Pilgrims Pride Corp (PPC) 2005 Q4 法說會逐字稿

Good morning and welcome to the Pilgrim's Pride conference call to review the Company's fiscal 2005 year-end and fourth quarter results. At the request of Pilgrim's Pride, the conference call is being recorded. The Company has asked me to point out that there are slides available for downloading from the conference call link on the website's home page of www.pilgrimspride.com. These slides will be used during the call -- during the call. After the speaker -- speakers' conclude their prepared remarks, I will provide you with instructions about the process necessary to ask a question. On today's conference call will be Mr. O.B. Goolsby, President and Chief Executive Officer; Mr. Clint Rivers, Chief Operating Officer; and Mr. Rick Cogdill, Chief Financial Officer of Pilgrim's Pride. Beginning the conference call is Mr. Rick Cogdill. Mr. Cogdill, you may begin.

Good morning. Thank you all for joining us today to review our fourth quarter and annual results for fiscal 2005. The press release we issued earlier this morning contains some of the highlights from the quarter and for the year and on today's call we will provide you with additional details about these results. We will also discuss our views and some industry trends that we expect to affect the Company in the near-term. After our prepared remarks, we will be happy to entertain questions that you may have and again, when we reset point, the operator will come back on and begin queueing up calls others listeners may have.

Before O.B. begins, I'd like to remind everybody that this call will contain forward-looking statements, including our expectations of future results, sales, cost of sales information, market dynamics, et cetera. Our actual results might differ materially from those projected during this -- in these forward-looking statements. Additional information concerning these factors that could cause the results to di -- from materially from those forward-looking statements is contained in today's press release as well as in our forward-looking statement disclosures contained on our forms 10-K, 10-Q and 8-K as filed with the SEC. That being said, I'll now turn it over to our CEO, Mr. O.B. Goolsby.

Thank you, Rick. Good morning, everyone. It's a pleasure to be here today to discuss our fourth quarter and full fiscal 2005 results. As we noted in our press release, this year concludes our third consecutive year of record earnings and sales results. This outstanding performance was driven primarily by strong demand both domestically and internationally as well as favorable operating performance and feed ingredient costs for both the quarter and the year. Before I go into more details about some of the factors that contributed to our very positive results, I would like to say a few words regarding the impact of Hurricanes Katrina and Rita. As we reported in a previous press release, we were fortunate that none of our facilities were directly affected by Hurricane Katrina. Our thoughts and prayers continue to go out to the many people who are impacted by that devastating storm while Hurricane Rita did pose a modest threat to our Texas and Louisiana operations, we are pleased to report that only minimal damage was sustained as a result of this storm. Clint will provide additional details a little later in the call on the effect of these hurricanes on our facilities in the U.S. and as the chicken industry as a whole.

Turning to some recent trends in our industry, as well as our general expectations for the 2006, I'll start with the supply side. With the respect to broiler production, looking at slides 3 and 4, we can see that supply and demand are fairly well balanced. For all of calendar 2005, U.S. chicken production is expected to be up approximately 1.1 billion pounds or 3% higher than the same period last year. This compares favorably with the U.S. per capita consumption increase of 1.8%, along with the anticipated 15.7% growth in exports and an approximate 1% average annual population growth in the U.S. In 2006, U.S. chicken production is projected to slow its growth rate back to 2003 levels. For a rate of growth of about 2%. The average breeder flock size for the fourth calendar quarter is projected to decrease approximately 1.5%, versus the fourth quarter of 2004. And for all of the calendar year of 2005 is projected to decrease approximately a half of 1% versus 2004. After increasing 2.5% in 2004, broiler's slaughter prodcu -- pro -- processing days expected to slow its growth rate to increases of 1.6% and 1.8% in 2005 and 2006 respectively.

Another important item to point out, however, is that as the industry slaughters more broilers per processing day, the bird weights have been gradually increasing in size. The average live weight of broilers has increased 1.3% in 2005 year-to-date and is expected to increase an additional 6/10 of 1% in 2006. As slide 4 shows, according to the national chicken council, the growth in per capita consumption is expected to continue at steady increases at approximately 1.8% in 2005 and another 2% in 2006. In addition to the growing appeal of chicken, as a high protein, lower fat alternative to red meat, the continued rise in energy costs means that many budget-conscious consumers are likely to continue to choose chicken as a more affordable and healthier alternative to red meat.

Broiler export markets have been strong this year as evidenced by the rising price of leg quarters and as shown on slide 5 should continue to grow as we move into 2006. While outbreaks of Avian influenza in parts of Asia and Europe have caused export restrictions in those areas, restrictions due to A.I. in past years have generally been lifted for the U.S. And as a result, exports are expected reach a record 5.5 billion pounds for all of 2005. While we sincerely hope that the highly-pathogenic Avian influenza virus that has plagued Asia for the past several years is brought under control, we believe that over the short-term, this environment will keep demand strong in the international markets for high quality chicken proteins being produced in the United States.

Turning now to slide 6, we will take a look at some of the benchmark commodity chicken selling prices. When analyzed in comparison to the markets for the fourth quarter and fiscal year 2004, most chicken parts prices were lower than the record levels seen last fiscal year but still remain at price levels which were profitable. In fact, it is interesting to note that our average chicken sales mix prices for both fiscal years 2005 and 2004 were exactly the same at $0.86.4 per pound. Some specifics worth noting outside of our prepared foods price products are primary market pricing metrics for the Georgia dock and leg quarters. The Georgia dock, while down 6% to $0.75 per pound for the force -- fourth fiscal quarter has been relatively stable around this level all year. In fact, for the fiscal year as a whole, it has only changed by 1/2 of 1% and has averaged $0.74 per pound. Leg quarter prices, which were be affected as strong export demand push prices up, were up 54.7% for the fourth fiscal quarter, averaging $0.45 a pound and for the fiscal year, were up 12.8%, averaging $0.36 per pound.

Other commodity markets, which -- which have less of an impact on our specific product mix include whole wings, which were the -- for the fourth fiscal quarter, were down 20.1%, averaging $0.83 per pound and for the fiscal year, were down 8.6%, averaging $0.95 per pound. Boneless, skinless breast meat for the fourth quarter was down 24.4%, averaging $1.41 per pound and for the fiscal year was down 24%, averaging $1.43 per pound. Feeding ingredient costs have been favorable both for the fourth quarter and the fiscal year-end as sloan -- shown on slide 7. The USDA projects average corn and soybean meal prices for the 2005 '06 crop season to be 18.1 and 11.1% lower respectively versus our average price for fiscal year 2005. This measures out to an average price of $1.85 per bushel for corn and $170 per ton for soybean meal. However, like other transportation-related expenses, the rail delivery cost for getting feed ingredients to our feed mills has also increased over prior year cost, which will offset some of the gain until fuel prices recover to more historic norms.

As we reported last quarter, there has been a significant difference between the USDA price projections and the futures market. And this trend has continued as a current future prices are still 15.7% and 6.7% higher for corn and soybean meal respectively than the USDA is forecasting. At this time, we continue to look for pricing for this crop year to be more in line with USDA projections as the season progresses rather than what is being reflected by the speculative commodity markets.

Finally, to wrap up our industry analysis, what does all this mean for fiscal 2006? On the plus side, we see moderate industry supply growth of 2%. Well within our normal industry growth patterns. We see solid demand, growth both domestically and internationally in the 2 to 3% range on both fronts. Stable feed ingredient input costs. See a growing U.S. economy and a strong demand for labor. And resiliency in the U.S. consumer and economy in continuing to absorb higher energy and interest costs. On the minus said, we see higher petroleum-related costs, especially during the upcoming winter months. See concern over how the consumer may change and alter their spending patterns as they become stretched more and more to make ends meet.

And last, but not necessarily least, an item that could have a mixture of both pluses and minuses depending on, at any given moment, is the Asian A.I. situation. Will the virus continue to spread into other countries? And how will that affect foreign country demand and poultry supplies? Will the strength in the demand for U.S. chicken products be bolstered by stress production supply flocks internationally like it was in 2005? Or will these depleted flock levels not matter because these country's consumers may choose to irrationally avoid the consumption of poultry as a whole regardless of the producing country. As you can see, the answer to these questions could vary in either or both directions at any given time. And as Rick will discuss in more detail later, at this time, we believe that these factors will certainly combine to make our fiscal 2006 a challenging and an interesting year. But in the end, we believe that our consistent business strategy of focusing on higher margin, more stable prepared foods products, will result in our earnings performance as a whole being in general alignment with fiscal 2005.

I'd like to conclude my remarks by saying once again how pleased I am with our achievement in the fourth quarter and the full fiscal 2005. Thanks to all the hard work of all of our team members and our solid customer relationships, we were able to capitalize on a favorable operating environment to drive strong results across our businesses. With that, I'd like to turn the call over to Clint.

Thanks, O.B. It's a pleasure to be here today. I'd like to begin by talking briefly about the recent acquisition we announced last month of a new prepared foods processing facility in Bossier City, Louisiana. The plant, which we acquired from Georgia-based Wayne Farms has the capacity to produce 50 million pounds of prepared foods product per year, adding approximately 5% to our current production. The plant's proximity to our two processing facilities, warehousing and distribution network in Louisiana, will enable us to quickly integrate it into our existing infrastructure. The additional capacity that the Bossier City plant will provide will aid in the growth of our prepared foods division, which we believe will continue to be one of the fastest-growing and most profitable divisions in our Company. As we have mentioned in the past, our Company's long-term strategy is to add value through continued growth in our prepared foods division and to make sure that our production capacity's always stay ahead of our cu -- customers increasing demand for these products. Accordingly, as in the past years, Pilgrim's Pride will continue to make substantial capital investments, including acquisitions, in our prepared foods production capacities and capabilities. This facility is a perfect fit for Pilgrim's Pride and we look forward to the contribution it will make as we continue our growth and expansion of this important product line.

I'd like to take a moment to expand on what O.B. mentioned earlier about the impact of Hurricanes Katrina and Rita on Pilgrim's Pride, as well as the chi -- entire chicken industry. As O.B. stated, we are thankful that the two hurricanes have had minimal effects on our operations and while the overall impact of these storms on our industry is largely minor and temporary, we realize that not all of our peers were as fortunate as we had been. The most extreme example of destruction was at one of our competitor's facilities, which reported a loss of 5.2 million hatching eggs and 3 million head of chicken due to Katrina. While Hurricane Katrina made landfall in an area far from our facilities, the path of Hurricane Rita, however, was aimed directly over several of our complexes, including Lufkin and Nacogdoches, Texas and Natchitoches, Louisiana. Fortunately, those facilities sustained only minimal damage as a result of the storm. Specifically, out of our 1,923 contracted broiler houses in the region, only 88 houses were reported to have received damage. And only 37 houses out of our 225 contract breeder and breeder pullet houses were reported to have damage. Substantially, all of these houses were quickly repaired back to pre-Rita operating conditions.

As a result, as shown on slide 8, the number of chickens lost as a result of the storm, which we estimate to be approximately 343,000 head, or approximately 1% of one week's production had an insignificant impact on our operations. We were also able to avoid significant disruptions in our processing operations despite power outages in Lufkin and Nacogdoches by temporarily shifting production in the region to other Pilgrim's Pride facilities. In response to the disruption and damage due to the hurricanes, the USDA lowered the third quarter estimate for U.S. broiler production to 8.95 billion pounds, down 150 million pounds from September estimate, but still a 1% increase in production when compared to a year earlier.

As we mentioned in our mid-fourth quarter update, these two hurricanes did result in disruptions to our nation's already stressed oil and gas supply chains, pushing up costs for both of these commodities. As is noted on slide 9, diesel fuel and natural gas were up 11.3 and 30.6% respectively when compared to our third quarter of fiscal 2005. Additionally, we anticipate that these costs will continue to affect our cost structure over the winter months as demand increases for heating fuel. Recently, however, there does appear to be signs of a return to more normal pricing levels as the storage reports last week showed the working gas and storage was at 3,168 billion cubic feet as of Friday, October 28, 79 billion cubic feet above the five-year average. This coupled with projected higher than average temperatures that are expected in the northeast this winter should add to the downward pressure of pricing, hopefully returning to more normalized levels.

Before I turn the call over to Rick, I would like to say a few words about the growing international focus on the Avian influenza or bird flu. I want to begin by emphasizing that it is our top priority at Pilgrim's Pride to provide safe, nutritious, affordable products to our consumers and to ensure the health and well being of our flocks, employees and contract growers. Accordingly, we practice stringent bio security measures, conduct regular testing and take precautions aimed at keeping Avian influenza out of our flocks and ensuring the health and well being of our customers, employees and growers. As you all know, the highly-pathogenic H5N1 A.I. virus that has been in the news recently has affected poultry flocks in parts of Asia and Europe. Conditions in the U.S. poultry industry are radically different from those in Asia and eastern Europe, where there are numerous free range growing operations, the common presence of backyard flocks in the areas of the general population, the sale of live chickens directly to consumers and live birds cohabitating with high density human populations. Although there have been some human cases of A.I. in Asia, it is important to point out that there have been no cases in which human infection is believed to have resulted from handling or consumption of processed poultry meat.

According to the National Chicken Council, there is no threat of acquiring Avian influenza from consuming normally and properly cooked poultry. A.I. is caused by a virus and like all viruses is destroyed by the heat of normal cooking. It is also important to note that while there have been outbreaks of other, less dangerous or low pathogenic strains of Avian influenza in the U.S. in 2002 and 2004, there has never been an outbreak of Asian type H5N1 highly pathogenic Avian influenza here and there are no cases now. Mexico, as we have all seen, has per -- periodically struggled with outbreaks of low pathogenic Avian influenza. For several years, including this year, but has been successful in keeping the virus in check through solid veterinary practices and bio security measures. Of course, we will continue to closely monitor the situation and take any additional steps we deem necessary to ensure the health of our flocks, employees and contract growers. The poultry industry here in the U.S. has an excellent track record of working cooperatively with federal, state and local authorities to contain and eradicate any diseases that have cropped up from time to time. And we will continue to do so in the future.

I'd like to conclude my remarks by saying that while we are all very pleased with our performance in 2005, you can be certain that we don't intend to rest on our laurels. Going forward, we will continue to aggressively pursue initiatives that will drive long-term sustainable growth and deliver value to our shareholders. We see many exciting opportunities ahead for Pilgrim's Pride and I look forward to updating you on our progress in capitalizing on them on our next earnings call. I'll now turn the call over to Rick for the financial analysis of the fourth quarter and full fiscal year. Rick?

Thank you, Clint. Before I get started on the financial discussion, I'd like to make a few general comments about the comparisons. First, I'd like to point out that fiscal 2004 included 53 weeks of operations, or 1.9% more time than this year's typical 52 weeks. Accordingly at times we'll be referring to comments as adjusted to make -- make compensation for this additional week. It's also important to note that that extra week occurred in our first fiscal quarter of '04 so it does not have any effect on the fourth fiscal quarter comparisons. Second, I'll be referring to the pro forma results which reflect our November 23rd of 2003 acquisition of the ConAgra chicken division on a pro forma basis and again these do not impact the fourth fiscal quarter but relative to the fiscal year comparisons as a whole.

Turning to slide 10, as of we reported this morning, we realized earnings per share of $1.12 for the quarter ended October 1, 2005, this was at the top of the guidance range that we recently issued by the Company. This compares to a net income of $1.13 or $0.99 a share when comparatively adjusted, as I will discuss later, for the same periods last year. In making our per share computations for fiscal '04 and '05 first quarter results -- or fourth quarter results, both periods had 66,555,733 average number of shares outstanding.

Included in the fourth quarter results were a few non-recurring items in fiscal 2004. Slide 12 summarizes these. Specifically in the fourth quarter of '04, we had a charge of $8.2 million or $5.1 million net or $0.08 a share related to turkey restructuring costs. Secondly, we had a recovery of $23.8 million or 14 eight million -- 14.8 million net or $0.22 a share related to our October 2002 recall of certain deli meats by the Company. When you adjust for these two items, as shown on line -- slide 11 it shows that our fourth fiscal quarter of $1.12 a share was actually a 13.1% increase over the adjusted earnings for the same period last year of $0.99.

Looking back at slide 10 for the fiscal year 2005 as a whole, we earned $3.98 a share. This compares to the $2.05 per share amount for the same period last year or $2.15 per share on a pro forma basis. In making these computations for the fiscal year ended, we had 66,555,733 shares outstanding for fiscal '05, versus 62,646,692 shares for the same period last year.

The pro forma numbers are the same as this year's current numbers. Again, if we look at fiscal years 2005 and 2004 annual numbers, as shown on slide 12, we did have a few non-recurring items that need to be looked at. The non-recurring gain items for 2005 are first an 11.7 million or 7.5 million tax -- net of tax or $0.11 per share gain associated with litigation settlements and second was a non-recurring gain of 5.3 million or 3.3 million net for a $0.05 per share gain on proceeds received from recoveries related to our 2004 turkey restructuring. Turning back to 2004, there were several non-recurring items, specifically there were non-recurring charges in costs of two items, the first was a $72.1 million or 43.3 -- 44.3 million net or $0.71 per share charge related to turkey restructuring and other related charges. And second was the Company's estimated negative effects related to the October 2002 turkey meat recall of 20 million or 12.4 net or $0.20 a share.

In 2004, the non-recurring income items were first the collection of an insurance policy related to the 2002 recall of certain deli meats of approximately 23.8 million or 14.8 million net for $0.24 a share and secondly were non-recurring recoveries from vitamin methionine anti-trust lawsuits totaling $1 million or $.6 million net for $0.01 a share. After adjusting for all these non-recurring items, slide 11 shows that our fiscal 2005 adjusted earnings were $3.82, which was 41% ecrea -- increase over the adjusted earnings for the same period last year of $2.71.

Turning to the income statement, if we look at slide 13, it shows that our sales for the fourth fiscal quarter of 2005 were essentially flat at 1 billion 482.7 compared to 1 billion 486.5 million for the same period last year. Specifically, our U.S. chicken sales were essentially unchanged, up only 0.4% on an increase of pounds of 0.4%, as well. Mexico chicken sales were up 7.8%, primarily due to a 15% increase in selling price per pound despite a decrease of 6.2% in their volume. Turkey sales were down 30.8% due to a 26.9% decrease in pounds sold and a 5.6% decrease in revenue per pounds sold. These changes are a result of last year's turkey division restructuring and production asset dispositions.

Turning to slide 14, we see that our annual sales for 2005 were 5 billion 666.3 million compared to pro forma fiscal year '04 sales of 5 billion 824.5 million, or 5 billion 717 million on an adjusted basis. Some of the breakdown specifically, our pro forma U.S. chicken sales were down approximately 1% with U.S. chicken pounds produced up 2.5%. However, when we make the adjustment for the 52 weeks that I mentioned previously, our U.S. chicken sales were actually up 0.8% and the U.S. chicken pounds produced increased 4.4%.

When we adjust for a 52-week period for Mexico sales, they were up to 13.3% with revenue per pound increasing 14.8%, offset by a slight decrease in pounds produced in Mexico of 1.3%. And as a result of last year's turkey restructuring and production asset dispositions, our turkey sales adjusted to a 52-week period were down 26.7%. This was partially offset by a 4.1% increase in our erv -- revenue per pounds sold.

Moving on to slide 15, our operating income for the quarter ended October 1 of '05 was down 16.1 million, to 119.8 million or 11.8% when compared to an operating income of 135.9 million in the same period last year. When you compare these to the adjusted operating income for the effects of the turkey restructuring and other non-recurring items, however, our operating income was essentially flat, down 0.5 million or 0.4%. For the year ended October 1, 2005 as a whole, our operating income was up 64.3 million or 170.5 million to 435.8 million compared to 265.3 million for the same period last year.

On an adjusted pro forma basis, as shown on slide 16, our operating income for the year ended October of '05 was up 52% compared to 286.8 million for the same period last year. When comparing adjusted operating income for the effects of the turkey restructuring and other non-recurring items, our operating income was up 76.8 million or 21.7% when compared to 2004 adjusted pro forma operating income. For a recol -- reconciliation of the effects of the restructuring and other non-recurring items, you can refer to our slides, 37 through 42 as posted on the web.

Slides 17 through 20 show quite a bit of summary information with respect to interest expense, income taxes and depreciation, specifically the interest expense items for the fourth quarter of 2005 decreased 1.3 million or 11.4% to 10.1 million when compared to the prior year fourth quarter interest expense of 11.4 million. As a percentage of sales, our interest expense continued to decrease to 0.7% from 0.8% for the same period last year. For the fiscal year as a whole, our 2005 net interest expense was down 12.6 million or 22.3% to 43.9 million when compared to pro forma interest expense of 56.5 million for the same period last year. And again, as a percentage of sales, our interest expense continued to decrease to 0.8% from 1% last year.

Our income tax for the quarter ended October 1st of '05 was 34.6 million on net income before tax of 109.3 million or a 31.7% effective rate. This compares to a prior year fourth quarter actual income tax expense of 46 million on net income before tax of 121.3 million or a 37.9% effective tax rate. Income tax expense for the fiscal year 2005 as a whole was 138.6 million on net income before tax of 403.5 million or a 34.3% effective tax rate, compared to a pro forma income tax expense of 89 million on net income before tax of 231.9 million or a 38.4% effective tax rate in the prior year.

Our balance sheet, looking at some of the balance sheet highlights, on slides 21 and 22, you can see a comparison of our current outstanding debt agreements compared to those that existed at the end of our prior fiscal year. Our total debt during the year reduced slightly, decreasing 16.8 million to 527.5 million from 544.3 million at the end of the prior year. At the end of the fiscal 2005, our outstanding debt is made up of 8.6 million in current maturities and 518.9 million in long-term debt. We currently maintain 160 million -- 68 million in revolving credit facilities, all but 34.2 million is available to the Company and a 500 million secured revolving term debt agreement, which is also available to the Company. We have, additionally, 125 million capacity in our accounts receivable securitization program, which is all fully available and accordingly, if you aggregate all of our -- of our outstanding facilities, previously mentioned, we have a total availability under these agreements of approximately 758.8 million and if you add our reported cash of 132.6 million to these amounts, our total liquidity was approximately 891.4 million, this is up slightly, 74.7 million increase from where we were last year at 816.7 million.

One item to note in our condensed, consolidated balance sheet, that as reflected in our press release, is a shift that took place this quarter between cash and other assets. Specifically we had moved 304.6 million of cash into long-term securities available for sale. As most of you are, I'm sure, are aware, on August 3rd of '05, we entered into back-to-back trade for the remaining 15.4 million shares of stock, previously held by ConAgra Foods, thus releasing them from the lockups expiring in December of '05 and December of '06. We determined it was in the best interest of our continuing shareholders that this overhang be removed and that by going early, we were able to have full control over the timing and the distribution process while at the same time capturing the option and the present value benefits we held for our stockholders. The effects of the sale on our stockholders was first, again, to control the process, was second a 60% increase in our float from 25.5 million to 41 million shares overnight and as a result of that, since August 4 of '05 our average daily trading has increased to 798,000 shares per day from 411,000 for the same period prior to the trade. The option and present value created that we realized for our stockholders was approximately 40.5 million. Again, that was from a block sale of the 15.4 million shares at a 9.5% discount from the market at that time. And a repurchase of the same amount of shares from ConAgra at a 16.5% discount from the market at the same time.

If you look at slide 23, it shows that our net worth for the year reached over a billion dollars. It actually increased 300 -- 300.6 million from the end of the prior fiscal year and 113 million over our fourth fiscal quarter '05 to 1 billion 223.6 million. And again, this was due to a combination of our results from operations as well as the 40.5 million block trade gain previously mentioned.

Looking at some of the cash flow highlights that are shown on pages 17 through 20, our depreciation amortization increased 15 million to 40.7 million. This compared to 25.7 million in the same period last year. For fiscal year 2005, as a whole, our depreciation amortization was 134.9 million compared to the prior year pro forma amount of 120.8 million or 113.8 million on a reported basis.

Slides 23 and 24, we have provided a summary of our credit ratios and certain other information. Pointing out a few items on this ratio page, we show that our EBITDA, interest expense, is 12.82 times our current -- for the current fiscal year. Our debt divided by EBITDA now stands at 0.94 and our total debt to capitalization is 30.1%. On a net of cash basis, our debt-to-cap is 24.4% and our net debt-to-EBITDA is 0.7 times.

Turning to slide 25, you can see a comparative of our capital expenditures which increased 2.6 million to 26.4 million in the quarter. This compared to 23.8 million in the same period last year. For all of 2005, our total capital expenditures was 116.6 million compared to 83.6 million or 79.6 million on a reported basis. Our stock trading ticker symbol of PPC which closed at $32.83 last Friday was up 19.86% for fiscal year 2004 when our stock traded at 27.39 and up 7.01% since the beginning of the calendar year.

Turning to our fiscal 2006 forecast, I'll now review some of the information that's contained in our outlook. As we announced this morning, our chicken business continues to perform well. However, as noted in the comments this morning, we do have some amount of anxiety over the export markets as they're absorbing the effects of the A ou -- A.I. outbreaks in Asia and Europe. However, overall, we believe that this will be a potential positive for the U.S. exported products. Additionally, while we're encouraged by the recent directional movements we've seen in crude oil and natural gas, diesel fuel, which is our main transportation of fuel, has remained at a more heightened level and accordingly at these times we are still proj -- projecting higher petroleum and ener -- energy-related costs, including polywrap and packaging items, will have year-over-year increases when compared to 2005. Especially during the first fiscal quarter.

Additionally please note that the following eardings -- earnings guidance does not consider the tax effects, if any, that could result should we -- the Company decide to repatriate previously untaxed earnings and profits from its Mexican operations under the American Jobs Creation Act of 2004. We currently estimate that approximately $250 million of untaxed earnings and profits exists in the Company's Mexico operations. And any decision to repatriate such earnings will be made on or before the end of fiscal 2006. Accordingly, as shown on slide 26, at this time, we are estimating our earnings for fiscal 2006 as a whole to be in the range of $3.50 to $4 per share. This range compares similarly to our just-completed fiscal 2005 results, which were 2 -- $3.82 when adjusted to exclude the non-recurring gains realized during this year as noted previously.

For the first quarter of 2006, as shown on slide 27, we estimate our earnings to be in the range of 0.75 to $0.85 per share. This range compares favorably to the just-completed fiscal quarter of $0.73 per share or $0.72 per share on an adjusted basis. The U.S. and Mexico sales are estimated for the year to be 5 billion 150 to 5 billion 350 million and our Mexico, 445 million to 455 million respectively. According our total -- total sales, are estimated to be 5 billion b595 to 5 billion 805. For the first quarter of fiscal '06, our U.S. and Mexico sales are estimated to be at 1 billion 265 to 1 billion 330 and Mexico 1 billion 05 -- excuse me, 105 million to 111 million respectively.

On the production side, our projections show that our total productive volumes will be about 5.5 to 5.7 -- 7 billion pounds in the U.S. and Mexico pounds are expected to be 650 to 660 million pounds. For the first fiscal quarter, U.S. chicken per volumes are estimated to be 1.3 to 1.4 billion pounds and Mexico pounds of approximately 162 to 106 -- 172 million pounds. Our cost of sales for the quarter and for the year will be in the range of 0.87 to $0.89 -- 87 to 89% of sales. Our SG&A is projected to be in the range of 5.4 to 5.6% of net sales. Giving us projected operating margins of 6.9 to 8.1% for the year and 6 to 7% for the quarter. Our net interest expense for the year and the quarter is estimated to be between 39 and 41 million for the year and approximately 10 million for the quarter. Our estimated effective tax rate will be in -- in the range of where it was this last year, we're projecting in a range of 33 to 36%, again, assuming no repatriations of Mexican earnings were made. Our estimated capital expenditures will increase back to the levels we started out at for fiscal year 2005 at 180 to 200 million compared to the 116.6 million recognized this year. Our depreciation expense will be about 2.6 to 2.7 million per week and I believe this gives all the different components we need to analyze our earnings guidance and again, slide 26 and 27 shows the breakout by our -- our different segments.

That being said, I'll turn it over to the operator and we'll answer any questions you may have.

(Operator Instructions) The first question is from David Nelson. You can ask your question.

Good morning.

Good morning, David.

Good morning.

The -- first of all, to try to clarify the -- the '06 guidance, if you look at the cost of goods sold, 87 to 89, call it to mid-point 88% and then G&A 5.4 to 5.6, call it 5.5%, that seems to imply an operating income, again, on the mid-points there, of 6.5% and the guidance there on the operating line, slide 26, this 6.9 to 8, which is 7.5. So, I guess I'm a little unclear. Are you guiding toward a full year operating income margin of 6.5% or 7.5%, again, as a mid point of the range?

Yes, now, we're -- we're guiding towards the 6.9 to 8.1 for the year as a whole. So, 7% roughly.

7.5%.

Yes, for the year as a whole. That's right.

So then is SG&A, is that -- what -- I guess that implies that your COGS number or your -- or your G&A number is -- is too high?

The G&A number will be in the 5.4 to 5.6. I'll have to take another look at the COGS number and see -- see if there's where there's a change. But -- I believe the numbers come out to somewhere in the 88% range on COGS. So --

Yes.

I think it all works. It's just a a matter -- it has to do with which -- which ranges you pick up for SG&A and which ranges you pick up for income tax expenses to how you get there.

Bottom line, it's the 6.9 to 8.1 for operating margin.

Exactly. Exactly.

Okay. And then I guess in -- in terms of thinking about the markets, your-- your exports, you expressed, I think the word was anxiety. What are you seeing in export demand -- not that Europe is a market, but I'm hearing reports that demand for chicken Europe and -- and also in China have dropped off sharply. Have you heard that or are you seeing things around the world and that's what's giving you this anxiety?

Well, we're certainly picking up on the same reports that you're seeing, that there has been some disruption in some countries. We --we still feel this is short-lived and that order on the demand side will come into play -- in fact, we're already seeing that in some countries and -- and we feel like that this is somewhat short-lived in some of the disruption.

Okay. Then I guess closer to home on the -- turning into the time period when you sign your critical foodservice contracts for the -- for the coming year... All I can look at is the -- the wholesale breast prices at Georgia Cock or Enterberry (ph), they -- they do seem to be declining quite sharply over the last few weeks, but I guess given your guidance, you think your margins will be-- hold in pretty good over the coming year for foodservice for your breast meat?

Well, you know, again, we're not a large seller of commodity breast meat and even though that has some bearing, we've been able to tie up about 60% of our fixed contracts at similar levels to a year ago --

60%?

About 60% of our prepared foods, fixed contracts are now signed and we have another 20%, I believe, that will be negotiated over the next couple of months.

And that -- when you say flat, that's at flat pricing, but probably higher margin with feed cost down -- would that be a correct assumption?

Not necessarily, David. I mean there's other compensating costs that -- that you have to be adjusted for, in particular, all the petroleum-related costs, you know, are negatively affecting anything and, you know, feed ingredient costs, I think the way we look at it is the outlook from the USDA right now shows it would be a slight decrease, but I think in the end we're projecting somewhere in the flat range.

Okay. Thank you very much.

The next question is from Ken Zoloff. You can ask your question.

Morning. I think that's me!

Hey, Ken.

How are you? A couple of questions. Looking at your sales forecast and -- and -- and going on to David's question, your pricing contract, you just said that 60% of that is flat, but if you look at your guidance, it looks like you're going to get between call it 0.6% and a normal 3% pricing. Is that the way to look at your guidance for the U.S. chicken?

Now, we have -- we have volume increases, as well, scheduled in there.

Right, but if I take that out, it still looks like -- I can follow-up offline, but it looks like there's still some pricing -- positive pricing on the U.S. chicken side. Is that not what you're thinking?

Well, you know, I mean the mix as a whole last year, as -- as O.B. mentioned, was basically flat with 2005 and I -- and we continue to try to increase our prepared food mix as a percentage of our total mix. I think you're just seeing some of that roll through the numbers.

Okay. And --

Tho -- those are obviously higher dollar sales than just the same units last year.

Okay. So that's -- okay, that makes sense.

Yeah.

On the hedging side, is there any expectations to start hedging at these levels or are -- are you still going to stay open on your contracts?

We'll continue to be opportunistic and, you know, we'll look at it -- you know, on or before the end of the year and again after the first of the year, but right now, you know, we -- we're in the same position we have been for the last two years.

Okay. And on the turkey side, what is your expectations for profitability throughout the year? It still seem -- on the sales line, it still seems like it's coming down pretty rapidly. Is there a point in time where we're going to see an inflection point that you could actually make a profit?

Well, we are contemplating to be on or around that range for the first fiscal quarter. But, for the year as a whole, we get -- like we said before, we don't think we'll be to a break even until towards the end of that year. So --

But for the whole year, still a loss?

Yes. Yep.

And just one last -- making sure I understand the guidance, we should not be taking the mid point of your assumptions, we should be taking the more or less the -- the operating income guidance because if you go through your assumptions and you take the mid point, you get a lot lower --

Yes -- yes you do. You got to -- you got to have to kind of mix and match because they're not -- they're not congruent from top to bottom on mid points all the way. So you -- that's exactly right.

Right. Thank you very much.

The next question is from Andrew Lazar. You can ask your question.

Good morning.

Good morning.

Hey, Andrew.

How are you? Just two things, one is can you give us a sense of where you are now as sort of percent of sale -- of sales with respect to kind of prepared foods? What the change was in that percentage '05 versus '04 and what we'd expect for that going into '06?

Yes, let me see here . On the year -- we ended up the year just slightly ahead of last year in terms of chicken sales. Our prepared foods were a little over -- just under 43% compared to this -- about 42% of last year.

Got it. And I think you -- I could be wrong, but perhaps had seen that increasing at a -- or that percentage increasing year-over-year at a faster rate than maybe it did in '05. Is that just -- can we get into why that was? And if you'd expect that to accelerate in '06?

In '05 we did a lot of -- of product mix movement between some of the different facilities we acquired of ConAgra, more so than volume growth. So, our overall volume growth was not -- was not much at all in fiscal year 2005 in prepared foods.

It was all purely mix, as you talked about.

Most of it was mix, yes. Whereas 2005 -- or 2006 we hope to get back on our -- our intended growth plans.

And then can you talk a little bit about maybe some of the -- the year-over-year swing factors going into '06 versus '05 that are, more controllable by you, so, whether that be where are you in terms of your expectations for, productivity initiatives and efficiencies, incremental opportunities going into '06, things of that nature that you kind of know you kind of have or have a good read on at this point?

Well certainly, we continue to focus on the synergies that we were able to bring to the table with the ConAgra chicken division acquisition and we've identified a lot of projects that we just haven't had time to implement. If you look at our capital expenditure last year, it had -- we were projected to spend more capital than we ended up spending. That number has increased this year because we do have those projects identified and on track, so, you will see some investment in some labor-saving equipment in addition to equipment that will allow us to improve product mix.

And are those efficiencies sort of quantifiable at this point? Or is that other thing you'll update as you go through the year?

We do not have those numbers pulled together. We certainly have identified the individual projects and -- and the efficiencies they bring. We have not totaled those to date.

Okay. Thanks very much.

The next question is from Diane Geissler. You can ask your question.

Good morning. I just have a couple and then I think Len would like to ask a few. If I just look at the energy pricing in dollar terms, you've -- you've given a great break out here of kind of what your expectations are for the next couple of quarters. But, can you just give me an idea about,what percentage to cost or sales, however you quantify it, energy is?

You know, the identifiable costs, Diane, are in the 5 to 8% range of cost of goods.

Okay.

So -- and closer to the 8% recently, you know, hopefully get back down to closer to the 5%.

Okay. And could you just talk a little bit -- I mean what -- just to follow back on the whole -- the turkey question with your guidance for '06 revenue down substantially, I mean where -- what side of the business is that coming out of? And is that a business that you -- you see yourself being in long-term? It's just -- just -- it's basically been a negative since you acquired it. Is there at some point where you -- you feel like you just --it's -- it's too small a business for you to be in and you'd rather focus on your -- your chicken business? Or -- some comments there?

Well,we're going to continue to, do everything we can to make that business a profitable business, but part of the -- the decrease you're seeing on the sales has to do with, residual carryover from last year's turkey restructuring. When we disposed of the commodity plant to the Virginia co-op at the end of fiscal '04, we had heightened levels of inventory in -- in our hands that we had to liquidate. That was in the 30 to $40 million range. So, there was no replenishment of those sale dollars going back into the equation. And that's really what you're seeing year-over-year between the outlook for '06 versus '05. This is really a steady state, if you will, with our existing business.

Okay, so the one --

As opposed to having impact from the one we had before.

The 150 to 160 should be viewed as the base?

Yes.

Okay. And I guess the -- the other question I had was the tax rate seemed to be lower than what I had been anticipating and your guidance for '06 certainly is sort of below what your long-term -- or your historic long-term average tax rate has been. Could you give us some details about what your -- is it tax-planning? Or mix of business? Or what?

Well, again, for the quarter, we -- we had a -- kind of -- when we updated our earnings guidance a couple weeks ago, we noted that our -- our Mexico operations held on stronger into the quarter than what we had anticipated and that contributed in part to the decreased effective tax rate for the quarter. Beyond that, we did have some income tax provision changes having to do with prior year items that were cleaned up as we -- we finished the year-end. A lot those related to Mexico, primarily, as well. So, lot of this year-end, trueups of the deferred tax accounts, but, the takeaway was that it Mexico's performance driving that effective rate and the same thing for next year with Mexico's profitability -- it's still expected to come down from this year's levels but it does help on the effected tax rates.

Okay. All right. Len -- Len, are you on the line?

Yes, I am. Hello?

Yes, hey, Lenny.

Hello. How are you? I just have a couple of questions. First of all, I think you guys ought to be congratulated for this level of detail you put out. I think it really is a standard and I wish more companies did it. So, that, at least from my viewpoint, I -- I think you ought to be congratulated on that. Second of all, I -- I -- Rick, I understand that it's a mix and match. Cause as I think you've said, if you take the middle range of everything and you go down, you get a -- a number substantially lower than the low end of your range and I guess that's going to be up to us to try and -- and -- and figure out which ones to take and pick. But in this number, are you assuming any share repurchase at all?

No.

Okay. So -- so at least that'll be flat for next year.

Yes, that's right.

Well, it was -- I was under the impression, perhaps I was wrong, that Mexico kind of surprised everybody on how good it was this year. And to get to these numbers, don't you have to assume it's also going to be pretty good next year? Certainly from the revenue it would indicate that?

Yes, we are -- we are projecting a good year for Mexico. More in line with normal, maybe above normal, I think typically we say we do 15 to 20 million operating income in Mexico this year it was in excess of 40. So, I think we'll be, less in the 40, but probably in the 25 to 35 million range is -- is more the line.

Okay. And the reason for that?

Still projected to be a good year.

And the reason for that -- what is, Rick?

Aga -- again, we just see the economy in Mexico continuing to grow at about 5 to 6%. We see good -- good demand for products, you're going into an election year in Mexico which is always good because there tends to be a lot of government spending, if you will, that makes the economy work out well. So, '06 should be another good year. Falling into more typical cycles, but maybe not quite as robust as they were last year.

Sure. Now, you know, we'd always been talking in the past that an average operating was around 7%. It looks like we're returning to normality here. If that were the case, would this be sort of the peak in the cycle that we see coming up or have we -- sort of let me rephrase that, it looks like we've almost peaked and trending back to normality. Is that a -- is that too negative a way to look at this?

Well, I think we're definitely catching our breath a little. More so, I think, because of all the external factors that have been put into play recently, causing -- causing concern. You know in terms of a peak it wasn't a peak operating for us, you know, our peak actually happened back in '99, I believe but it was our second best year for operating margins. And, you know, I think where we're forecasting this year, basically is in line with the same number a year we had last year. So, you know, it's not necessarily a -- a peak like I mentioned, but -- but very consistent years, '05 versus '06, unless something changes outside of what we're expecting.

Yes, I guess the broader point that I'm getting to is that we're looking for this thing to sort of get to struggle say above 7% and then we're in that 7% area for awhile like we have in past cycles? And I guess maybe that's something we ought to follow-up offline. One final question to you is that if we -- if we work these numbers hard, you know, you get a number like around 320, 330, somewhere in that area at the low end. Presumably, that's, as far as you're concerned, off the radar. Is that a -- is that a

Yes, that -- that's right.

I don't want to put words in your mouth here, but if we just use -- as I said if we say that mid point all the way down, then we -- we would come up for that. I -- I presume that -- that a possibility? Or is that just really not going to happen ?

No, I think --I think -- I think the other question was more in line with the right way to look at it and that is to look at the operating income numbers and then based on that, as you've seen, our -- our numbers tend to -- some of the numbers will tend to fluctuate, whether they're SG&A or income taxes or, you know, at times, cost of goods sold, you know, depending on whether that -- the sales levels are at the high end. You might see some of those numbers be higher. Versus if there's low end, they might be lower. So I don't think you can necessarily use the mid points and try to drive the numbers. You really need to look at the operating incomes.

Thank you very much.

Okay.

The next question is from Pablo Zuanic. You can ask your question.

Good morning, everyone.

Hey, Pablo.

In what I'm trying to think of a cycle, and I'm just trying to get a handle here in terms of how this beef prices play into this? Because I understand the production has remained stable now for a couple of years. There's been plenty of arguments given why the industry seems to be more disciplined, but, you know, what's helping the cycle stay here? Because we can talk about that this is near peak, but what's helping it stay here? The production side seems -- seems fine, stable. What happens when beef prices start to come down? I mean is that the main variable I should be looking at when I begin to get worried about the cycle for chicken?

We -- we didn't include that analysis that we had shown in the past about, you know, how beef prices had gone up and chicken prices remained relatively flat. But I -- I think that's the general takeaway. Is that we didn't -- we didn't see the total basket price of chicken necessarily be affected by the run up in the beef prices and I think on the way down we'll be, you know, a little bit isolated from that, as well. So I don't think that's necessarily the right correlation. I think like we mentioned in the past, it's really has to do with what is going on in the -- the foodservice business, where they are featuring, as well as on the retail. And so, you know, we're -- we -- as you can see, 80% of our sales comes from foodservice. And so, if the foodservice operators promote anything other than chicken, obviously that's taking away from the stomach consumption. So, that -- that's a concern to watch out for. You know, I think some of the operators who maybe did not promote chicken as much as they did the prior year, they saw that their same-store sales and their operating performance actually decreased this last year. So, hopefully there's a lesson taken away from that. If they want their ring levels to stay up, they're a lot better off promoting chicken items than they are a $0.99 hamburger.

That's very helpful. And just, you know, coming now into the -- into the -- the season, you know, [INAUDIBLE - heavy accent] contracts, a couple of things there. First of all, when we see the decline in breast prices over the last two months, how much of that is seasonal? And how much of it is really just weaker demand? And related to that, what's the favor that your customers, the foodservice operators, the retailers are giving you regarding Avian influenza, do you think that -- is that a tool that they a re using to put pressure on you guys when it comes to negotiating prices?

You know, our customers are telling us they're not seeing any pullback from their consumers in -- in purchasing chicken. The -- the drop in breast meat prices -- you know, you're we're coming off of a record high year. I think what we're seeing now is some seasonal drop and-- and lack of demand and that you'll see after the first of the year prices a little more normalized and demand increase as it seasonally does.

All right. And then just one last -- one just last question. Regarding M&A activity, normally we see there's more transactions at the bottom of the cycle but perhaps some of the mid-size operators getting concerned about Avian influenza, do you see more opportunities over the next 12 months or it can likely it could be a deal over the next 12 months in terms of conciliation?

Yeah, I mean as we said in the past, we don't really comment on anything specific regarding M&A until we have something to announce. But, in terms of the environment itself, I think the environment, you know, is -- is becoming more and more conducive to -- to companies considering things or has been certain companies, I think in the -- in recent past that have explored selling their operation and -- and, you know, those might or might not go through. But I think you're starting to see some of the flavor return. So, it's just a wait and see attitude. I guess the great thing from our perspective is our balance sheet is as strong as it's ever been. So we're in a great position to -- to be able to look at things as they come up, even if they're small things, like the processing plant we bought from Lane, you know, relatively small capital outlay, but incrementally it's going to add some good value to us. I remember a few years ago, we bought an operation from Cargill in Waco. And at the time it -- it was producing 15 million pounds of prepared food product. Today that product -- that plant's producing 150 million pounds. So when you look at something like the Bossier City that's producing 50 million pounds, you know, there's always opportunity for us to use that as a basing point to continue our growth.

Thank you.

The next question is from Reza Vahabzadeh.

Good morning.

Good morning.

Hey!

The cash on hand and the marketable securities that you have on-hand is there a -- is there a particular use that you -- you would attach to that healthy amount of liquidity? Or -- or is that just to, you know, stra -- maintain a strong balance sheet?

Well, again, it's -- it's to be in a position opportunistically to take advantage of either internal or external growth and as we've mentioned in the past, you know, in terms of our outstanding public debt, we have September of next year, we have the first call of our 300 million 9 and 5/8 notes. And, not saying we will or will not call them at that time, but depending on our cash position, we'll take a very hard look at that. So, we -- we do have plenty of uses for the cash --

Got it. And then on CapEx for '06, kind of '07, what's the right level of spending on the CapEx front? Including, you know, plant acquisitions here and there?

Well, there's no acquisitions built into those numbers. So, those are internal growth and I think we will be in that level for the next few years, in that 180 to $200 million per year for the next few years.

And I'm sorry, where is your capacity utilization today?

Processing wise we're generally at 100%. On our prepared food operations, we're probably at 85 --

Yes, 85 now with the Bossier City acquisition that's giving us a little more capacity.

But -- but we count capacity as running six days, two days a -- two shifts a day. So, on a normal five-day work week, a lot of people would look at that as 100% capacity, where we don't.

Gotcha.

[INAUDIBLE - two people speaking] in the prepared foods area.

Fair enough. And then on the top line, did -- di you talk about what kind of preferred -- preferred food volume you expect for fiscal '06?

No, we didn't. But, you know, it'll -- it'll -- it'll be our growth rate hopefully this year in that 5 to 10% range again.

Okay. And what -- and what kept that growth rate slower in -- in FY05? Is it just all integration you were going through with ConAgra?

It was -- it was part that and then also it was some of the foodservice customers that were our con -- customers actually did not have the same kind of pull they had in the prior years. So, some of the comments I made earlier about not featuring enough chicken I think can hurt you.

Gotcha. Fair enough. Thank you.

The next question is from Pen Jones. You can ask your question.

Thank you. Just following up, what is the capacity and utilization, do you think, for the industry as a whole right now?

I would think on the slaughter basis it's got to be 97 to 100%.

Right. Okay, and so that -- that then kind of jives with the -- the outlook that the breeder flock is going to be down a bit and that broiler slaughter is -- is not going to be up that significantly in '06? It's just people are fairly maxed out at this point?

I think that's correct. Barring, you know, new facilities. We -- you know, we know that one of our competitors is adding a facility in south Georgia that is actually online partially, it will be ramping up over the next year but, you know, there's just not been a lot of people looking to build new complexes and that's good news for the industry.

Right. Okay. Great. And then in terms of the pricing based on Georgia dock, can you remind us again how much of -- of Pilgrim's total sales, both foodservice and -- and retail are -- are tied to the Georgia dock price?

25 to 30% is a number that comes to mind.

It's primarily the -- the fresh -- in our table, if you look at our fresh table.

Uh-huh.

Where it's got foodservice and retail, the bulk of that is Georgia dock based.

Okay.

So -- and then when you get up into the prepared foods line, you got foodservice and retail. The bulk of all of that is fixed price contracts. So...

So that would mean --

And then when you get down to the export and other in our sales table, excluding the == the line of prepared food export, the export and other is primarily dark meat, leg quarter price. So --

Right. Okay. But the prepared foods via the -- the foodservice channel, is that --

That's fixed price.

That's fixed price -- and -- and

For the most part.

And off of the -- the Georgia dock, for the most part.

No.

No, not necessarily?

It's negotiating contracts. That's in -- That's in that line that we referred to earlier that we -- we basically have our contracts priced about 62% right now of our prepared food products. So, you can look at that in total category of prepared foods we have about 62% of that under contract, as O.B. mentioned and then, you know, the next two months, we'll finish out another 20%.

Right.

And then that's the bulk of the annual contracts in prepared foods. So, you know, there's -- there's a little bit more, obviously, that -- that gets spread out over the rest of the fiscal year but by the -- by the time we get to December, we'll have in excess of 80% locked in.

Okay. Great. Thank you very much.

The next question is Farha -- from Farha Aslam.

Hi, good morning.

Hi, Farha.

Hi. Just some clarifications on turkey. So, in fiscal '05, you're looking for maybe on the operating profit line kind of a minus 5, minus 10-type number for turkey?

Yep.

And then looking out into '07, you're looking for kind of break-even?

Yes.

And then --

Break even to profitable, I think. We don't have an '07 guidance, but we believe by the time we get to the end of '06 we'll have that back into a -- a break-even or better operation.

Okay. And then mo -- Mexico, you shared us our '06, looking into '07, just that's a more cyclical business so would you anticipate that kind of returning to that 20 million, $25 million level in '07, just because of cyclicality?

Looking out -- looking out more than a year in Mexico is -- is like looking out five years, so --

You and me both! [ laughter ]

One year is like three years. So...

And so that -- that would just kind of try to get a range for your tax rate. You'd anticipate that tax rate to pick up as Mexico pro -- profitability comes down. Would you say that's right?

That's right. That's right. That is exactly right. Our -- our U. -- U.S. effective tax rate, you know, is generally statutory plus, you know, a state tax impact of 2 or 3%. So, you know, there's nothing really unique about our U.S. effective tax rate.

Okay.

All the var -- all the variability really comes from the Mexico side with their profitability, which divisions it's coming from and then the flationary accounting and things like that that make it a lot more -- more difficult.

Right. And then looking at your interest expense this year it kind of came in below what my expectations were. Looking out, are you planning to pay off a significant portion of debt? And how much of your interest rate is fixed versus variable?

It's -- it's almost all fixed right now, there's very little that's variable. Probably 85, 86% fixed right now. The rest is -- there's a -- there's an insurance element that's got some variable to it but in terms of paying it off, as I mentioned, we'll continue to look at the -- the options in terms of paying it off, but that's not forecasted in those interest expense numbers.

Okay, so, going ou -- looking out into kind of the future, do you anticipate interest expense to be relatively flat or up over the next year or two? Beyond '06?

'06, pretty -- pretty flat.

Okay. And final question, just recently, you've talked about your export sales looking forward. Do you anticipate a recovery from A.I.? But just in the last month or so, have you seen those export volumes, particularly to Russia, decline, change at all? Can you give us color about the near past?

In the last couple of weeks, we've seen some disruptions in -- in the marketplace. And again, those are starting to improve and we're exporting to over 70 different countries. So, a lot of different restrictions and consumption pattern changes that -- that impact our exports. But again, we think these disruptions are very short-lived and think that order is coming back into the marketplace. I mean if you look at the facts, even though you have Avian influenza in birds, which we've always had, starting to spread a little, there's been no change in the transmission of this disease from birds to humans and certainly no change in it mutating from humans to humans. So, the facts are that if you properly cook the poultry, it is not harmful. Now, the U.S. poultry supply is deemed to be the safest in the world. So, we feel like that bodes well for the U.S. industry going forward.

Great. Thanks for your help.

You bet.

The next question is from Diane Geissler. You can ask your question.

Actually, it's Leonard Teitelbaum. Just one quick follow up here. If we were to hear from some of the -- the fast food restaurants or let's call it the restaurant industry that their prices were actually lower going into '06 than they are now, the import would be they're not buying from you. Is that a -- is that a true or not true statement, Rick?

Which fast food are you talking about?

Well, your -- let's -- let's say some quick service restaurants that, you know, we thought you might have been supplying product to. If they're saying their breast -- their poultry prices are down, you're saying they're flat, I'm just trying to figure out what -- what, where to go here?

I mean on the -- on the -- the foodservice contracts that are Georgia dock-based, so, the fresh foodservice, you know, those are going to be tied to the Georgia dock with some kind of a formula for the most part?

So, those would be down?

Not much. But, yes, it depends on what's going to happen with the Georgia dock.

Sure.

In terms of the prepared food contracts, you know, I think we've -- we have seen some decrease in selling prices on some of the contracts, although modestly. But in terms of our -- our total net revenues that we're going to take away, we're -- we're extremely pleased with the positions that we're coming out. So --

Okay. And -- and, you know, if we assume that some of the speculative bubble blows out of the markets and we get back to as you were saying a USDA projection, it would seem like we get the commodity-plus for this year margins flattening out. It just -- it just feels you guys have been in the business for a long, long time. It just feels to me like we've had a pretty good run and to use your term, we seem to be catching our breath. I don't know if that's a one-year or two-year thing, maybe we ought to follow up online. But it seems like we've had a pretty good run and maybe this is the pause here. That what's it feels like to me. Is that too negative?

This is a great place to pause, at 3.50 to $4. We're very happy --

Listen, I'll tell you something, I hope you get it because my numbers look lower. All right. Thank you very much. Good luck to you.

We have a question from Igor Elesten. You can ask your question.

Yes, thank you. My question is on the capital expenditure side and kind of the delta. Maybe I missed that. You -- you -- did you say you're projecting 180 to 200 for '06?

We did, yes.

And for '05 that was around 120?

116, yes.

Okay. And what -- what's -- what is the delta coming from?

Well again, it's just different products that we've got planned for this next year that we'll be investing in. So, across all of our different business units and we generally don't go into those in specifics.

Okay, just seems a tad on the large side. So I was wondering if there's anything specific to '06 --

We will generally spend, again, looking out, we'll -- we'll manage CapEx on a very judicious basis but I think our outlook for planned projects will be in that 180 to $200 million range and if we come in inside of that, that'll be great, but don't be surprised if that's the number we hit.

Got it and to follow up on that, what's the free cash flow expectation for '06?

EBITDA -- EBITDA is going to be, you know, not a whole lot different than what we saw last year, it comes down a little bit if you look at the guidance we gave and the only net delta really is that CapEx. So, you know, we'll -- we'll lose say another $80 million to our free cash flow. Current maturities is only $8 million.

Okay. Got it. Thanks a lot.

You bet.

There are no other questions in queue.

Okay. Well, we appreciate everybody's attendance and look forward to talking to you all at the end of our first fiscal quarter. Thank you.