable three-year period. Each participant’s awards under the plan are calculated based upon this assigned percentage of the participant’s salary at the beginning of the plan year. Awards will be payable in cash. Participants will have the option to defer awards into the Deferred Compensation Plan discussed below. The plan is administered by the compensation committee. In connection with a sale of Premium Standard Farms (whether by merger, consolidation, sale of assets or otherwise) or an initial public offering by Premium Standard Farms, special vesting and funding rules may apply. In any such event, the compensation committee would review the circumstances and determine the appropriate course of action to take at that time.

The following table sets forth information regarding long-term incentive plan awards made during fiscal year 2004 to each of the named executive officers:

Long-Term Incentive Plans—Awards in Last Fiscal Year

Estimated Future Payouts Under

Performance or

Non-Stock Price-Based Plans

Number of Shares,

Other Period

Units or Other

Until Maturation

Threshold

Target

Maximum

Name

Rights (#)(1)

or Payout(2)

($ or #)(3)

($ or #)(4)

John M. Meyer

75% of salary

March 31, 2006

177,200

708,750

N/A

Robert W. Manly

70% of salary

March 31, 2006

157,500

630,000

N/A

Stephen A. Lightstone

60% of salary

March 31, 2006

117,000

468,000

N/A

Jere Null

55% of salary

March 31, 2006

86,625

346,500

N/A

David H. James

55% of salary

March 31, 2006

82,500

330,000

N/A


(1)	The amount of the pool is determined by our Return On Net Assets (“RONA”). At the minimum threshold RONA, the pool for those eligible is $1,300,000. At the target RONA, the pool for those eligible is $5,200,000. Two-thirds of the pool is nondiscretionary and up to one-third of the pool is discretionary. The table reflects awards assuming the executive receives the maximum discretionary payment.
(2)	The formula based incentive pool, which is nondiscretionary, vests one-third on March 31, 2004, one-third on March 31, 2005 and one-third on March 31, 2006. There is no vesting schedule associated with the discretionary portion of the incentive pool and payments to participants from this pool are conditioned on the continued employment of the participant with the Company other than termination due to death, disability, normal retirement or transfer to certain affiliates of the Company.
(3)	Calculation based on fiscal year 2005 salary levels.
(4)	There is no maximum amount.


	*Deferred Compensation Plan*

The Deferred Compensation Plan for executives was adopted by our Board of Directors in January 2001. Participation in the plan is restricted to a group of executive officers and other management employees. Under this plan, participating executives are allowed to defer payment of compensation awarded as long-term incentive plan compensation until a date elected by the executive in accordance with the plan. The plan generally allows payment in the form of a single lump sum or ten substantially equal annual installments

following the date of payment. A.G. Edwards Trust Company acts as trustee for the plan, which is administered by the compensation committee.


	*401(k) Plan*

We have established a 401(k) plan covering substantially all employees meeting certain minimum service requirements. The plan allows all qualifying employees to contribute up to 60% of employee compensation limited to the tax deferred contribution allowable by the Internal Revenue Code. We match 100% of the employee’s contribution up to 3% of employee compensation and 50% of the employee’s next 2% of employee compensation, for a maximum company match of 4% of employee compensation. Effective January 1, 2000, the 401(k) plan was amended from a three-year cliff-vesting period to a 100% immediate vesting.


	*Severance Plan*

We have established an Executive Level Severance Pay Plan covering our executive employees, which can be terminated by our Board at any time. The purpose of the plan is to provide eligible employees with base severance pay, supplemental severance pay and supplemental severance benefits for a specified period of time in the event that their employment is involuntarily terminated other than for good reason. Under the plan, those persons serving as Chief Executive Officer, President and Chief Financial Officer are entitled to receive the following benefits upon termination of the employment:


	•	Base severance pay equal to two weeks pay;

	•	Supplemental severance pay equal to fifty weeks of pay; and

	•	Continuation of health benefits coverage for fifty-two weeks following termination.

Severance pay under the plan is generally payable in a lump sum following the date of termination. Supplemental severance pay and continuation of health benefits, however, are conditioned upon the employee’s execution of a general waiver and release agreement, and supplemental severance pay will be paid only after execution of that agreement.


	*Special Executive Retirement Plan*

We have adopted a nonqualified, unfunded special executive retirement plan, which was amended and restated as of October 1, 2004. Generally, the plan provides annual retirement benefits to participants following their retirement based on a percentage of their average compensation multiplied by their years of credited service. The 2004 amendment to the plan reduced the applicable benefit percentage for all executive officers to 1.5%, from 4.0% for Messrs. Meyer, Manly and Lightstone and from 2.0% for all other executive officers with respect to service performed after September 30, 2004. The following tables show the approximate annual retirement benefits that participating executive officers are expected to receive under the plan starting at age 62 based on their levels of compensation and their years of credited service both before and after October 1, 2004. To calculate the approximate benefit payable to any executive officer, it is necessary to add the amounts determined under each table.

Special Executive Retirement Plan Tables

4% Applicable Percentage(1)


		Pre-October 1, 2004 Years of Service
Pre-2004 Average
Remuneration		5		10		15		20		25

$	125,000	$	25,000	$	50,000	$	75,000	$	100,000	$	125,000
	150,000		30,000		60,000		90,000		120,000		150,000
	175,000		35,000		70,000		105,000		140,000		175,000
	200,000		40,000		80,000		120,000		160,000		200,000
	225,000		45,000		90,000		135,000		180,000		225,000
	250,000		50,000		100,000		150,000		200,000		250,000
	300,000		60,000		120,000		180,000		240,000		300,000
	400,000		80,000		160,000		240,000		320,000		400,000


	(1)	An applicable percentage of 2% would result in ¹/2 of the amount shown.

1.5% Applicable Percentage


		Post-September 30, 2004 Years of Service
Final Average
Remuneration		5		10		15		20		25

$	125,000	$	9,375	$	18,750	$	28,125	$	37,500	$	46,875
	150,000		11,250		22,500		33,750		45,000		56,250
	175,000		13,125		26,250		39,375		52,500		65,625
	200,000		15,000		30,000		45,000		60,000		75,000
	225,000		16,875		33,750		50,625		67,500		84,375
	250,000		18,750		37,500		56,250		75,000		93,750
	300,000		22,500		45,000		67,500		90,000		112,500
	400,000		30,000		60,000		90,000		120,000		150,000

The benefits shown in the above tables are stated as approximate annual amounts payable in monthly installments as single life annuities starting at age 62, the plan’s normal retirement age. Benefits under the plan can be paid as an annuity or as a lump sum. Pre-Amendment benefits are based on the executive’s average base salary for full calendar years worked during 2001, 2002 and 2003, including amounts deferred to the 401(k) plan or cafeteria plan. Post-Amendment benefits are based on the average of the executive’s final three calendar years’ base salary, including amounts deferred to the 401(k) plan or cafeteria plan. An executive must complete five years of service after January 1, 2000, to be entitled to receive a benefit. Benefits shown above are offset by one-half of the Social Security benefits paid or payable at age 62 attributable to years of service with us and by any retirement benefits paid or payable under any ContiGroup qualified defined benefit pension plan.

Credited service for benefit determination purposes as of March 26, 2005, is approximated below for each of the named executive officers:


				Accumulated Benefit			Accumulated Benefit
	Pre-Amendment			Percentage Prior to			Percentage After
Name	Years of Service			Amendment			Amendment

John M. Meyer		6	.4		25.6	%		0.75	%
Robert W. Manly		7	.9		31.6	%		0.75	%
Stephen A. Lightstone		6	.2		24.8	%		0.75	%
Jere Null(1)		3	.0		—			—
David H. James(1)		5	.0		—			—


(1)	Messrs. James and Null each resigned prior to satisfying the requirement to complete five years of service after January 1, 2000, and therefore are not entitled to receive benefits under the plan.

Limitations on Liability and Indemnification Matters

Our amended and restated certificate of incorporation will limit the liability of our directors and executive officers for monetary damages for breach of their fiduciary duties to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of a director’s fiduciary duty as a director, except liability for:


	•	any breach of the director’s duty of loyalty to us or our shareholders;

	•	acts or omissions which involve intentional misconduct or a knowing violation of law;

	•	under Section 174 of the Delaware General Corporation Law, which related to unlawful payments or dividends or unlawful stock repurchases or redemptions; or

	•	any transaction from which the director derived an improper personal benefit.

Our restated bylaws will provide that our directors will be indemnified in connection with any actual or threatened proceedings arising out of their status as such to the fullest extent permitted by the Delaware General Corporation Law. Our restated bylaws will further provide for the advancement of expenses to these directors in connection with the defense of an action or proceeding. The board of directors will have broad authority to cause any officer or employee to be indemnified if he or she is made a party to an action, suit or proceeding by reason of his or her position with us. Prior to consummation of this offering, we will enter into indemnification agreements with each of our directors and executive officers that will provide them with rights to indemnification and expense advancement to the fullest extent permitted under the Delaware General Corporation Law.


	Directors’ and Officers’ Insurance

We currently maintain a directors’ and officers’ liability insurance policy that provides our directors and officers with liability coverage relating to certain potential liabilities.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


	Agreements with Principal Shareholder

We have contracted with ContiGroup to provide certain services pursuant to a hog contract grower agreement and a services agreement. The Company also was party to a consulting agreement with ContiGroup, pursuant to which ContiGroup provided consulting services relating to the negotiation of an environmental consent judgment and compliance therewith, various other environmental matters and strategic services. The Company accrued the entire obligation under the consulting agreement in fiscal year 2000 and made its last payment thereunder in December 2003, at which time the agreement terminated. For the first three quarters ended December 25, 2004 and the fiscal years ended March 27, 2004 and March 29, 2003 the total amount of these expenses and other related-party expenses with ContiGroup were approximately $3.5 million, $5.4 million and $5.3 million, respectively. At December 25, 2004, March 27, 2004, and March 29, 2003, we recorded amounts due to ContiGroup for these items of $55,000, $56,000 and $58,000, respectively, included in our consolidated balance sheets.

The grower agreement relates to approximately 7,200 acres of farms used in our Missouri operations. Under that agreement, ContiGroup owns the real property on which the farms are located. ContiGroup serves as an independent contractor in breeding and growing our hogs to market weight. In exchange, we pay to ContiGroup a fee for labor and services incurred by ContiGroup in performing its obligations under the agreement. In addition, under the grower agreement, we have agreed to indemnify ContiGroup against any and all claims and expenses incurred in connection with the agreement, the performance by ContiGroup of its obligations thereunder or ContiGroup’s ownership of the real property on which the farms are located. During the first three quarters ended December 25, 2004 and the fiscal years ended March 27, 2004 and March 29, 2003, the amount paid for obligations under the grower agreement was approximately $2.8 million, $4.4 million and $4.0 million, respectively. The agreement will generally continue in effect so long as ContiGroup continues to own an equity interest in us. Upon termination of the agreement, we have an option to acquire the real property farmland from ContiGroup for $1.00, which option may be assigned to third parties.

Under the services agreement, ContiGroup provides purchasing assistance, legal services, employee benefits and payroll, including the services of Mr. Gerard Schulte, our General Counsel and Secretary, and other personnel. Mr. Schulte, as well as other personnel, are employees of ContiGroup but provide services to us as well as other affiliates of ContiGroup. Other services from ContiGroup include the assistance of purchasing and risk management staff, environmental consulting and purchasing of certain liability insurance policies. We pay ContiGroup a monthly fee for these services, which amount is negotiated on an annual basis. In addition, we reimburse ContiGroup for a portion of Mr. Schulte’s annual bonus and long-term incentive plan payment. Pursuant to the terms of the services agreement, we and ContiGroup have agreed to indemnify each other against any and all claims and expenses incurred in connection with or arising out of the performance of this agreement. For the first three quarters ended December 25, 2004 and the fiscal years ended March 27, 2004 and March 29, 2003, the amount paid for all services was $0.7 million, $1.0 million and $1.3 million, respectively. In addition to these amounts, we provide Mr. Schulte with an annual allowance of approximately $27,000 for automobile, travel and housing. We believe that the terms of these arrangements are at least as favorable to the Company as those available from third parties.


	Lundy Acquisition

In connection with our acquisition of The Lundy Packing Company on August 25, 2000, we assumed a lease agreement pursuant to which we lease farm land and hog production buildings from Goshen Ridge Farms, LLC, a company owned by Annabelle Lundy Fetterman, who served as one of our directors until she resigned in September 2003, and members of her family, under a capital lease agreement. The capital lease obligation as of December 25, 2004, March 27, 2004 and March 29, 2003 was $1.5 million, $1.7 million and $2.0 million, respectively. We believe that the terms of this arrangement is at least as favorable to the Company as those available from third parties.


	Directed Share Program

At our request, the underwriters have reserved for sale, at the initial public offering price, up to approximately shares of common stock to our directors, officers and employees. The number of shares of common stock available for sale to the general public will be reduced to the extent these parties purchase the reserved shares. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus.


	Relationship with Morgan Stanley

Prior to this offering, affiliates of Morgan Stanley & Co. Incorporated held shares of our common stock and warrants to purchase shares of our common stock, which collectively represented approximately % of our common stock on a fully diluted basis. In addition, Michael A. Petrick, a Managing Director of Morgan Stanley & Co. Incorporated, has served as one of our directors since May 1998. Morgan Stanley & Co. Incorporated is serving as the managing underwriter of this offering and has provided other investment banking services to us from time to time for which it has received customary compensation.

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth information known to us with respect to the beneficial ownership of our common stock as of March 1, 2005, and as adjusted to reflect the sale of common stock in this offering, in each case giving effect to the conversion of our existing classes of common stock into a single class and the for stock split to be effected in connection with this offering:


	•	each shareholder known by us to own beneficially more than 5% of our common stock;

	•	each named executive officer;

	•	each of our directors;

	•	all directors and executive officers as a group; and

	•	each selling shareholder.

We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. Except as otherwise indicated in the footnotes to the table below, we believe that the beneficial owners of the common stock listed below, based on the information furnished by such owners, have sole voting power and investment power with respect to such shares, subject to applicable community property laws. We have based our calculation of the percentage of beneficial ownership on shares of common stock outstanding as of , 2005.

In computing the percent of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options and warrants held by that person that are currently exercisable or exercisable within 60 days. We did not deem these shares outstanding for purposes of computing the percentage ownership of any other person. As a result, the denominator used in calculating the beneficial ownership among our shareholders may differ.

Each of our directors and executive officers have the right to purchase shares of common stock in the directed share program described under “Underwriters” and there is no limit on the number of shares that those persons may purchase in this offering. The following table does not include shares of common stock that may be purchased under the directed share program in connection with this offering. Consequently, the information in the following table may vary from what is presented in this prospectus. We currently expect that none of our directors and executive officers will individually purchase more than shares of common stock under the directed share program. See “Certain Relationships and Related Transactions.”

Shares Beneficially

Owned Prior to this

Owned After this

Offering

Number of

Offering

Shares Being

Number of

Percent of

Sold in this

Number of

Percent of

Name of Beneficial Owner(1)

Shares

Class

Offering

Shares

Class

Principal Shareholders:

ContiGroup Companies, Inc.

Putnam Investments(2)

Morgan Stanley(3)(10)

Metalmark Capital LLC(4)

Oaktree Capital Management, LLC(5)

Prudential Funds(6)

Continental Assurance Company Investment Fund(7)

Shares Beneficially

Owned Prior to this

Owned After this

Offering

Number of

Offering

Shares Being

Number of

Percent of

Sold in this

Number of

Percent of

Name of Beneficial Owner(1)

Shares

Class

Offering

Shares

Class

Directors and Executive Officers:

John M. Meyer(8)

Robert W. Manly(8)

Stephen A. Lightstone(8)

Michael J. Zimmerman

Vart K. Adjemian

Paul J. Fribourg(9)

Ronald E. Justice

Maurice L. McGill

Dean A. Mefford

Michael A. Petrick(10)

All directors and executive officers as a group (10 persons)(9)

Other Selling Shareholders:


	*	Signifies less than 1%.


(1)	Unless otherwise indicated, the business address of the persons named in the above table is care of Premium Standard Farms, Inc., 805 Pennsylvania Avenue, Suite 200, Kansas City, Missouri 64105.

(2)	Consists of common stock beneficially owned by the following Putnam funds and trusts: (a) by Cargolamp & Co., Nominee for the Asset Allocation Funds—Balanced Portfolio ( ), Asset Allocation Funds—Growth Portfolio ( ), Asset Allocation Funds—Conservative Portfolio ( ); (b) by Chafingeight & Co., Nominee for the Diversified Income Portfolio/ Smith Barney/ Travelers Series Fund ( ); (c) by High Yield Managed Trust ( ), (d) by Gerlach & Co., as Nominee for Capital Management Trust—PCM Diversified Income Fund ( ), Equity Income Fund ( ), Premier Income Trust ( ), Convertible Opportunities and Income Trust ( ), High Income Convertible and Bond Fund ( ), Master Intermediate Income Trust ( ), The George Fund of Boston ( ), Managed High Yield Trust ( ), Master Income Trust ( ), Capital Management Trust—PCM High Yield Fund ( ), High Yield Trust ( ), Balanced Retirement Fund ( ), and High Yield Managed Trust ( ), (e) by Bost & Co., Nominee for the High Yield Fixed Income Trust ( ) and Ameritech Pension Trust ( ); and (f) by Neon Capital Limited, Nominee for the High Yield Advantage Fund ( ), Global Governmental Income Trust ( ), Diversified Income Trust ( ), and Income Fund ( ). Putnam Investments address is One Post Office Square, Boston, MA 02109.

(3)	Consists of shares of common stock and shares of common stock issuable upon exercise of presently exercisable warrants. The shares of common stock are held of record by the following entities: Morgan Stanley ( ); Morgan Stanley & Co. Inc. ( ); Morgan Stanley Leveraged Equity Fund II, L.P. ( ); and Morgan Stanley Capital Investors, L.P. ( ). The warrants are held of record by the following entities: Morgan Stanley Leveraged Equity Fund II, L.P. ( ) and Morgan Stanley Capital Investors, L.P. ( ). Morgan Stanley, as the ultimate parent holding company to the other entities listed above, may be deemed to be the beneficial owner of the shares and warrants held by these entities. Morgan Stanley expressly disclaims beneficial ownership with

(footnotes continued on following page)

respect to the shares held by Morgan Stanley & Co. Inc. Morgan Stanley’s mailing address is 1585 Broadway, New York, NY 10036.


(4)	Consists of shares of common stock and shares of common stock issuable upon the exercise of presently exercisable warrants held by the following entities: Morgan Stanley Capital Partners III, L.P. ( shares and warrants) and MSCP III 892 Investors, L.P. ( shares and warrants). Metalmark Capital LLC, an entity not affiliated with Morgan Stanley, has sole voting and dispositive power with respect to such shares pursuant to a subadvisory agreement with certain affiliates of Morgan Stanley. Metalmark Capital LLC’s address is 1177 Avenue of the Americas, New York, NY 10036. Certain affiliates of Morgan Stanley have a pecuniary interest in certain of the shares held by such partnerships.

(5)	Consists of shares held for the benefit of OCM Opportunities Fund, L.P. ( ), OCM Opportunities Fund II, L.P. ( ), Columbia/HCA Master Retirement Trust (Account I) ( ), Columbia/HCA Master Retirement Trust (Account II) ( ) and a managed third party separate account ( ). Oaktree Capital Management, LLC is the general partner or investment manager of the funds and accounts referenced in the preceding sentence. The address of Oaktree Capital Management, LLC is 333 South Grand Avenue, 28th Floor, Los Angeles, California 90071. As general partner or investment manager, Oaktree Capital Management, LLC may be deemed the beneficial owner of these shares of common stock; however, Oaktree Capital Management, LLC disclaims beneficial ownership of these shares of common stock, except to the extent of any pecuniary interest.

(6)	Consists of shares of common stock held of record by Gimlet & Co. ( ), Deerway & Co. ( ) and IFTCO ( ), as custodians for . Prudential Funds’ address is c/o State Street Bank & Trust, 1 Heritage Drive, Quincy, MA 02171.

(7)	Continental Assurance Company Investment Fund’s address is CNA Plaza, 235, Chicago, IL 60685.

(8)	Consists of shares of common stock issuable upon exercise of presently exercisable options.

(9)	Excludes shares owned by ContiGroup Companies, Inc.


(10)	Each of Morgan Stanley and Michael A. Petrick are affiliates of Morgan Stanley & Co. Incorporated, the managing underwriter in this offering.

For information concerning securities authorized for issuance under our equity compensation plans, see “Management—Compensation Plans.”

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock currently consists of 250,000 shares of Class A Common Stock, par value $0.01 per share, 300,000 shares of Class B Common Stock, par value $0.01 per share, and 10,000 shares of preferred stock, par value $0.01 per share. As of December 25, 2004, we had 100,000 shares of Class A common stock and 113,301 shares of Class B common stock issued and outstanding. In connection with this offering, we intend to convert our existing two classes of common stock into a single class and, in connection therewith, effect a for stock split. Our authorized capital stock after the completion of this offering will be shares of common stock, par value $0.01 per share, and shares of preferred stock, par value $0.01 per share. After completion of this offering, shares of our common stock and no shares of our preferred stock will be issued and outstanding. The following description of our capital stock and certain provisions of our amended and restated certificate of incorporation and restated bylaws is a summary. The description below is qualified in its entirety by the provisions of our amended and restated certificate of incorporation and restated bylaws, which have been filed as exhibits to the registration statement, which includes this prospectus.

Common Stock

The issued and outstanding shares of our common stock are, including the shares of our common stock being offered by the selling shareholders in this offering, validly issued, fully paid, and nonassessable. Holders of shares of our outstanding common stock are entitled to receive dividends if and when declared by our board of directors. See “Dividend Policy.” Our common stock is neither redeemable nor convertible. Upon liquidation, dissolution, or winding up of the Company, holders of shares of our common stock are entitled to receive, pro rata, our assets that are legally available for distribution, after payment of all debts and other liabilities. Each outstanding share of common stock is entitled to one vote on all matters submitted to a vote of shareholders. Our restated bylaws do not allow for cumulative voting in the election of directors.

As of December 25, 2004, we had approximately 140 holders of record of our common stock.

Preferred Stock

Our amended and restated certificate of incorporation authorizes the issuance of shares of preferred stock. Our board of directors is authorized to provide for the issuance of shares of preferred stock in one or more series, and to fix for each series voting rights, if any, designation, preferences and relative, participating, optional or other special rights and such qualifications, limitations, or restrictions as provided in a resolution or resolutions adopted by our board of directors.

The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a shareholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions, future financings, and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from seeking to acquire, a majority of our outstanding voting stock. Upon completion of this offering, there will be no shares of preferred stock outstanding, and we have no present plans to issue any shares of preferred stock.

Options and Warrants

After completion of this offering, shares of our common stock will be issuable upon exercise of outstanding options, of which are currently exercisable, and an additional shares of our common stock will be reserved for issuance under the 1999 Equity Incentive Plan. See “Management—Compensation Plans—1999 Equity Incentive Plan.”

As of December 25, 2004, we had warrants outstanding for shares of common stock, exercisable at $ per share until September 7, 2006.

Anti-Takeover Effects of Certain Provisions of Delaware Law and Our Amended and Restated Certificate of Incorporation and Restated Bylaws

Effect of Delaware Anti-takeover Statute. Upon completion of this offering, we will be subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a merger or other business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless:


	•	prior to the time the stockholder became an interested stockholder, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

	•	upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, subject to certain exclusions; or

	•	on or subsequent to the time the stockholder became an interested stockholder, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66²/3% of the outstanding voting stock that is not owned by the interested stockholder.

In general, Section 203 of the Delaware General Corporation Law defines an “interested stockholder” as:


	•	any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation;

	•	any entity or person that is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period prior to the date on which it is sought to be determined whether such person is an interested stockholder; and

	•	the affiliates or associates of any such entities or persons.

The provisions of Section 203 of the Delaware General Corporation Law described above could have the following effects, among others:


	•	delaying, deferring or preventing a change in our control;

	•	delaying, deferring or preventing the removal of our existing management;

	•	deterring potential acquirers from making an offer to our shareholders; and

	•	limiting any opportunity of our shareholders to realize premiums over prevailing market prices of our common stock in connection with offers by potential acquirers.

This could be the case even if a majority of our shareholders might benefit from a change of control or offer.

Amended and Restated Certificate of Incorporation and Restated Bylaw Provisions. Upon the completion of this offering, our amended and restated certificate of incorporation and restated bylaws will include provisions that may have the effect of discouraging, delaying or preventing a change in control or an unsolicited acquisition proposal that a shareholder might consider favorable, including a proposal that might result in the payment of a premium over the market price for the shares held by shareholders. In addition, these provisions may adversely affect the prevailing market price of our common stock. These provisions are summarized in the following paragraphs.

Classified Board of Directors. Our amended and restated certificate of incorporation and restated bylaws will provide for our board to be divided into three classes of directors serving staggered, three-year terms, with one-third of the board of directors being elected each year. The classification of the board has the effect of requiring at least two annual shareholder meetings, instead of one, to replace a majority of the members of the

board of directors. Our classified board, together with certain other provisions of our amended and restated certificate of incorporation and restated bylaws authorizing the board of directors to fill vacant directorships, may prevent or delay shareholders from removing incumbent directors and simultaneously gaining control of the board of directors by filling vacancies created by that removal with their own nominees.

Removal of Directors by the Shareholders. Our amended and restated certificate of incorporation and restated bylaws provide that the shareholders may remove directors only for cause. We believe that the removal of directors by the shareholders only for cause, together with the classification of the board of directors, will promote continuity and stability in our management and policies and that this continuity and stability will facilitate long-range planning.

Special Meetings of Shareholders. Our restated bylaws will provide that special meetings of our shareholders may be called only by our Chairman of the Board of Directors, President or board of directors.

No Shareholder Action by Written Consent. Our amended and restated certificate of incorporation and restated bylaws will preclude shareholders from initiating or effecting any action by written consent and thereby taking actions opposed by the board.

Notice Procedures. Our restated bylaws will establish advance notice procedures with regard to all shareholder proposals to be brought before meetings of our shareholders, including proposals relating to the nomination of candidates for election as directors, the removal of directors and amendments to our amended and restated certificate of incorporation or restated bylaws. These procedures provide that notice of such shareholder proposals must be timely given in writing to our Secretary prior to the meeting. In general, notice of a shareholder proposal or a director nomination for an annual meeting of shareholders must be delivered to us at our executive offices not less than 120 days prior to the date of the meeting. The shareholder’s notice also must contain specified information and conform to certain requirements, as set forth in our restated bylaws. If the presiding officer at any meeting of shareholders determines that a shareholder proposal or director nomination was not made in accordance with the restated bylaws, we may disregard the proposal or nomination. These provisions may preclude a nomination for the election of directors or preclude the conduct of business at a particular annual meeting if the proper procedures are not followed. Furthermore, these provisions may discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of our Company, even if the conduct of the solicitation or attempt might be beneficial to us and our shareholders.

Other Anti-Takeover Provisions. See “Management— Compensation Plans” for a discussion of certain provisions of our benefits plans which may have the effect of discouraging, delaying or preventing a change in control or unsolicited acquisition proposals.

Foreign Ownership Restriction

Missouri law prohibits a person who is not a citizen or resident of the United States from holding a controlling interest in a business that owns land used for farming. No person whose ownership of common stock would cause us to become a “Foreign Business” under this law may acquire or own, beneficially or of record, any common stock. In this regard, our certificate of incorporation provides that no person who is an “Alien” or “Foreign Business” under this law may directly or indirectly acquire or own in the aggregate more than 5% of the outstanding shares of our common stock without our prior written approval. Any person who acquires shares in violation of these restrictions is required, after notice from us, to dispose of the number of shares necessary to eliminate this violation. If the shareholder does not comply within the required time period (i.e., 30 days or such shorter period as is specified in the notice) we will not be required or permitted to pay any distribution on the shares that should have been disposed of and the shareholder may not vote or otherwise participate in the management of the Company with respect to any common stock owned by it. In addition, we will have the right to redeem any shares of common stock that should have been so disposed of at fair market value, measured by the average trading price of the shares on a national securities exchange or the NASDAQ National Market over a period of 20 trading days or, if the shares are not so traded, as valued by our board of directors in good faith. For purposes of this provision and the related statute, (i) an “Alien” is a person who is not a citizen of the United States and is not a resident of the United States or a United States territory

trusteeship or protectorate and (ii) a “Foreign Business” is a business entity, whether or note incorporated, including but not limited to, corporation, partnerships, limited partnerships and associations in which a controlling interest is owned by aliens. In determining ownership of a Foreign Business, legal fictions, such as corporate form or trust, are disregarded.

Listing

We intend to apply to have our common stock listed on the New York Stock Exchange or the NASDAQ National Market under the symbol “ .”

Transfer Agent and Registrar

The transfer agent and registrar for our common stock will be .

SHARES ELIGIBLE FOR FUTURE SALE

Sale of Restricted Shares

Following this offering, we will have shares of common stock outstanding. All the shares we sell in this offering, including shares sold in the over-allotment option, will be freely tradable without restriction or further registration under the Securities Act, except that any shares purchased by our affiliates, as that term is defined in Rule 144, may generally only be sold in compliance with the limitations of Rule 144 described below.

The remaining shares of common stock outstanding following this offering will be “restricted securities” as the term is defined under Rule 144. We issued and sold these restricted securities in private transactions in reliance on exemptions from registration under the Securities Act. Restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption under Rule 144 or Rule 701 under the Securities Act, as summarized below.

Taking into account the lock-up agreements described below, and assuming Morgan Stanley & Co. Incorporated does not release shareholders from these agreements, the following shares will be eligible for sale in the public market at the following times:


	•	on the date of this prospectus, shares sold in this offering will be immediately available for sale in the public market (and additional shares if the underwriters exercise their over-allotment option in full), unless held or acquired by affiliates;

	•	on the date of this prospectus, shares will be freely transferable under Rule 144(k);

	•	90 days after the date of this prospectus, approximately shares will be eligible for sale pursuant to Rule 144 and Rule 701, of which we believe will be subject to volume, manner of sale and other limitations under Rule 144; and

	•	180 days after the date of this prospectus, as such period may be extended as described below, approximately shares will be eligible for sale, of which will be subject to volume, manner of sale and other limitations under Rule 144.

Rule 144

In general, under Rule 144, a person (or persons whose shares are required to be outstanding) who owns restricted shares that have been outstanding for at least one year is entitled to sell, within any three-month period, a number of these restricted shares that does not exceed the greater of:


	•	1% of the then outstanding shares of common stock, or approximately shares immediately after this offering; or

	•	the average weekly trading volume in the common stock on the NYSE or NASDAQ during the four calendar weeks preceding the sale.

Sales under Rule 144 also are subject to manner-of-sale provisions and notice requirements and to the availability of current information about us.

Our affiliates must comply with the restrictions and requirements of Rule 144, other than the one-year holding period requirement, to sell any shares of common stock they may own or acquire which are not restricted securities.

Rule 144(k)

Under Rule 144(k), a person who is not currently, and who has not been for at least three months before the sale, an affiliate of ours and who owns restricted shares that have been beneficially owned for at least two years may resell these restricted shares without compliance with the above requirements. The one- and

two-year holding periods described above do not begin to run until the full purchase price is paid by the person acquiring the restricted shares from us or an affiliate of ours.

Rule 701

Shares issuable upon exercise of options we granted prior to the date of this prospectus are available for sale in the public market pursuant to Rule 701 under the Securities Act, subject to certain Rule 144 limitations and, in the case of some holders, to the lock-up agreements. Rule 701 permits resales of these shares beginning 90 days after the date of this prospectus. If such person is not an affiliate, such sale may be made subject only to the manner of sale provisions of Rule 144. If such person is an affiliate, such sale may be made under Rule 144 without compliance with its one-year minimum holding period, but subject to the other Rule 144 restrictions.

Lock-Up Agreements

We have agreed with the underwriters that we will not, without the prior written consent of Morgan Stanley & Co. Incorporated, the managing underwriter in this offering, issue any additional shares of common stock or securities convertible into, exercisable for or exchangeable for shares of common stock for a period of 180 days after the date of this prospectus, except that we may grant options to purchase shares of common stock under our stock incentive plans, and issue shares of common stock upon the exercise of outstanding options and warrants.

Our officers and directors and the holders of shares of our common stock have agreed, subject to certain exceptions, that they will not, without the prior written consent of Morgan Stanley & Co. Incorporated, offer, sell, pledge or otherwise dispose of any shares of our common stock or any securities convertible into or exercisable or exchangeable for, or any rights to acquire or purchase, any of our common stock, or publicly announce an intention to effect any of these transactions, for a period of 180 days after the date of this prospectus without the prior written consent of Morgan Stanley & Co. Incorporated, except that nothing will prevent any of them from exercising outstanding options or warrants. See “Underwriters.”

In the event that we announce during the 180-day period that we will issue an earnings release during the 16-day period beginning on the last day of the 180-day period or we issue an earnings release or material news or a material event relating to us occurs during the last 17 days of the 180-day period, the restrictions imposed on us, our officers, directors, and some of our other shareholders will continue to apply for 18 days after such earnings release is issued or such material news or material event occurs.

Registration Rights Agreements

We have three registration rights agreements currently in effect with our securities holders: (1) a registration rights agreement between us and holders of our Class A common stock; (2) a registration rights agreement between us and ContiGroup; and (3) a registration rights agreement between us and the holders of our warrants.

Agreement with our Holders. Pursuant to this agreement and subject to limited exceptions, the holders of at least 20% of our Class A common stock may demand registration under the Securities Act and any applicable blue sky laws, so long as the demand registration would have an aggregate market value of at least $25 million. This agreement only obligates us to engage in one demand registration in any fiscal year or four demand registrations in the aggregate. We must use our best efforts to cause the demand registration to be effective no later than 75 days after receiving such request and must pay all registration expenses. If a majority of the holders request a demand registration, the registration must be in the form of a firm commitment underwriting. The registration rights agreement also grants the holders piggy-back rights on any proposed registration by the Company pursuant to the Securities Act (other than a registration pursuant to Form S-4 or S-8). We must provide written notice to the holders on or before the earlier to occur of (i) 10 days after filing of a registration statement and (ii) 15 days prior to effectiveness of any such registration statement. We bear the expense of any piggy-back offering.

Agreement with ContiGroup. Pursuant to this agreement, and subject to limited exceptions, Continental Grain Company may demand registration of its Class B common stock under the Securities Act and any applicable blue sky laws, so long as the demand registration would have an aggregate market value of at least $25 million. ContiGroup may elect to pursue a demand registration in the form of a firm commitment underwriting. The other material terms of this agreement, including the grant of piggy-back registration rights, mirror the terms of the registration rights agreement with holders described immediately above, except we only have to provide ContiGroup with written notice at some point prior to the anticipated filing date.

Agreement with Warrant Holders. Pursuant to this agreement and subject to limited exceptions, the holders of at least 25% of our registrable warrants may demand registration under the Securities Act. The registration agreement only obligates us to engage in one demand registration. Subject to certain exceptions, we must use our reasonable best efforts to cause the demand registration to become effective and pay all registration expenses. If the holders of registrable warrants so request, the registration must be in the form of a firm commitment underwriting. The registration statement also grants the holders of registrable warrants piggy-back rights on any proposed registration by us pursuant to the Securities Act (other than a registration pursuant to Form S-4 or S-8). We must provide written notice to the holders of registrable warrants on or before the earlier to occur of (i) 10 days after filing of a registration statement and (ii) 15 days prior to effectiveness of any such registration statement. We bear the expense of any piggy-back offering.

Equity Incentive Plan

As of the date of this prospectus, we have granted options to purchase shares of common stock to specified persons pursuant to our stock incentive plans. We intend to file, after the effective date of this offering, a registration statement on Form S-8 to register the sale of approximately shares of common stock upon exercises of options granted under our stock incentive plans. The registration statement on Form S-8 will become effective automatically upon filing. Shares issued under our stock incentive plans, after the filing of a registration statement on Form S-8, may be sold in the open market, subject, in the case of some holders, to the Rule 144 limitations applicable to affiliates and subject to lock-up agreements similar to those described above which we have entered into with holders of substantially all options.

UNDERWRITERS

Under the terms and subject to the conditions contained in the underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. Incorporated, , and are acting as representatives, have severally agreed to purchase, and the selling shareholders have agreed to sell to them, severally, the number of shares of common stock indicated below:


		Number of
Name		Shares

Morgan Stanley & Co. Incorporated





	Total

The underwriters and the representatives are collectively referred to as the “underwriters” and the “representatives,” respectively. The underwriters are offering the shares of common stock subject to their acceptance of the shares from the selling shareholders and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of our common stock offered by this prospectus are subject to the approval of legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.

The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $ a share under the public offering price. Any underwriter may allow, and such dealers may reallow, a concession not in excess of $ a share to other underwriters or to certain dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives.

The selling shareholders have each granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of additional shares of our common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of our common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to limited conditions, to purchase approximately the same percentage of the additional shares of our common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of our common stock listed next to the names of all underwriters in the preceding table. If the underwriters’ over-allotment option is exercised in full, the total price to the public would be $ , the total underwriters’ discounts and commissions would be $ , and the total proceeds to us would be $ .

The following table summarizes the estimated expenses we will pay and the compensation the selling shareholders will pay:

Per Share

Total

Without

With

Without

With

Over-allotment

Expenses payable by us

Underwriting discounts and commissions paid by the selling shareholders

The underwriters have informed us that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of our common stock offered by them.

We have applied for listing of our common stock on the New York Stock Exchange or the NASDAQ National Market under the symbol “ .”

Each of us, our directors, executive officers and certain of our other shareholders has agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, each of us will not, during the period ending 180 days after the date of this prospectus:


	•	offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock; or

	•	enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock,

whether any transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. The restrictions described in the preceding paragraph do not apply to:


	•	the sale of shares to the underwriters;

	•	the issuance by us of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing;

	•	transactions by any person other than us relating to shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares, provided no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made in connection with subsequent sales of common stock or other securities acquired in such open market transactions; or

	•	transfers of shares of common stock or other securities convertible into or exercisable or exchangeable for common stock to affiliates of such person, provided that the transferee signs and delivers to Morgan Stanley & Co. Incorporated a similar lock-up agreement.

The 180-day restricted period described above is subject to extension such that, in the event that either (a) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to us occurs or (b) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the “lock-up” restrictions described above will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

In order to facilitate the offering of our common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of our common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position in our common stock for their own account. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase in the offering. In addition, in order to cover any over-allotments or to stabilize the price of our common stock, the underwriters may bid for, and purchase, shares of our common stock in the

open market. Finally, the underwriting syndicate may also reclaim selling concessions allowed to an underwriter or a dealer for distributing our common stock in the offering, if the syndicate repurchases previously distributed shares of our common stock to cover syndicate short positions or to stabilize the price of the common stock. Any of these activities may stabilize or maintain the market price of our common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time.

The selling shareholders and the underwriters have each agreed to indemnify each other against specified liabilities, including liabilities under the Securities Act.

Morgan Stanley & Co. Incorporated may be deemed to be an “affiliate” of us, as defined by Rule 2720 of the Conduct Rules of the National Association of Securities Dealers. Accordingly, this offering will be conducted in compliance with the requirements of Rule 2720. Under the provisions of Rule 2720, when a NASD member distributes securities of an affiliate, the public offering price of the securities can be no higher than that recommended by the “qualified independent underwriter,” as such term is defined in Rule 2720. In accordance with such requirements, has agreed to serve as a “qualified independent underwriter” and has conducted due diligence and recommended a maximum price for the shares of common stock. The selling shareholders have agreed to indemnify for acting as a qualified independent underwriter against certain liabilities, including liabilities under the Securities Act.


	Relationships with Underwriters

Prior to this offering, affiliates of Morgan Stanley & Co. Incorporated held shares of our common stock and warrants to purchase shares of our common stock, which collectively represented approximately % of our common stock on a fully diluted basis. In addition, Michael A. Petrick, a Managing Director of Morgan Stanley & Co. Incorporated, has served as one of our directors since May 1998. Mr. Petrick will resign as a director of our Company prior to the closing of this offering. Morgan Stanley & Co. Incorporated is serving as the managing underwriter of this offering and has provided other investment banking services to us from time to time for which it has received customary compensation.


	Directed Share Program


	Pricing of the Offering

Prior to this offering, there has been no public market for the shares of our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. Among the factors to be considered in determining the initial public offering price will be future prospects of our Company and our industry in general, sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and financial and operating information of companies engaged in activities similar to ours.

VALIDITY

The validity of the common stock offered hereby will be passed upon for us by Gerard J. Schulte, our General Counsel and Secretary, and Sidley Austin Brown & Wood LLP, Chicago, Illinois. Certain legal matters in connection with this offering will be passed upon for the underwriters by Kirkland & Ellis LLP, Chicago, Illinois.

EXPERTS

The consolidated financial statements as of March 27, 2004 and March 29, 2003, and for the years then ended, included in this prospectus and the related financial statement schedule included elsewhere in the registration statement have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein (which report expresses an unqualified opinion on the financial statements and financial statement schedule and includes an explanatory paragraph referring to (i) the adoption of a new accounting principle, (ii) application of procedures for the inclusion of earnings per share amounts on the consolidated statement of operations and comprehensive income (loss) and (iii) the application of procedures relating to reclassifications of financial statement amounts related to the March 30, 2002 consolidated financial statements that were audited by other auditors who have ceased operations and for which they have expressed no opinion or other form of assurance other than with respect to such reclassifications), and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

The consolidated financial statements and schedule at March 30, 2002 and for the year then ended, included in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports.

After reasonable efforts, we have been unable to obtain Arthur Andersen LLP’s written consent to the inclusion of our consolidated financial statements audited by Arthur Anderson LLP in the registration statement of which this prospectus forms a part. Accordingly, we have omitted Arthur Andersen LLP’s consent in reliance upon Rule 437a of the Securities Act of 1933.

Because Arthur Andersen LLP has not consented to the inclusion of our consolidated financial statements audited by Arthur Andersen LLP in the registration statement, you may not be able to recover against Arthur Andersen LLP under Section 11 of the Securities Act for any untrue statements of a material fact contained in such consolidated financial statements or any omissions to state a material fact required to be stated therein.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 (including exhibits, schedules and amendments) under the Securities Act with respect to the shares of common stock to be sold in this offering. This prospectus does not contain all the information set forth in the registration statement. For further information about us and the shares of common stock to be sold in this offering, you should refer to the registration statement. Statements contained in this prospectus relating to the contents of any contract, agreement, or other document are not necessarily complete. Whenever this prospectus refers to any contract, agreement, or other document, you should refer to the exhibits that are a part of the registration statement for a copy of the contract, agreement, or document.

We file annual and quarterly reports and other information with the SEC. You may read and copy all or any portion of the registration statement or any other information we file at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the operation of the public reference rooms. Our SEC filings, including the registration statement, are also available to the public from commercial document retrieval services and at the SEC’s web site (http://www.sec.gov).

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PSF Group Holdings, Inc. and Subsidiaries


	Page

Audited Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm— Deloitte & Touche LLP		F-2
Report of Independent Public Accountant— Arthur Andersen LLP		F-4
Consolidated Balance Sheets as of March 27, 2004 and March 29, 2003		F-5
Consolidated Statements of Operations and Comprehensive Income (Loss) for the three years ended March 27, 2004, March 29, 2003 and March 30, 2002		F-6
Consolidated Statements of Shareholders’ Equity for the three years ended March 27, 2004, March 29, 2003 and March 30, 2002		F-7
Consolidated Statements of Cash Flows for the three years ended March 27, 2004, March 29, 2003 and March 30, 2002		F-8
Notes to Consolidated Financial Statements		F-9

Unaudited Condensed Consolidated Financial Statements

Unaudited Condensed Consolidated Balance Sheets as of December 25, 2004 and March 27, 2004		F-26
Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the 39 weeks ended December 25, 2004 and December 27, 2003		F-27
Unaudited Condensed Consolidated Statements of Cash Flows for the 39 weeks ended December 25, 2004 and December 27, 2003		F-28
Notes to Unaudited Condensed Consolidated Financial Statements		F-29

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

PSF Group Holdings, Inc.

Kansas City, Missouri

We have audited the accompanying consolidated balance sheets of PSF Group Holdings, Inc. and subsidiaries (the “Company”) as of March 27, 2004 and March 29, 2003 and the related statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for the years then ended. Our audits also included the financial statement schedule, as of and for the years ended March 27, 2004 and March 29, 2003, listed in Item 16b. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. The consolidated financial statements and the financial statement schedule of the Company for the year ended March 30, 2002 before the inclusion of the reclassifications and earnings per share amounts discussed in Note 1, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements and stated that such March 30, 2002 financial statement schedule, when considered in relation to the March 30, 2002 basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein, in their report dated May 3, 2002 which included an explanatory paragraph for the change in method of accounting for derivative financial instruments and goodwill.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 27, 2004 and March 29, 2003, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the March 27, 2004 and March 29, 2003 financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed above, the consolidated financial statements of the Company for the year ended March 30, 2002 were audited by other auditors who have ceased operations. As described in Note 1, the financial statements for the year ended March 30, 2002 have been reclassified to give effect to Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“SFAS 145”), which was adopted by the Company on March 29, 2003 and revised to include earnings per share on the consolidated statement of operations and comprehensive income (loss) in accordance with Statement of Financial Accounting Standards No. 128, “Earnings Per Share (as amended)” (“SFAS 128”). We audited the adjustments and revisions described in Note 1 that were applied to conform the March 30, 2002 consolidated financial statements to the presentation required by SFAS 145 and to include the earnings per share amounts required by SFAS 128. Our audit procedures with respect to the March 30, 2002 disclosures in Note 1 included (1) comparing the amounts shown as loss on early extinguishment of debt, net of tax in the Company’s consolidated statements of operations to the Company’s underlying accounting analysis obtained from management, (2) comparing the amounts comprising the loss on early extinguishment of debt and related income tax benefit to independent supporting documentation obtained from management, and (3) testing the mathematical accuracy of the underlying analysis. Our audit procedures with respect to the inclusion of basic and diluted earnings per share and related disclosures in Note 1 included (1) comparing the previously reported shares outstanding and net income (loss) amounts to the previously issued consolidated financial statements and the Company’s underlying accounting analysis obtained from management, and (2) testing the mathematical accuracy of the

F-2

basic and diluted earnings per share amounts in accordance with SFAS 128. In our opinion, such reclassifications and revisions for the inclusion of earnings per share amounts have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the March 30, 2002 consolidated financial statements of the Company other than with respect to such reclassifications and inclusion of earnings per share amounts, accordingly, we do not express an opinion or any form of assurance on the March 30, 2002 consolidated financial statements taken as a whole.

Deloitte & Touche LLP

Kansas City, Missouri

May 26, 2004 (March 11, 2005 as to Note 1)

F-3

This report is a copy of the previously issued report covering fiscal years 2002, 2001 and 2000. The predecessor auditors have not reissued their report in connection with this filing nor has the predecessor auditors provided a consent to the inclusion of its report in this prospectus.

Report of independent public accountants

To the Shareholders of

PSF Group Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of PSF Group Holdings, Inc. (a Delaware corporation) and Subsidiaries (the Company), as of March 30, 2002 and March 31, 2001, and the related consolidated statements of operations and comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended March 30, 2002. These financial statements and schedule referred to below are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PSF Group Holdings, Inc. and Subsidiaries, as of March 30, 2002, and March 31, 2001, and the results of their operations and their cash flows for each of the three years in the period ended March 30, 2002, in conformity with accounting principles generally accepted in the United States.

As explained in Note 13 to the financial statements, effective April 1, 2001, the Company changed its methods of accounting for derivatives and goodwill.

Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule of valuation and qualifying accounts included in Item 14 is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Kansas City, Missouri

May 3, 2002

F-4

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


			March 29,			March 27,
			2003			2004

			(In thousands, except
			share and per share
			information)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	—		$	—
	Accounts receivable, less allowance of $540 and $676 in 2003 and 2004, respectively			21,907			28,456
	Inventories			158,402			167,819
	Federal income tax receivable			4,525			—
	Deferred income taxes			13,064			16,030
	Prepaid expenses and other			2,341			3,874

		Total current assets		200,239			216,179
PROPERTY, PLANT, EQUIPMENT AND BREEDING STOCK:
	Land and improvements			100,510			100,754
	Buildings			293,538			295,402
	Machinery and equipment			266,268			278,860
	Breeding stock			36,672			38,322
	Construction in progress			4,287			2,173

				701,275			715,511
	Less—Accumulated depreciation			213,314			260,699

		Total property, plant, equipment and breeding stock		487,961			454,812
GOODWILL				75,998			75,998
OTHER LONG-TERM ASSETS:
	Deferred financing costs, net			7,085			5,383
	Other			7,779			7,642

		Total other long-term assets		14,864			13,025

		Total assets	$	779,062		$	760,014


LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Checks issued against future deposits		$	5,129		$	5,115
	Accounts payable			6,581			6,332
	Accrued expenses			28,576			33,168
	Due to related party			979			56
	Federal income tax payable			—			37
	Accrued interest			6,178			5,888
	Current maturities of long-term debt and capital leases			13,273			833

		Total current liabilities		60,716			51,429
LONG-TERM LIABILITIES:
	Long-term debt and capital leases, less current maturities			291,911			286,251
	Other long-term liabilities			6,345			6,509
	Due to related party			—			—
	Deferred income taxes			75,795			75,813

		Total long-term liabilities		374,051			368,573

		Total liabilities		434,767			420,002
SHAREHOLDERS’ EQUITY:
	Preferred stock, $.01 par value, 10,000 shares authorized, no shares outstanding			—			—
	Class A common stock, $.01 par value; 250,000 shares authorized, 100,000 shares issued			1			1
	Class B common stock, $.01 par value; 300,000 shares authorized, 113,301 shares issued			1			1
	Additional paid-in capital			373,693			373,708
	Accumulated other comprehensive loss, net of tax			(347	)		(54	)
	Retained earnings (deficit)			(29,053	)		(33,644	)

		Total shareholders’ equity		344,295			340,012

		Total liabilities and shareholders’ equity	$	779,062		$	760,014

The accompanying notes are an integral part of these consolidated financial statements.

F-5

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)


			Fiscal Year Ended

			March 30,			March 29,			March 27,
			2002			2003			2004

			(In thousands, except share and
			per share information)
NET SALES			$	674,946		$	608,414		$	730,737
COST OF GOODS SOLD				589,183			631,870			696,751

	Gross profit			85,763			(23,456	)		33,986
OPERATING EXPENSES:
	Selling, general and administrative expenses			21,551			18,267			17,397
	Other income, net			(558	)		(2,293	)		(597	)

		Total operating expenses		20,993			15,974			16,800

		Operating income (loss)		64,770			(39,430	)		17,186
OTHER (EXPENSE) INCOME:
	Interest expense			(20,835	)		(24,000	)		(24,822	)
	Interest income			431			255			122
	Loss on early extinguishment of debt			(2,192	)		—			—

		Other expense, net		(22,596	)		(23,745	)		(24,700	)

		Income (loss) before income taxes		42,174			(63,175	)		(7,514	)
INCOME TAX (EXPENSE) BENEFIT
	Current tax provision			(4,965	)		5,411			(212	)
	Deferred tax provision			(11,844	)		19,164			3,135

		Income tax (expense) benefit		(16,809	)		24,575			2,923

NET INCOME (LOSS)			$	25,365		$	(38,600	)	$	(4,591	)

	Unrealized gain (loss) on interest rate swap, net of tax			345			(692	)		293

COMPREHENSIVE INCOME (LOSS)			$	25,710		$	(39,292	)	$	(4,298	)

Earnings (loss) per share:
	Basic		$	118.92		$	(180.96	)	$	(21.52	)
	Diluted		$	118.73		$	(180.96	)	$	(21.52	)
Weighted average number of common shares outstanding:
	Basic			213,301			213,301			213,301
	Diluted			213,644			213,301			213,301

The accompanying notes are an integral part of these consolidated financial statements.

F-6

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


						Accumulated
				Additional		Other			Retained
		Common		Paid-In		Comprehensive			Earnings
		Stock		Capital		Income (Loss)			(Deficit)			Total

		(In thousands, except share information)
BALANCE, March 31, 2001		$	2	$	373,653	$	—		$	(15,818	)	$	357,837
	Net income		—		—		—			25,365			25,365
	Unrealized gain on interest rate swap		—		—		345			—			345
	Other		—		20		—			—			20

BALANCE, March 30, 2002		$	2	$	373,673	$	345		$	9,547		$	383,567
	Net loss		—		—		—			(38,600	)		(38,600	)
	Unrealized loss on interest rate swap		—		—		(692	)		—			(692	)
	Other		—		20		—			—			20

BALANCE, March 29, 2003		$	2	$	373,693	$	(347	)	$	(29,053	)	$	344,295
	Net loss		—		—		—			(4,591	)		(4,591	)
	Unrealized gain on interest rate swap		—		—		293			—			293
	Other		—		15		—			—			15

BALANCE, March 27, 2004		$	2	$	373,708	$	(54	)	$	(33,644	)	$	340,012

The accompanying notes are an integral part of these consolidated financial statements.

F-7

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW


					March 30,			March 29,			March 27,
					2002			2003			2004

					(In thousands)
OPERATING ACTIVITIES:
	Net income (loss)				$	25,365		$	(38,600	)	$	(4,591	)
	Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities—
		Depreciation and amortization				56,054			61,508			61,306
		Amortization of deferred financing costs				1,209			1,546			1,752
		Deferred income taxes				9,946			(19,164	)		(2,948	)
		Net (gain) loss on sale of fixed assets				(4,950	)		1,298			(4,651	)
		Changes in operating assets and liabilities, net—
			Accounts receivable			4,417			(575	)		(6,548	)
			Inventories			(13,337	)		(17,237	)		(9,417	)
			Prepaid expenses and other assets			10,066			(1,559	)		3,421
			Accounts payable, accrued expenses and other liabilities			(8,255	)		(4,597	)		3,347

				Net cash provided by (used in) operating activities		80,515			(17,380	)		41,671

INVESTING ACTIVITIES:
	Investment in joint venture					—			(2,184	)		—
	Purchases of property, plant, equipment and breeding stock					(96,232	)		(35,505	)		(41,884	)
	Proceeds from disposal of property, plant, equipment and breeding stock					14,931			11,745			18,378

				Net cash used in investing activities		(81,301	)		(25,944	)		(23,506	)

FINANCING ACTIVITIES:
	Checks issued against future deposits					—			5,129			(14	)
	Proceeds from long-term debt					173,591			—			—
	Proceeds from (payments on) revolving debt, net					13,269			46,530			(4,799	)
	Payments for deferred financing costs					(4,749	)		(1,390	)		(50	)
	Repayments on long-term debt					(182,703	)		(14,127	)		(13,302	)

				Net cash (used in) provided by financing activities		(592	)		36,142			(18,165	)

				Net decrease in cash and cash equivalents		(1,378	)		(7,182	)		—
CASH AND CASH EQUIVALENTS, beginning of period						8,560			7,182			—

CASH AND CASH EQUIVALENTS, end of period					$	7,182		$	—		$	—

SUPPLEMENTAL DISCLOSURES:
	Interest paid				$	20,462		$	20,055		$	23,014
	Income tax paid (received)					7,890			(4,205	)		(4,350	)

The accompanying notes are an integral part of these consolidated financial statements.

F-8

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	*Summary of significant accounting policies:*

Nature of operations

PSF Group Holdings, Inc. (Group) is a Delaware company formed in 1998 and is currently 53% owned by ContiGroup Companies, Inc. Group has a wholly-owned subsidiary, Premium Standard Farms, Inc. (PSF, Inc.). PSF, Inc., and its subsidiaries are an integrated business engaged principally in the business of hog production and pork processing and selling to domestic and international markets. Group and PSF, Inc., collectively referred to as the Company, succeeded the Continental Grain Company North Missouri Pork Operations and PSF Holdings L.L.C. (Holdings) on May 13, 1998, pursuant to a stock purchase transaction.

Fiscal year

The Company’s fiscal year is the 52 or 53-week period, which ends on the last Saturday in March. The accompanying consolidated statements of operations and comprehensive (loss) income, statements of shareholders’ equity and cash flows include activity from the period of April 1, 2001, through March 30, 2002 (52 weeks), the period of March 31, 2002, through March 29, 2003 (52 weeks), and the period of March 30, 2003, through March 27, 2004 (52 weeks).

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. Entities in which the Company has ownership of 20 percent to 50 percent and does not control are accounted for using the equity method. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue recognition

Revenues from product sales are recorded when title to the goods and risks of ownership has transferred to the customer, generally upon shipment. Net sales reflect units shipped at selling prices reduced by certain sales allowances.

Cash and cash equivalents

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The carrying value of cash equivalents approximates market value.

F-9

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Inventories

Inventories are valued at the lower of cost, determined on a first-in, first-out (FIFO) basis, or market.

Inventories consist of the following (in thousands):


	March 29,		March 27,
	2003		2004

Hogs	$	142,675	$	153,340
Processed pork products		9,568		8,383
Packaging and supplies		2,822		1,779
Grain, feed additives and other		3,337		4,317

	$	158,402	$	167,819

Property, plant, equipment and breeding stock

Depreciation of property, plant, equipment and breeding stock is computed using the straight-line method over the estimated useful lives of the assets as follows:


		Years

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

Assets held under capital leases are classified as property, plant, equipment and breeding stock and amortized over the lease terms. Lease amortization is included in depreciation expense.

Maintenance, repairs and minor renewals are charged to operations while major renewals and improvements are capitalized.

Depreciation and amortization expense relating to the Company’s property, plant, equipment and breeding stock amounted to $56,054,000, $61,508,000 and $61,306,000 for fiscal years ended March 30, 2002, March 29, 2003, and March 27, 2004, respectively.

Capitalized interest relating to the Company’s additions of property, plant, equipment and breeding stock amounted to $2,684,000, $365,000 and $147,000 for fiscal years ended March 30, 2002, March 29, 2003 and March 27, 2004, respectively. These amounts were capitalized with the related project in property, plant, equipment and breeding stock on the consolidated balance sheets.

Impairment of long-lived assets

Long-lived assets, primarily property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying value of the asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying value or fair value less costs to sell.

Market-risk management instruments

The Company uses price-risk management techniques to enhance sales and reduce the effect of adverse price changes on the Company’s profitability. The Company’s price-risk management and hedging activities

F-10

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

currently are utilized in the areas of forward grain sales and hog production margin management. The Company’s currently held commodity contracts do not qualify as hedges for financial reporting purposes. These instruments are marked to market and included in revenue or cost of goods sold in the consolidated statements of operations and comprehensive (loss) income.

The Company has entered into an interest rate swap agreement. The swap has been designated as a cash flow hedge and qualifies for hedge accounting with the changes in fair value recorded in other comprehensive income. See “Derivative instruments and hedging activities” below.

Self-insurance programs

The Company is self-insured for certain levels of general and vehicle liability, workers’ compensation and health care coverage. The cost of these self-insurance programs is accrued based upon estimated settlements for known and anticipated claims incurred through the balance sheet date. Any resulting adjustments to previously recorded reserves are reflected in current operating results.

Income taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined based on the difference between financial reporting and income tax basis of assets and liabilities using the enacted tax rates. The deferred income tax provision or benefit is based on changes in the asset or liability from period to period.

Fair value of financial instruments

The fair value of long-term debt and capital lease obligations is determined using quoted market prices from interdealers. At March 29, 2003, and March 27, 2004, the fair value of the Company’s debt was $285,934,000 and $288,833,000, respectively, with a carrying value of $305,184,000 and $287,084,000, respectively.

Accounts receivable, accounts payable and cash equivalents are carried at historical cost, which approximates fair value.

Goodwill

The Company follows Statements of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Intangible Assets,” which established reporting and accounting standards for goodwill and intangible assets. Under SFAS 142, companies no longer amortize goodwill over the estimated useful life. Goodwill is assessed each year during the second quarter for impairment by applying a fair value based test. No impairment was recorded during the fiscal years ended March 29, 2003 and March 27, 2004.

Deferred financing costs

Costs associated with debt issuance and amendments of debt facilities are capitalized and amortized using the interest method over the related debt facility life. Accumulated amortization on deferred financing costs at March 29, 2003 and March 27, 2004 was $4,071,000 and $5,823,000, respectively.

Derivative instruments and hedging activities

The Company follows Financial Accounting Standards Board Statement No. 133 (SFAS 133), “Accounting for Derivative Instruments and Hedging Activities” which requires every derivative instrument be recorded in the balance sheet as either an asset or liability at its fair value, and changes in a derivative’s fair value be recognized in current earnings or other comprehensive income.

F-11

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company believes that its exchange traded commodity contracts serve as economic hedges, however, management has elected not to designate and account for these contracts as hedges. Effective as of April 1, 2001, these contracts were marked to market through earnings. On April 1, 2001, the Company recorded a transition adjustment reflecting an unrealized loss on commodity contracts of approximately $7,271,000 as a liability and a decrease to accumulated other comprehensive income of $4,380,000, net of $2,920,000 in deferred taxes. For the fiscal year ended March 30, 2002, the Company recorded $7,271,000 of this liability as a reduction to gross profit as the related commodity contracts expired during this period. Changes in the fair value of the existing commodity contracts and those commodity contracts entered into subsequent to April 1, 2001, are recorded in the period in which they occur. For the fiscal years ended March 30, 2002, March 29, 2003, and March 27, 2004, gains (losses) marked to market on commodity contracts recognized in revenue for lean hog futures were ($8,331,000), $1,392,000, and $5,344,000, respectively. Gains (losses) recognized in cost of goods sold relating to the hedging of feed components were ($5,293,000), ($868,000), and $6,067,000 respectively. The Company has recorded the fair value of its open exchange traded commodity contracts of $1,509,000 and $4,918,000 in Prepaid Expenses and Other in the consolidated balance sheets at March 29, 2003 and March 27, 2004, respectively.

During the fiscal year ended March 30, 2002, the Company entered into an interest rate swap agreement in order to effectively convert the base interest rate on the bank term note from variable to a fixed rate. The Company has designated the interest rate swap as a cash flow hedge and for the fiscal years ended March 29, 2003, and March 27, 2004, recorded ($567,000) and ($88,000), respectively, in the consolidated balance sheets relating to the fair value of the swap. For the fiscal year ended March 29, 2003, decreased accumulated other comprehensive income by ($692,000), net of $440,000 in deferred taxes, and for the fiscal year ended March 27, 2004, the Company increased accumulated other comprehensive income by $293,000, net of $186,000 in deferred taxes. The interest rate swap will mature on September 30, 2004.

Stock-based compensation

The Company follows the disclosure provisions of Statement of Financial Accounting Standards No. 148 (SFAS 148), “Accounting for Stock-Based Compensation— Transition and Disclosure, and amendment of FASB Statement No. 123.” SFAS 148 requires prominent disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on report results.

In the fiscal year ended March 31, 2001, the Company’s board of directors authorized an equity incentive plan whereby options have been granted to senior management for the purchase of 6,858 shares of Class B common stock at an exercise price of $1,666.48 per share. In January 2004, the Company’s board of directors granted an additional 857 options at the same exercise price as the previous option grants. All of the options are fully exercisable at March 27, 2004, except for 571, which are exercisable December 31, 2006. At December 31, 2005, 6,429 shares expire, at December 31, 2007, 714 shares expire and at December 31, 2009, 571 shares expire. No options have been exercised as of March 27, 2004.

The Company records stock compensation in accordance with Accounting Principles Board Opinion No. 25 (APB 25). For fiscal years ending March 30, 2002, March 29, 2003 and March 27, 2004, the Company recorded compensation expense of $20,000, $20,000 and $15,000, respectively, in accordance with APB 25. The fair value of stock options granted was calculated using the minimum value method as defined in the Statement of Financial Accounting Standards No. 123 (SFAS 123). Under SFAS 123, the pro forma net income is disclosed as if it reflected the estimated fair value of options as compensation at the date of grant or issue over the vesting period. For the fiscal years ended March 30, 2002, and March 29, 2003, there was no pro forma expense as the effect of option grants are recorded in the year of grant. For the fiscal year ended March 27, 2004, on a pro forma basis, net income would not have been impacted by the options granted.

F-12

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Earnings per share

Basic earnings per common share (EPS) are computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. In fiscal years ended March 30, 2002, March 29, 2003, and March 27, 2004, there were 20,482 warrants that were considered antidilutive. In fiscal years ended March 29, 2003, and March 27, 2004, there were 7,429 and 7,135 options, respectively (based on weighted-average number outstanding during the year), that were considered antidilutive.

New accounting pronouncements

On June 30, 2001 the Financial Accounting Standards Board (FASB) issued its Statement of Financial Accounting Standards No. 143 (SFAS 143), “Accounting for Asset Retirement Obligations.” SFAS 143 applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development, and the normal operation of long-lived assets. This statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002 and was adopted by the Company March 30, 2003. The Company has determined that it has a legal obligation to close lagoons in the future should the Company ever cease operations or plan to close lagoons voluntarily in accordance with a changed operating plan. Based on estimates and assumptions as to the cost and timing of any potential lagoon closure, the Company has determined and recorded the present value of the projected costs which are not considered material to the condensed consolidated financial statements. However, should laws, assumptions or other circumstances change which require lagoon closure before the periods assumed in the present value calculations, the costs could have a material impact on the consolidated financial statements in the period the change occurs.

In April 2002, the FASB issued SFAS No. 145 (SFAS 145), “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS Nos. 4 and 64 required gains and losses from extinguishment of debt to be classified as extraordinary items. SFAS 145 rescinds this requirement and stipulates that gains or losses on extinguishment of debt would have to meet the criteria of APB Opinion No. 30 to be classified as an extraordinary item. In addition, any extraordinary gains or losses on extinguishment of debt in prior periods presented would require reclassification. The Company adopted SFAS 145 during the fourth quarter of fiscal 2002 and as a result, classified the $1,315,000 (net of a related tax benefit of $877,000) loss from the extinguishment of debt in the fiscal year 2002 consolidated statements of earnings to other expense.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” FIN 46 applies to entities if its total equity at risk is not sufficient to permit the entity to finance its activities without additional subordinated support or if the equity investors lack certain characteristics of a controlling financial interest. If an entity is determined to meet those certain characteristics, FIN 46 requires a test to identify the primary beneficiary based on expected losses and expected returns associated with the variable interest. The primary beneficiary is then required to consolidate the entity. The consolidation requirements apply to all variable interest entities (VIEs) created after January 31, 2003. For VIEs created prior to February 1, 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003) which extends the effective date of FIN 46 to the first reporting period ending after March 15, 2004. Management has concluded that we have not created or obtained any VIEs subsequent to January 31, 2003 that would require consolidation. The adoption of FIN 46 did not have a material impact on the Company’s consolidated financial statements.

F-13

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In May 2003, the FASB issued SFAS No. 150 (SFAS 150), “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” SFAS 150 provides guidance on how an entity classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except that certain provisions have been deferred pursuant to FASB Staff Position 150-3. The adoption of SFAS 150 did not have a material impact on our consolidated financial statements.

In January 2003, the FASB issued SFAS 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” which retains all of the disclosures that are required by SFAS 132 and includes several additional disclosures. It also amends APB Opinion 28 “Interim Financial Reporting” to require certain disclosures about pension and other postretirement benefit plans in interim financial statements. The provisions of SFAS 132 (revised 2003) are effective for fiscal years ending after December 15, 2003. The adoption of SFAS 132 (revised 2003) did not have a material impact on the consolidated financial statements.

Reclassifications

Certain reclassifications were made to the 2003 financial statements to conform to the 2004 presentation.

Risk factors

There are certain risk factors that can materially impact the Company’s business, financial condition and results of operations. These risks include sensitivity to pork and hog prices, sensitivity to grain commodity prices, environmental factors and legislation, changes in herd productivity and feed efficiency, impact of disease, international market risks, competition, restrictions under corporate farming laws, dependence on favorable labor relations, pork product contamination and product liability claims, distribution channels and consumer preferences.


2.	*Shareholders’ equity*

Common stock

There are two classes of common stock which Group can issue. Class A common stock was issued to the holders of the outstanding units of Holdings. Class B common stock was issued to CGC. Class A holders have the sole right to vote in the election or for removal, without cause, of four Class A directors. Class B holders have the sole right to vote in the election or for removal, without cause, of five Class B directors. All distributions, dividends and liquidation preferences are equal between the two classes of stock.

Preferred stock

The Company has authorized 10,000 shares at $.01 par value of preferred stock. No shares have been issued or are outstanding. Terms of the preferred stock including voting rights, dividend preference and other limitations or restrictions have yet to be assigned.

Stockholder warrants

The Company has warrants outstanding entitling the holders to purchase 20,481.92 shares of Class A common stock at an exercise price of $2,205 per share. As of March 27, 2004, all warrants were exercisable and none have been exercised. All unexercised warrants expire on September 17, 2006. Warrant holders are entitled to certain registration rights associated with their ownership.

F-14

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


3.	*Accrued expenses*

Accrued expenses are comprised of the following (in thousands):


	March 29,		March 27,
	2003		2004

Salaries and benefits payable	$	8,304	$	10,367
Workers’ compensation payable		4,133		5,087
Grain and feed		816		1,626
Claims reserves		4,271		3,541
Accrued payables and other		11,052		12,547

	$	28,576	$	33,168


4.	*Long-term debt and capital leases*

Long-term debt consists of the following (in thousands):


		March 29,		March 27,
		2003		2004

Senior unsecured notes, due on June 15, 2011, interest at 9.25%, interest payable semiannually		$	175,000	$	175,000
Revolving loan, due on August 21, 2004, interest at variable rates (ranging from 3.875% to 5.25% at March 27, 2004)			69,799		65,000
Term loan, due on August 21, 2005, interest based on LIBOR rates plus 2.875% ($18,750 fixed with a swap agreement for 5.8875%, $25,000 at 4.0625% at March 27, 2004), payable in quarterly installments of $6,250 beginning September 30, 2003			56,250		43,750
Capital leases			4,135		3,334

	Total debt and capital leases		305,184		287,084
Less—Current portion			13,273		833

	Long-term debt and capital leases	$	291,911	$	286,251

Future maturities of long-term debt and capital leases, reflecting the refinancing discussed below, are as follows (in thousands):


Fiscal Year

2005	$	833
2006		907
2007		1,050
2008		449
2009		87
Thereafter		283,758

	$	287,084

The indenture associated with the $175,000,000 senior notes limits the Company’s ability, among other things, to incur additional debt, pay dividends, acquire shares of capital stock, make payments on subordinated debt or make certain investments. In addition, the indenture places limitations on the Company’s ability to: make distributions from subsidiaries, issue or sell capital stock of subsidiaries, issue guarantees, sell or exchange assets, enter into transactions with shareholders and affiliates, create liens, and effect mergers.

F-15

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The senior notes may be redeemed beginning on June 15, 2006, at an initial redemption price of 104.625 percent of their principal amount plus accrued interest, declining to 100 percent on and after June 15, 2009. In addition, before June 15, 2004, up to 35 percent of the notes may be redeemed at a price of 109.25 percent of principal plus accrued interest, using proceeds from the sale of capital stock.

Although the senior notes were issued by Premium Standard Farms, Inc., its parent, PSF Group Holdings, Inc. (the registrant), and Premium Standard Farms, Inc.’s wholly owned subsidiaries, fully and unconditionally jointly and severally guarantee Premium Standard Farms, Inc.’s obligation to pay principal and interest on these notes. Supplemental consolidating financial information is not presented as the parent company has no independent assets or operations and less than 3 percent of the total assets exist in non-guarantor subsidiaries.

The Company had a bank credit agreement that included a term loan and revolving loan. Effective June 28, 2002, the Company and its bank group amended the credit agreement to extend the revolving credit facility one year, increase the letter of credit commitment from $10,000,000 to $15,000,000, and amend certain financial covenants and pricing terms.

Effective September 27, 2002, the Company and its bank group amended the credit agreement to increase the Company’s revolving credit facility by $50,000,000 to $150,000,000 in total availability subject to a borrowing base calculation, among other things. The amendment also deferred quarterly principal payments on the Company’s term debt for a one year period and amended certain financial covenants. Amounts borrowed under the credit agreement bear interest at fluctuating rates selected by the Company. These rates are based on the agent bank’s base rate (the greater of the agent bank’s prime rate or the federal funds rate plus one half of one percent) or LIBOR plus, in each case, an applicable margin, currently ranging from 1.5% to 2.875%, determined by the Company’s leverage ratio. All borrowings under the revolving credit facility were to mature on August 21, 2004 and the term debt was to mature on August 21, 2005.

The revolving loans are not to exceed $150,000,000 of total borrowings, including up to $15,000,000 in letters of credit. Fees of 1.75 percent per annum are paid quarterly only on outstanding letter-of-credit amounts. At March 29, 2003, and March 27, 2004, the Company had $10,034,000 and $11,159,000 of outstanding letters of credit, respectively.

The amount available under the revolving credit facility is determined by a borrowing base formula derived from the sum of eligible accounts receivable and a formula value for inventory based on current book value. The borrowing base at March 29, 2003, was approximately $144,675,000 and at March 27, 2004, it was approximately $150,000,000, and accordingly, unused available borrowings were $64,841,000 and $73,841,000, respectively (net of outstanding letters of credit and revolving loans). As of March 27, 2004, the Company was in compliance with all covenants relating to the bank credit agreement.

On April 9, 2004, the Company entered into an amended and restated loan and security agreement (Credit Agreement) with its bank group. The Credit Agreement is a $175,000,000 revolving line of credit. The balance of the previous line of credit as well as the outstanding term debt, at the date of closing, became the opening balance outstanding under the Credit Agreement. Obligations under the Credit Agreement are secured by liens on substantially all of the Company’s assets. In addition to customary financial covenants, the Credit Agreement contains restrictions on, among other things, encumbrance or disposal of assets, acquisitions, additional indebtedness, capital investment, payment of subordinated debt and payment of dividends. In addition to fees payable under credit facilities of this type, amounts borrowed under the Credit Agreement bear interest at fluctuating rates selected by the Company. These rates are based on the agent bank’s base rate (the greater of the agent bank’s prime rate or the federal funds rate plus one half of one percent) or LIBOR plus, in each case, an applicable margin, ranging from 0.0% to 3.0%, determined by the Company’s leverage ratio. All borrowings under the revolving credit facility mature on April 9, 2009. Financing costs associated with the amendment will be capitalized and amortized over the life of the Credit Agreement. In accordance

F-16

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

with FASB Statement No. 6 (SFAS 6), “Classification of Short-Term Obligations Expected to be Refinanced”, the Company has classified the credit agreement existing at March 27, 2004 (consisting of the term loan and revolving loan) totaling $108,750,000 as long-term in the consolidated balance sheets.

The line of credit is not to exceed $175,000,000 of total borrowings, including up to $15,000,000 in letters of credit. Letter-of-credit fees are based on the applicable margin and are paid quarterly only on outstanding letter-of-credit amounts.

The amount available under the revolving credit facility is determined by a borrowing base formula derived from the sum of eligible accounts receivable, a fixed asset component, and a formula value for inventory based on current book value. The agreement also contains covenants, among others, regarding earnings before interest, taxes, depreciation and amortization (EBITDA) and a maximum leverage ratio. Both the EBITDA and maximum leverage ratio covenants are based on a four quarter minimum rolling EBITDA average during the most recent eight quarters, except for the first through third quarters of fiscal year 2005, which are based on the most recent five through seven quarters. EBITDA, as defined in the bank credit agreement, cannot be less than $50,000,000 as of the end of each quarter in fiscal year 2005, increasing to $55,000,000 as of the end of each quarter in fiscal year 2006, and $60,000,000 as of the end of each fiscal quarter thereafter. The maximum leverage ratio (based on the EBITDA calculation) as of the end of each fiscal quarter cannot be greater than 6.0-to-1.0 as of the end of each quarter through fiscal year 2006, 5.0-to-1.0 as of the end of each quarter in fiscal year 2007, and 4.0-to-1.0 as of the end of each fiscal quarter thereafter.

During November 2001, the Company entered into an interest rate swap agreement to convert the variable base interest rate of its bank term debt to a fixed rate of 3.0125 percent plus the agent bank’s applicable margin (currently 2.875 percent at March 27, 2004). The swap has a lower notional amount and matures more quickly than the term debt.


5.	*Income taxes*

A reconciliation of statutory federal income tax and income tax expense is shown below (in thousands):


		Fiscal Year Ended

		March 30,			March 29,			March 27,
		2002			2003			2004

Current income tax (expense) benefit—
	Amount based on federal statutory rate	$	(4,215	)	$	5,419		$	(190	)
	State income taxes, net of federal		(750	)		(8	)		(22	)

	Current income tax (expense) benefit		(4,965	)		5,411			(212	)

Deferred income tax (expense) benefit—
	Amount based on federal statutory rate		(10,547	)		15,365			2,662
	State income taxes, net of federal		(1,297	)		3,799			473

	Deferred income tax (expense)benefit		(11,844	)		19,164			3,135

	Total income tax (expense)benefit	$	(16,809	)	$	24,575		$	2,923

F-17

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Components of the net deferred tax balances are as follows (in thousands):


		March 29,			March 27,
		2003			2004

Net current deferred tax assets—
	Goodwill	$	221		$	208
	Inventory		1,454			1,654
	Other accruals and reserves		7,034			7,568
	Net operating loss carryforwards		4,355			6,600

	Net current deferred tax assets	$	13,064		$	16,030

Net long-term deferred tax liabilities—
	Fixed assets	$	(99,652	)	$	(90,730	)
	Net operating loss carryforwards		21,479			13,100
	Goodwill		1,072			864
	Other		1,306			953

	Net long-term deferred tax liability	$	(75,795	)	$	(75,813	)

At March 27, 2004, the Company has operating loss carryforwards of $49,251,000 available to offset future taxable income. The operating loss carryforwards of $49,251,000 will expire through 2024. The Company believes that its future taxable income will be sufficient for full realization of the deferred tax assets.


6.	*Investments in partnerships*

The Company has a 50 percent ownership interest in the L&H Farms partnership. L&H Farms partnership is in the business of breeding and raising hogs in rural North Carolina. The Company accounts for the earnings and losses of the partnership using the equity method of accounting. As of March 29, 2003, and March 27, 2004, the investment in the L&H Farms partnership was $893,000 and $1,184,000, respectively, and is included in other long-term assets in the consolidated balance sheets. The Company’s share of the partnership’s earnings (losses) was $732,000 for fiscal year ended March 30, 2002, ($240,000) for fiscal year ended March 29, 2003, and $291,000 for fiscal year ended March 27, 2004. These amounts are included in other expense (income) in the consolidated statements of operations and comprehensive income.

In addition, the Company has a 60 percent ownership in L&S Farms, LLC, a limited liability company, in the business of breeding and raising hogs in rural North Carolina. The Company consolidates this operation for financial reporting purposes. Minority interest of $394,000 for fiscal year ended March 30, 2002, $113,000 for fiscal year ended March 29, 2003, and $166,000 for fiscal year ended March 27, 2004, was charged to other expense (income) in the consolidated statements of operations and comprehensive income. As of March 29, 2003, and March 27, 2004, the minority interest obligation was $629,000 and $515,000, respectively, recorded in other long-term liabilities in the consolidated balance sheets.

On March 28, 2003, the Company funded a 50 percent ownership interest in Oldham’s LLC (Oldham’s) for $2,184,000, which subsequently was finalized on April 4, 2003. Oldham’s is in the business of processing sows and producing raw materials for sausage products. The Company accounts for the earnings and losses of Oldham’s using the equity method of accounting. As of March 29, 2003, and March 27, 2004, the investment in Oldham’s was $2,184,000 and $2,308,000, respectively, and is included in other long-term assets in the consolidated balance sheets. The Company’s share of Oldham’s earnings was $327,500 for fiscal year ended March 27, 2004. This amount is included in other expense (income) in the consolidated statements of operations and comprehensive income.

F-18

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company has a 50 percent ownership interest in Crystal Peak Technologies, LLC, a Delaware limited liability company, formed by the Company and Crystal Peak Farms, Inc to develop and market technologies for the processing of animal waste. Both the Company and Crystal Peak Farms contributed patents and other technology to this LLC, but this entity remains dormant and has not actively engaged in any business.


7.	*Related parties*

The Company has contracted with ContiGroup to provide certain services pursuant to an amended and restated services agreement and a contract grower finish agreement. Under these agreements, ContiGroup provides purchasing assistance, legal services, employee benefits, payroll and grow finishing services to the Company. For fiscal years ended March 30, 2002, March 29, 2003, and March 27, 2004, the total amount of these expenses and other related-party expenses with CGC were $6,788,000, $5,331,000, and $5,389,000, respectively. At March 29, 2003, and March 27, 2004, the Company recorded amounts due to related party for these items of $58,000 and $56,000, respectively, included in the consolidated balance sheets.

The Company provided ContiGroup management and human resources services with respect to ContiGroup’s prior pork operations, hog and feed production services and environmental and other business consulting services. The total billings for the fiscal year ended March 30, 2002, amounted to $112,000.

During fiscal year ended March 25, 2000, an agreement was entered into with CGC to pay $1,000,000 annually for five years, in consulting fees to CGC for work done in the settlement agreement with the attorney general of Missouri (Note 10). The Company paid the final installment in fiscal 2004.

The Company leases farmland and hog production buildings from the former owners of Lundy, one of which was a board member of PSF, Inc. until they resigned in September 2003, under a capital lease agreement that existed prior to the acquisition. The capital lease obligation as of March 29, 2003, and March 27, 2004 was $2,031,000 and $1,729,000, respectively, and is included in long-term debt and capital leases in the consolidated balance sheets.

F-19

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


8.	*Commitments*

The Company enters into forward grain purchase contracts with market risk in the ordinary course of business. In the opinion of management, settlement of such commitments, which were open at March 29, 2003 and March 27, 2004, will have no adverse impact on the financial position or results of operations of the Company.

The Company utilizes forward contracts, as well as exchange traded futures and options contracts, to establish adequate supplies of future grain purchasing requirements and minimize the risk of market fluctuations. These contracts are dependent on fluctuations in the grain, lean hog, and natural gas commodity markets. Market risk resulting from a position in a particular contract may be offset by other on or off-balance-sheet transactions. The Company continually monitors its overall market position. Fair values of futures and options, and gross contract or notional amounts of forward contracts, in place as of March 27, 2004 are as follows (in thousands except wtd.-avg. price/unit):


	Contract		Volumes		Wtd.-avg.		Fair
	Quantity		Units		Price/Unit		Value

Futures Contracts
Corn purchases—long		230		bushels	$	3.10	$	(9	)
Soybean meal purchases—long		61		tons		234.81		4,142
Soybean meal sales—short		5		tons		176.50		(330	)
Lean hog sales—short		17,920		pounds		0.66		(616	)
Lean hog purchases—long		8,880		pounds		0.66		62
Wheat sales—short		180		bushels		3.80		(65	)
Option Contracts
Corn puts—short		9,500		bushels	$	2.73	$	(395	)
Corn calls—long		6,000		bushels		3.00		1,349
Meal calls—long		10		tons		250.00		608
Meal puts—short		15		tons		206.67		(9	)
Lean hog calls—long		7,000		pounds		0.67		274
Lean hog puts—short		7,000		pounds		0.60		(45	)
Lean hog calls—short		2,000		pounds		0.65		(50	)


	Contract		Volumes		Wtd.-avg.		Notional
	Quantity		Units		Price/Unit		Amount

Forward Contracts
Corn		1,565		bushels	$	3.00	$	4,698
Meal		8		tons		285.53		2,352
Milo		174		bushels		3.14		547

Substantially all these contracts expire within one year.

F-20

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company leases rolling stock and certain equipment under noncancelable operating leases. Rental expense under operating leases was approximately $5,435,000, $6,861,000 and, $7,335,000, in the fiscal years ended March 30, 2002, March 29, 2003, and March 27, 2004, respectively. Future minimum rental commitments at March 27, 2004, are as follows (in thousands):


2005	$	6,083
2006		5,297
2007		3,820
2008		2,715
2009		2,280
Thereafter		3,551

	$	23,746

At the Company’s Clinton, North Carolina pork processing facility, the Company has contracts with producers to provide this facility with market hogs for the amount the Company’s hog production operations cannot provide in order to meet this facility’s 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 the Company is contracted to purchase approximately 1,750,000 market hogs under these contracts.

The Company also has contracts with two large processors to sell the Company’s hogs produced from its Texas hog production operations in which the Company is to deliver approximately 500,000 hogs annually.


9.	*Employee benefit plans*

The Company has a 401(k) plan covering substantially all employees meeting certain minimum service requirements. The plan allows all qualifying employees to contribute up to 60 percent of employee compensation limited to the tax deferred contribution allowable by the Internal Revenue Code. The Company matches 100 percent of the employee’s contribution up to 3 percent of employee compensation and 50 percent of the employee’s next 2 percent of employee compensation, for a maximum company match of 4 percent of employee compensation. Effective January 1, 2000, the Company amended its 401(k) plan from a three-year cliff-vesting period to a 100 percent immediate vesting. Employer contribution expense related to the plan was approximately $1,816,000, $1,870,000 and $1,878,000 for the fiscal years ended March 30, 2002, March 29, 2003, and March 27, 2004, respectively.

The Company has a long-term incentive plan with performance thresholds tied to return on net assets in place for key executives selected by the compensation committee. At March 29, 2003 and March 27, 2004, the Company had no liability recorded for the long-term incentive plan. At March 30, 2002, the Company had a liability recorded of $1,507,000 in other long-term liabilities toward the long-term incentive plan. The Company expensed $1,500,000, in the fiscal year ended March 30, 2002. In fiscal year ended March 29, 2003, the Company credited the amount accrued for the year ended March 30, 2002, due to the probability of the Company not meeting its minimum requirement for payout because of its fiscal year 2003 performance.

The Company has a deferred compensation plan which is restricted to a select group of management employees. Under the plan, participating employees are allowed to defer payment of compensation awarded under the long-term incentive plan until a date elected by the employee in accordance with the plan. The plan generally allows payment in the form of a single lump sum or ten substantially equal annual installments following the date of payment. At March 29, 2003 and March 27, 2004, the plan had $1,432,000 and $1,501,000, respectively, of investments held by an independent trustee. The investments are classified as trading and are reflected in other long-term assets with a corresponding liability included in other long-term liabilities in the consolidated balance sheets.

F-21

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company has a nonqualified, unfunded special executive retirement plan for certain key executives. Benefits generally accrue based on pay and years of credited service. Specific data related to the plan is as follows ($ in thousands):


	March 29,			March 27,
	2003			2004

Accumulated benefit obligation	$	1,344		$	1,831
Change in benefit obligation during year
Projected benefit obligation, beginning of fiscal year	$	1,573		$	2,378
Service cost		359			468
Interest cost		114			155
Actuarial (gain)/loss (including assumption changes)		332			(371	)

Projected benefit obligation, end of fiscal year	$	2,378		$	2,630
Reconciliation of funded status as end of fiscal year
Funded status, beginning of fiscal year	$	(2,378	)	$	(2,630	)
Unrecognized prior service cost		554			508
Unrecognized net loss		470			75

Accrued cost, end of fiscal year	$	(1,354	)	$	(2,047	)
Components of net periodic pension cost
Service cost	$	359		$	468
Interest cost		114			155
Amortization of prior service cost		47			46
Amortization of unrecognized loss		—			24

Pension cost	$	520		$	693
Weighted average assumption used to determine benefit obligation
Discount rate		6.25	%		6.00	%
Salary increases		4.50	%		3.50	%
Weighted average assumptions used to determine net periodic pension cost
Discount rate		7.25	%		6.25	%
Salary increases		4.50	%		4.50	%
Measurement date		March 31			March 30
Fiscal period	to March 29			to March 27


10.	*Litigation*

Environmental matters

The Company in prior years settled two citizens’ action suits which sought to enforce alleged violations of the Clean Air Act, Clean Water Act and CERCLA against the Company and ContiGroup Companies, Inc. (“ContiGroup”). The U.S. Environmental Protection Agency (the “E.P.A.”) had intervened in this action and filed a separate notice of violation against the Company under the Clean Air Act. This settlement, in the form of a consent decree (“EPA Consent Decree”), resolved all outstanding issues of ContiGroup and the Company with the citizens group and the E.P.A. In 1998, the Company engaged in a series of transactions with ContiGroup pursuant to which it purchased from ContiGroup its North Missouri Farms hog production operations and ContiGroup purchased a 51.0% ownership interest in the Company (the “1998 ContiGroup transaction”). To the extent that ContiGroup incurred any liability in this litigation, the Company assumed that liability pursuant to the terms of the 1998 ContiGroup transaction. The EPA Consent Decree, built upon the 1999 consent decree with the State of Missouri referenced below, requires the Company and ContiGroup

F-22

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

to meet certain performance standards, such as a 50 percent reduction in nitrogen concentration of the effluent applied to area fields over a prescribed time period. The counsel for the citizen plaintiffs has submitted a petition for recovery of attorneys’ fees in connection with the lawsuits against both the Company and ContiGroup. On September 10, 2003, the Court issued an order denying the majority of fees sought by counsel for the citizen plaintiffs which order was appealed by plaintiff’s counsel in March, 2004. The Company has settled with the plaintiffs and has paid their counsel on the balance of the fees prior to March 27, 2004.

In 1999, the Company settled a suit filed by the Attorney General of the State of Missouri against the Company and ContiGroup. As referenced above, the Company assumed ContiGroup’s liability in this action in connection with the 1998 ContiGroup transaction. The settlement required the Company and ContiGroup to enter into a consent judgment (“Missouri Consent Decree”) pursuant to which the Company was obligated to invest $25 million on or before May 19, 2004, for researching, installing and operating improved technology to control wastewater, air and odor emissions from its Missouri farms. All such investments were subject to the approval of a panel of independent university experts (“Expert Panel”). In June 2002, the State of Missouri filed a lawsuit against the Company seeking penalties and injunctive relief for additional alleged violations of air and water regulations. The Company settled in February, 2004 with the State, and paid an additional fine of $333,000 prior to March 27, 2004. The settlement also extends the implementation schedule under the Missouri Consent Decree from 2004 until 2010. In addition, and in lieu of the $25 million investment commitment and deadline referenced above, the Company has committed to install improved wastewater, air and odor technology at all of its finisher farms in northern Missouri, subject to the approval of the Expert Panel. The Company estimates it may spend approximately $31 million on this technology by the 2010 deadline.

Two nuisance suits were filed against ContiGroup and the Company during the second quarter of fiscal year 2003 in the Circuit Court of Jackson County, Kansas City, Missouri (Steven Adwell, et al. vs. PSF, et al.,, and, Michael Adwell, et al. vs. PSF, et al). Two additional nuisance lawsuits were filed in March of 2004 by the same attorney (Fred Torrey, et al. vs. PSF, et al., and, Doyle Bounds, et al. vs. PSF, et al). There are multiple plaintiffs in each suit, who claim to live near swine farms owned or under contract with the Company. Plaintiffs allege that odors from these farms interfered with the plaintiffs’ right to use and have quiet enjoyment of their respective properties. The Company has filed appropriate motions to strike in the Torrey case and will soon file an answer in the Bounds case. The Company believes it has good defenses to these actions and intends to vigorously defend these suits.

On May 18, 2004 the same lawyer who filed the Adwell, Bounds and Torrey lawsuits has filed a class action lawsuit (Daniel Herrold, et al. and Others Similarly Situated v. ContiGroup Companies, Inc, Premium Standard Farms, Inc., and PSF Group Holdings, Inc.) in the Circuit Court of Jackson County, Kansas City, Missouri. The action seeks to create a class of plaintiffs living within 10 miles of the Company’s farms in Northern Missouri, including contract grower farms, who are alleged to have suffered interference with their right to use and have quiet enjoyment of their respective properties. On May 14, 2004 an action entitled Vernon Hanes et al. v. Premium Standard Farms, Inc. et al. was filed in Daviess County Circuit Court, Gallatin, Missouri, which contains several counts, but is primarily a nuisance action. The Company believes it has good defenses to these actions and intends to vigorously defend these suits.

Other legal matters

In addition, the Company is involved from time to time in routine litigation incidental to its business. Although no assurance can be given as to the outcome or expense associated with any of these routine proceedings, the Company believes that none of such proceedings currently pending should, individually or in the aggregate, have a material adverse effect on its financial statements.

F-23

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)


11.	*Segment information*

The Company operates a vertically integrated business with two operating segments, Pork Processing and Hog Production. The Pork Processing segment sells fresh and value-added pork products to food retailers, distributors, wholesalers, further processors, pharmaceutical and animal feed manufacturers in both domestic and international markets. The Hog Production segment supplies a majority of the live hogs used in the Pork Processing segment and sells the excess production to other hog processing operations. Intersegment live hog sales are based on market prices. The following tables present specific financial information about each segment as reviewed by the Company’s management. The Corporate and Other classification in the following tables represent unallocated corporate expenses and assets, deferred and current taxes, interest expense and intersegment elimination (in thousands):


		Pork			Hog			Corporate
		Processing			Production			and Other			Total

Fiscal 2002:
	Net sales	$	597,300		$	440,825		$	(363,179	)	$	674,946
	Intersegment sales		(1,740	)		(361,439	)		—			—
	Operating income		23,011			59,440			(17,681	)		64,770
	Assets		210,476			559,344			37,819			807,639
	Goodwill		25,020			50,978			—			75,998
	Depreciation and amortization		11,787			43,462			805			56,054
	Capital expenditures		37,806			57,671			755			96,232
Fiscal 2003:
	Net sales	$	553,566		$	357,154		$	(302,306	)	$	608,414
	Intersegment sales		(3,213	)		(299,093	)		—			—
	Operating income		34,444			(63,134	)		(10,740	)		(39,430	)
	Assets		196,926			549,529			32,607			779,062
	Goodwill		25,020			50,978			—			75,998
	Depreciation and amortization		15,278			45,270			960			61,508
	Capital expenditures		5,076			29,903			526			35,505
Fiscal 2004:
	Net sales	$	663,530		$	453,585		$	(386,378	)	$	730,737
	Intersegment sales		(2,936	)		(383,442	)		—			—
	Operating income		34,695			(4,249	)		(13,260	)		17,186
	Assets		195,366			534,724			29,924			760,014
	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

F-24

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Geographic information

No individual foreign country or customer accounts for 10 percent or more of sales to external customers. The following table provides a geographic summary of the Company’s net sales based on the location of product delivery (in thousands):


	2002		2003		2004

United States	$	626,245	$	557,764	$	675,745
Far East		35,913		37,013		35,389
Europe and Russia		1,474		139		357
Canada		9,366		8,544		9,075
Mexico and South America		1,948		4,954		10,171

Totals	$	674,946	$	608,414	$	730,737

All of the Company’s assets are located within the United States.


12.	*Quarterly results of operations (unaudited) (in thousands, except share and per share information):*

The following represents the unaudited quarterly results of operations for fiscal years 2003 and 2004. All amounts are expressed in thousands, except share and per share information.


			First			Second			Third			Fourth

Fiscal 2003—
	Net sales		$	149,049		$	145,735		$	154,090		$	159,540
	Gross profit			2,900			(7,541	)		(9,303	)		(9,512	)
		Net (loss)		(4,274	)		(10,492	)		(12,253	)		(11,581	)
	Loss per share:
		Basic	$	(20.04	)	$	(49.19	)	$	(57.44	)	$	(54.29	)
		Diluted	$	(20.04	)	$	(49.19	)	$	(57.44	)	$	(54.29	)
	Weighted average number of common shares outstanding:
		Basic		213,301			213,301			213,301			213,301
		Diluted		213,301			213,301			213,301			213,301

Fiscal 2004—
	Net sales		$	171,132		$	178,310		$	199,766		$	181,529
	Gross profit			7,532			12,632			9,043			4,779
		Net (loss) income		(1,741	)		1,417			(751	)		(3,516	)
	(Loss) earnings per share:
		Basic	$	(8.16	)	$	6.64		$	(3.52	)	$	(16.48	)
		Diluted	$	(8.16	)	$	6.64		$	(3.52	)	$	(16.48	)
	Weighted average number of common shares outstanding:
		Basic		213,301			213,301			213,301			213,301
		Diluted		213,301			213,301			213,301			213,301

F-25

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


			March 27,			December 25,
			2004			2004

			(In thousands)
ASSETS
CURRENT ASSETS:
	Accounts receivable, net		$	28,456		$	35,976
	Inventories			167,819			172,919
	Deferred income taxes			16,030			9,430
	Prepaid expenses and other			3,874			4,055

		Total current assets		216,179			222,380
PROPERTY, PLANT, EQUIPMENT AND BREEDING STOCK:
	Land and improvements			100,754			100,619
	Buildings			295,402			296,766
	Machinery and equipment			278,860			282,344
	Breeding stock			38,322			41,346
	Construction in progress			2,173			9,789

				715,511			730,864
	Less—accumulated depreciation			260,699			296,693

		Total property, plant, equipment and breeding stock		454,812			434,171
GOODWILL				75,998			75,998
OTHER LONG-TERM ASSETS:
	Deferred financing costs, net			4,201			4,763
	Other			7,642			7,380

		Total other long-term assets		11,843			12,143

Total assets			$	758,832		$	744,692


LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Checks issued against future deposits		$	5,115		$	10,238
	Accounts payable			6,332			8,806
	Accrued expenses			33,168			40,464
	Due to related party			56			56
	Federal income tax payable			37			—
	Accrued interest			5,888			1,055
	Current maturities of long-term debt and capital leases			833			888

		Total current liabilities		51,429			61,507
LONG-TERM LIABILITIES:
	Long-term debt and capital leases, less current maturities			285,069			205,929
	Other long-term liabilities			6,509			7,187
	Deferred income taxes			75,813			85,726

		Total long-term liabilities		367,391			298,842

		Total liabilities		418,820			360,349
SHAREHOLDERS’ EQUITY:
	Common stock			2			2
	Additional paid-in capital			373,708			373,708
	Accumulated other comprehensive loss, net of tax			(54	)		—
	(Accumulated deficit) retained earnings			(33,644	)		10,633

		Total shareholders’ equity		340,012			384,343

Total liabilities and shareholders’ equity			$	758,832		$	744,692

The accompanying notes are an integral part of the condensed consolidated financial statements.

F-26

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE (LOSS) INCOME


			39 Weeks Ended

			December 27,			December 25,
			2003			2004

			(In thousands, except share
			and per share information)
Net sales			$	549,207		$	677,725
Cost of goods sold				520,002			574,869

		Gross profit		29,205			102,856
Selling, general and administrative expenses				12,658			15,436
Other income				(461	)		(875	)

		Operating income		17,008			88,295
Interest expense (income):
	Interest expense			18,868			15,908
	Interest income			(100	)		(80	)

Interest expense, net				18,768			15,828

		(Loss) income before income taxes		(1,760	)		72,467
		Income tax (benefit) expense		(685	)		28,190

Net (loss) income			$	(1,075	)	$	44,277

	Unrealized gain on interest rate swap, net of tax			245			54
Comprehensive (loss) income			$	(830	)	$	44,331

(Loss) earnings per share:
	Basic		$	(5.04	)	$	207.58
	Diluted		$	(5.04	)	$	207.14
Weighted average number of company shares outstanding
	Basic			213,301			213,301
	Diluted			213,301			213,752

The accompanying notes are an integral part of the condensed consolidated financial statements.

F-27

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


				December 27,			December 25,
				2003			2004

				(In thousands)
OPERATING ACTIVITIES:
		Net (loss) income		$	(1,075	)	$	44,277
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
		Depreciation			46,089			45,507
		Amortization of deferred financing costs			1,313			791
		Deferred income taxes			(528	)		16,513
		Net gain on sale of property, plant, equipment and breeding stock			(3,085	)		(5,463	)
		Changes in operating assets and liabilities, net:
			Accounts receivable		(7,918	)		(7,520	)
			Inventories		(2,567	)		(5,100	)
			Prepaid expenses and other assets		3,728			135
			Accounts payable, accrued expenses and other liabilities		10,318			5,578

Net cash provided by operating activities					46,275			94,718
INVESTING ACTIVITIES:
	Purchases of property, plant, equipment and breeding stock				(33,474	)		(33,691	)
	Proceeds from disposal of property, plant, equipment and breeding stock				13,563			14,288

Net cash used in investing activities					(19,911	)		(19,403	)
FINANCING ACTIVITIES:
	Checks issued against future deposits				283			5,123
	Payments on revolving debt, net				(19,799	)		(72,272	)
	Payments for deferred financing costs				—			(1,272	)
	Repayments on long-term debt				(6,848	)		(6,894	)

Net cash used in financing activities					(26,364	)		(75,315	)
Net decrease in cash and cash equivalents					—			—
CASH AND CASH EQUIVALENTS, beginning of period					—			—

CASH AND CASH EQUIVALENTS, end of period				$	—		$	—

SUPPLEMENTAL DISCLOSURES:
Interest paid				$	21,724		$	19,999
Income tax paid					2			11,747

The accompanying notes are an integral part of the condensed consolidated financial statements.

F-28

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.	*Basis of presentation*

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting policies described in the consolidated financial statements and related notes included in PSF Group Holdings, Inc. and Subsidiaries (the “Company”) audited consolidated financial statements included elsewhere in this prospectus. It is suggested that this report be read in conjunction with those consolidated statements. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The year-end financial statements presented were derived from the Company’s audited financial statements. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position of the Company and the results of its operations.

PSF Group Holdings, Inc. is a Delaware company formed in 1998 and is currently 53% owned by ContiGroup Companies, Inc.

Certain reclassifications have been made to the 2004 financial statements to conform to the current presentation.


2.	*New accounting pronouncements*

In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 151 (SFAS 151), “Inventory Costs— an Amendment of ARB No. 43 Chapter 4.” SFAS 151 requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling be recognized as current-period charges rather than being included in inventory regardless of whether the costs meet the criterion of abnormal as defined in ARB 43. SFAS 151 is applicable for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company will adopt this standard beginning the first quarter of fiscal year 2006 and does not believe the adoption will have a material impact on its financial statements as such costs have historically been expensed as incurred.

In December 2004, FASB issued SFAS No. 153 (SFAS 153), “Exchanges of Nonmonetary Assets— an amendment of APB Opinion No. 29” which addresses the measurement of exchanges of nonmonetary assets and eliminates the exception from fair value accounting for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of an entity are expected to change significantly as a result of the exchange. This statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005 and is not expected to have a significant impact on the Company’s financial statements.

In December 2004, FASB issued SFAS No. 123 (revised 2004) (SFAS 123R), “Share-Based Payment.” SFAS 123R sets accounting requirements for “share-based” compensation to employees, requires companies to recognize in the income statement the grant-date fair value of stock options and other equity-based compensation issued to employees and disallows the use of the intrinsic value method of accounting for stock compensation. SFAS 123R is applicable for all interim and fiscal periods beginning after June 15, 2005. This statement is effective for the Company beginning the second quarter of fiscal year 2006 and is not expected to have a significant impact on its financial statements with respect to currently issued stock options, but could have a significant impact with respect to options issued in the future.

In December 2004, FASB issued FASB Staff Position 109-1 (FSP 109-1) “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004.” FSP 109-1 specifies that a qualified production activities deduction should be accounted for as a special deduction in accordance with SFAS 109. FSP 109-1

F-29

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS— (Continued)

was effective upon issuance. The Company is currently evaluating the impact this deduction will have on its results of operations or financial position for fiscal year 2005 and subsequent years.


3.	*Stock-based compensation*

The Company follows the disclosure provisions of SFAS No. 148 (SFAS 148), “Accounting for Stock-Based Compensation— Transition and Disclosure, and amendment of FASB Statement No. 123.” SFAS 148 requires prominent disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on report results.

In the fiscal year ended March 31, 2001, the Company’s board of directors authorized an equity incentive plan whereby options have been granted to senior management for the purchase of 5,714 shares of Class B common stock at an exercise price of $1,666.48 per share. In January 2004, the Company’s board of directors granted an additional 857 options at the same exercise price as the previous option grants. Currently, 6,000 of the options are fully exercisable. The remaining 571 options will be fully exercisable by December 31, 2006. At December 31, 2005, 6,000 options expire, and at December 31, 2009, 571 options expire. No options have been exercised as of December 25, 2004.

The Company records stock-based compensation in accordance with Accounting Principles Board Opinion No. 25 (APB 25). For the 39 weeks ended December 25, 2004, the Company had no compensation expense to record in accordance with APB 25. The pro-forma disclosures required by SFAS 148 have not been included as they did not result in a material pro-forma impact on the financial statements.


4.	*Derivative instruments and hedging activities*

The Company follows FASB Statement No. 133 (SFAS 133), “Accounting for Derivative Instruments and Hedging Activities” which requires every derivative instrument be recorded in the balance sheet as either an asset or liability at its fair value, and changes in a derivative’s fair value be recognized in current earnings or other comprehensive income.

The Company believes that its exchange traded commodity contracts serve as economic hedges, however, management has elected not to designate and account for these contracts as hedges. Accordingly, these contracts are marked to market through earnings. For the first three quarters ended December 27, 2003, and December 25, 2004 the Company recognized losses under SFAS 133 of $5.8 million and gains of $9.0 million, respectively, in net sales for losses and gains related to lean hog futures and losses of $3.0 million and gains of $3.1 million, respectively, in costs of goods sold relating to the hedging of feed components and outside hog purchases at processing facilities. The fair value of the Company’s open exchange traded commodity contracts was a loss of $0.8 million at December 25, 2004 and a gain of $4.9 million at March 27, 2004 and is recorded in Prepaid Expenses and Other in the condensed consolidated balance sheets.

The Company held an interest rate swap agreement, which matured on September 30, 2004, in order to effectively convert the base interest rate on the bank term note from variable to a fixed rate. The Company had designated the interest rate swap as a cash flow hedge and for fiscal year end March 27, 2004, recorded ($88,000) in the condensed consolidated balance sheets relating to the fair value of the swap. For the first three quarters ended December 27, 2003 and December 25, 2004, $245,000, net of $156,000 in income taxes and $54,000, net of $35,000 in income taxes, respectively, included in comprehensive income (loss) was reclassified to interest expense.


5.	*Goodwill and intangible assets*

F-30

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS— (Continued)

assets. Under SFAS 142, companies no longer amortize goodwill over the estimated useful life. Goodwill is assessed each year during the second quarter for impairment by applying a fair value based test. No impairment was recorded during the first three quarters ended December 27, 2003 and December 25, 2004.


6.	*Inventories*

Inventories are valued at the lower of cost, determined on a first-in, first-out (FIFO) basis, or market. Inventories consist of the following (in thousands):


	March 27, 2004		December 25, 2004

Hogs	$	153,340	$	153,688
Processed pork products		8,383		14,068
Packaging and supplies		1,779		2,091
Grain, feed additives and other		4,317		3,072

	$	167,819	$	172,919


7.	*Segment information*

The accounting policies for the Company’s business segments are the same as those described in the footnotes included in the Company’s March 27, 2004 audited financial statements. The Company operates a vertically integrated business with two operating segments, Pork Processing and Hog Production. The Pork Processing segment sells fresh and value-added pork products to food retailers, distributors, wholesalers, further processors, and pharmaceutical and animal feed manufacturers in both domestic and international markets. The Hog Production segment supplies a majority of the live hogs used in the Pork Processing segment and sells the excess production to other hog processing operations. Intersegment live hog sales are based on market prices. The following table presents specific financial information about each segment as reviewed by the Company’s management. The Corporate and Other classification in the following table represents unallocated corporate expenses and assets, deferred and current income taxes, interest expense and intersegment elimination (in thousands):


		Pork			Hog			Corporate
		Processing			Production			and Other			Total

For the 39 weeks ended December 27, 2003—
	Net sales	$	495,457		$	340,999		$	(287,249	)	$	549,207
	Intersegment sales		(1,945	)		(285,304	)		—			—
	Operating income (loss)		26,556			68			(9,616	)		17,008
As of March 27, 2004—
	Assets	$	195,366		$	534,724		$	28,742		$	758,832
	Goodwill		25,020			50,978			—			75,998
As of and for the 39 weeks ended December 25, 2004—
	Net sales	$	629,582		$	459,710		$	(411,567	)	$	677,725
	Intersegment sales		(1,604	)		(409,963	)		—			—
	Operating income (loss)		18,002			81,902			(11,609	)		88,295
	Assets		201,545			519,805			23,342			744,692
	Goodwill		25,020			50,978			—			75,998

F-31

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS— (Continued)


8.	*Amendment to Credit Agreement*

On April 9, 2004, the Company entered into an amended and restated loan and security agreement (Credit Agreement) with its bank group. The Credit Agreement is a $175,000,000 revolving line of credit. The balance of the previous line of credit as well as the outstanding term debt, at the date of closing, became the opening balance outstanding under the Credit Agreement. Obligations under the Credit Agreement are secured by liens on substantially all of the Company’s assets. In addition to customary financial covenants, the Credit Agreement contains restrictions on, among other things, encumbrance or disposal of assets, acquisitions, additional indebtedness, capital investment, payment of subordinated debt and payment of dividends. In addition to fees payable under credit facilities of this type, amounts borrowed under the Credit Agreement bear interest at fluctuating rates selected by the Company. These rates are based on the agent bank’s base rate (the greater of the agent bank’s prime rate or the federal funds rate plus one half of one percent) or LIBOR plus, in each case, an applicable margin, ranging from 0.0% to 3.0%, determined by the Company’s leverage ratio. All borrowings under the revolving credit facility mature on April 9, 2009. Financing costs associated with the amendment were capitalized and are being amortized over the life of the Credit Agreement.

The line of credit is not to exceed $175,000,000 of total borrowings, including up to $15,000,000 in letters of credit. Letter of credit fees are based on the applicable margin and are paid quarterly only on outstanding letter of credit amounts.


9.	*Litigation*

Environmental matters

The Company in prior years settled two citizens’ action suits which sought to enforce alleged violations of the Clean Air Act, Clean Water Act and CERCLA against the Company and ContiGroup Companies, Inc. (ContiGroup). The U.S. Environmental Protection Agency (the E.P.A.) had intervened in this action and filed a separate notice of violation against the Company under the Clean Air Act. This settlement, in the form of a consent decree (EPA Consent Decree), resolved all outstanding issues of ContiGroup and the Company with the citizens group and the E.P.A. In 1998, the Company engaged in a series of transactions with ContiGroup pursuant to which it purchased from ContiGroup its North Missouri Farms hog production operations and ContiGroup purchased a 51.0% ownership interest in the Company (the 1998 ContiGroup transaction). To the extent that ContiGroup incurred any liability in this litigation, the Company assumed that liability pursuant to the terms of the 1998 ContiGroup transaction. The EPA Consent Decree, built upon the 1999 consent decree with the State of Missouri referenced below, requires the Company and ContiGroup to meet certain performance standards, such as a 50 percent reduction in nitrogen concentration of the effluent applied to area fields over a prescribed time period. The counsel for the citizen plaintiffs submitted a petition

F-32

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS— (Continued)

for recovery of attorneys’ fees in connection with the lawsuits against both the Company and ContiGroup. On September 10, 2003, the Court issued an order denying the majority of fees sought by counsel for the citizen plaintiffs, which order was appealed by plaintiffs’ counsel in March 2004 and subsequently affirmed on February 1, 2005 by the U.S. Court of Appeals for the 8th Circuit, denying the fees. The Company has settled with plaintiffs’ counsel for the balance of the fees.

In 1999, the Company settled a suit filed by the Attorney General of the State of Missouri against the Company and ContiGroup. As referenced above, the Company assumed ContiGroup’s liability in this action in connection with the 1998 ContiGroup transaction. The settlement required the Company and ContiGroup to enter into a consent judgment (“Missouri Consent Decree”) pursuant to which the Company was obligated to invest $25 million on or before May 19, 2004, for researching, installing and operating improved technology to control wastewater, air and odor emissions from its Missouri farms. All such investments were subject to the approval of a panel of independent university experts (“Expert Panel”). In June 2002, the State of Missouri filed a lawsuit against the Company seeking penalties and injunctive relief for additional alleged violations of air and water regulations. The Company settled in February 2004 with the State, and paid an additional fine of $333,000 prior to March 27, 2004. The settlement also extended the implementation schedule under the Missouri Consent Decree from 2004 until 2010. In addition, and in lieu of the $25 million investment commitment and deadline referenced above, the Company committed to install improved wastewater, air and odor technology at all of its finisher farms in northern Missouri, subject to the approval of the Expert Panel. The Company estimates it may spend approximately $31 million on this technology between the settlement date and the 2010 deadline, of which $6.5 million has been spent to date. Included in this commitment is a fertilizer plant in northern Missouri that will convert solid waste into commercial grade fertilizer. The fertilizer plant construction has begun and the Company has spent $6.2 million to date of an estimated $9.6 million to complete the plant. The plant is scheduled to be operational by the end of the current fiscal year.

Two nuisance suits were filed against ContiGroup and the Company during the second quarter of fiscal year 2003 in the Circuit Court of Jackson County, Kansas City, Missouri (Steven Adwell, et al. vs. PSF, et al., and, Michael Adwell, et al. vs. PSF, et al.). Two other nuisance lawsuits were filed in March of 2004 by the same attorney (Fred Torrey, et al. vs. PSF, et al., and, Doyle Bounds, et al. vs. PSF, et al.). Two additional nuisance suits were filed in May 2004 in Daviess County Circuit Court, Gallatin, Missouri entitled Vernon Hanes et al. v. Premium Standard Farms, Inc. et al. and Steve Hanes et al. v. Premium Standard Farms, Inc., et al. There are multiple plaintiffs in each suit, who claim to live near swine farms owned or under contract with the Company. Plaintiffs allege that odors from these farms interfered with the plaintiffs’ right to use and have quiet enjoyment of their respective properties. The Company believes it has good defenses to these actions and intends to vigorously defend these suits.

On May 18, 2004 the same lawyer who filed the Adwell, Bounds and Torrey lawsuits filed a class action lawsuit (Daniel Herrold, et al. and Others Similarly Situated v. ContiGroup Companies, Inc, Premium Standard Farms, Inc., and PSF Group Holdings, Inc.) in the Circuit Court of Jackson County, Kansas City, Missouri. The action seeks to create a class of plaintiffs living within 10 miles of the Company’s farms in northern Missouri, including contract grower farms, who are alleged to have suffered interference with their right to use and have quiet enjoyment of their respective properties. The Company has removed this case to the U.S. District Court in Kansas City, Missouri. The Company believes it has good defenses to these actions and intends to vigorously defend this suit.

Other legal matters

F-33

PSF GROUP HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS— (Continued)


10.	*Earnings per share*

Basic earnings per common share (EPS) are computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. For the thirty-nine weeks ended December 27, 2003 and December 25, 2004 there were 20,482 warrants that were considered antidilutive. For the thirty-nine weeks ended December 27, 2003, there were 6,956 options (based on weighted-average number outstanding during the year), that were considered antidilutive.

F-34

Part II

Information not required in prospectus


Item 13.	*Other Expenses of Issuance and Distribution.*

The following table sets forth the various expenses (other than underwriting discounts and commissions), we expect to incur in connection with the offering described in this registration statement.


SEC Registration Fee		$	11,770
NASD Filing Fee			10,500
Listing or Quotation Fees				*
Printing and Engraving Expenses				*
Legal Fees and Expenses				*
Accounting Fees and Expenses				*
Blue Sky Fees and Expenses				*
Transfer Agent Fees and Expenses				*
Miscellaneous				*

	Total	$		*


*	To be completed by amendment

Item 14. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding, provided the person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. A similar standard of care is applicable in the case of actions by or in the right of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action was brought determines that, despite the adjudication of liability but in view of all of the circumstances of the case, the person is fairly and reasonably entitled to indemnity for expenses that the Delaware Court of Chancery or other court shall deem proper.

Our amended and restated certificate of incorporation and restated bylaws provide that we will indemnify and advance expenses to our directors, officers and employees to the fullest extent permitted by Delaware law in connection with any threatened, pending or completed action, suit or proceeding to which such person was or is a party or is threatened to be made a party by reason of the fact that he or she is or was our director, officer or employee, or is or was serving at our request as a director, officer, employee or agent of another corporation or enterprise.

We maintain a directors’ and officers’ liability insurance policy to insure our directors and officers against liability for actions or omissions occurring in their capacity as a director or officer, subject to certain exclusions and limitations.

II-1


Item 15.	*Recent Sales of Unregistered Securities.*

During the past three years, we have not sold any unregistered securities.


Item 16.	*Exhibits and Financial Statement Schedules.*

(a) The following documents are exhibits to the Registration Statement.


Exhibit
Number			Description of Exhibit

	1	.1	Form of Underwriting Agreement.*
	3	.1	Certificate of Incorporation of PSF Group Holdings, Inc., filed May 8, 1998.(1)
	3	.2	Certificate of Amendment of Certificate of Incorporation of PSF Group Holdings, Inc., filed September 16, 1994.(1)
	3	.3	Amended and Restated Certificate of Incorporation.*
	3	.4	Amended and Restated By-laws of PSF Group Holdings, Inc.(1)
	3	.5	Amended and Restated By-laws.*
	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.(1)
	4	.2	Specimen certificate of 9¹/4% Senior Notes due 2011.(1)
	4	.3	First Supplemental Indenture dated as of March 31, 2002.(2)
	4	.4	Amended and Restated Registration Rights Agreement.*
	4	.5	Amended and Restated Loan and Security Agreement, dated April 9, 2004, by and between Premium Standard Farms, Inc. and U.S. Bank National Association, as an Agent for Itself and Certain Other Lenders.(4)
	5	.1	Opinion of Sidley Austin Brown & Wood LLP.*
	10	.1	PSF Group Holdings, Inc. 1999 Equity Incentive Plan, dated December 1, 1999.(1)
	10	.2	Premium Standard Farms, Inc. Long-Term Incentive Plan, effective April 1, 2003.(4)
	10	.3	Premium Standard Farms, Inc. Long-Term Incentive Plan, effective April 1, 2004.
	10	.4	Premium Standard Farms, Inc. Executive Level Severance Plan, effective February 1, 2003.
	10	.5	Premium Standard Farms, Inc. Vice President Level Severance Plan, effective February 1, 2003.
	10	.6	Premium Standard Farms, Inc. Special Executive Retirement Plan, dated October 1, 2004.
	10	.7	Premium Standard Farms, Inc. Deferred Compensation Plan, dated December 29, 2000.(1)
	10	.8	Amendment No. 1 to the Deferred Compensation Plan, dated June 8, 2001.(1)
	10	.9	Services Agreement, dated October, 1998, by and between Premium Standard Farms, Inc. and Continental Grain Company.(1)
	10	.10	Market Hog Contract Grower Agreement, dated May 3, 1998, by and between Continental Grain Company and CGC Asset Acquisition Corp.(1)
	10	.11	State of Missouri Consent Decree with Premium Standard Farms, Inc. and ContiGroup Companies, Inc.(4)
	10	.12	Employment Severance Agreement, dated as of November 17, 2003, between Premium Standard Farms, Inc. and Richard Morris.
	10	.13	Letter Agreement, dated November 7, 2003, between Premium Standard Farms, Inc. and Richard Morris.
	11	.1	Statement regarding computation of per share earnings.
	21	.1	Subsidiaries of the Registrant.(3)
	23	.1	Consent of Deloitte & Touche LLP.
	23	.3	Consent of Sidley Austin Brown & Wood LLP (to be contained in Exhibit 5.1).*
	24	.1	Powers of Attorney (see signature page).


*	To be filed by amendment.
(1)	Incorporated by reference to the Registration Statement on Form S-4 (Commission File No. 333-64180), filed by the Registrant with the SEC on June 29, 2001.
(2)	Incorporated by reference to the Form 10-K for the year ended March 30, 2002 filed by the Registrant with the SEC on May 14, 2002.

II-2

(3) Incorporated by reference to the Form 10-K for the year ended March 29, 2003 filed by the Registrant with the SEC on June 4, 2003.

(4) Incorporated by reference to the Form 10-K for the year ended March 27, 2004 filed by the Registrant with the SEC on June 1, 2004.

(b) Financial Statement Schedules

Schedule II — Valuation And Qualifying Accounts

Schedule II

Valuation and Qualifying Accounts

(Dollars in thousands)


	Balance at
	beginning		Charged to				Less:		Balance at
Description	of year		earnings		Other		Deduction		end of year

Allowance for Losses on Accounts Receivable:
2004	$	540.3	$	146.2	$	—	$	10.9	$	675.6
2003		680.5		137.2		—		277.4		540.3
2002		663.6		129.3		—		112.4		680.5


Item 17.	*Undertakings.*

(a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

(b) The undersigned Registrant undertakes that:

(i) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and

(ii) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c) The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Kansas City, State of Missouri, on March 11, 2005.


	PSF Group Holdings, Inc.


	By:	/s/ John M. Meyer



	Name: John M. Meyer
	Title: Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby severally constitutes and appoints John M. Meyer and Stephen A. Lightstone, and each of them individually, with full power of substitution and resubstitution, his or her true and lawful attorney-in fact and agent, with full powers to each of them to sign for us, in our names and in the capacities indicated below, the Registration Statement on Form S-1 filed with the Securities and Exchange Commission, and any and all amendments to said Registration Statement (including post-effective amendments), and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of equity securities of the Registrant, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitute or substitutes, shall do or cause to be done by virtue of this Power of Attorney. This power of attorney may be executed in counterparts and all capacities to sign any and all amendments.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


Signature	Title	Date


/s/ John M. Meyer John M. Meyer	Chief Executive Officer and Director (principal executive officer)	March 11, 2005

/s/ Stephen A. Lightstone Stephen A. Lightstone	Executive Vice President, Chief Financial Officer and Treasurer (principal financial and accounting officer)	March 11, 2005

/s/ Michael Z. Zimmerman Michael Z. Zimmerman	Chairman of the Board and Director	March 11, 2005

/s/ Ronald E. Justice Ronald E. Justice	Director	March 11, 2005

/s/ Dean A. Mefford Dean A. Mefford	Director	March 11, 2005

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Signature	Title	Date


/s/ Maurice L. McGill Maurice L. McGill	Director	March 11, 2005

/s/ Michael A. Petrick Michael A. Petrick	Director	March 11, 2005

/s/ Paul J. Fribourg Paul J. Fribourg	Director	March 11, 2005

/s/ Vart K. Adjemian Vart K. Adjemian	Director	March 11, 2005

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		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;

	•	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.


		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 11% of our total processing sales in the first three quarters ended December 25, 2004) 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.