10-K 1 body_10k.htm PILGRIM'S PRIDE CORPORATION body_10k.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
____________________

FORM 10-K
____________________

(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 29, 2007
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the transition period from
 
to
   
Commission File number 1-9273

Corporate Logo
PILGRIM’S PRIDE CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
75-1285071
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 
   
4845 US Hwy 271 North
 
Pittsburg, Texas
75686-0093
(Address of principal executive offices)
(Zip code)
   
Registrant’s telephone number, including area code:  (903) 434-1000
   

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, Par Value $0.01
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:  None
 


Pilgrim's Pride Corporation

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  x      No  ¨
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes  ¨      No  x
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x      No  ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer” and “large accelerated filer” in Rule 12B-2 of the Exchange Act.
 
Large Accelerated Filer  x  Accelerated Filer  o  Non-accelerated Filer  o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨      No  x
 
The aggregate market value of the Registrant’s Common Stock, $0.01 par value, held by non-affiliates of the Registrant as of March 31, 2007, was $1,340,874,524.  For purposes of the foregoing calculation only, all directors, executive officers and 5% beneficial owners have been deemed affiliates.
 
Number of shares of the Registrant’s Common Stock outstanding as of November 13, 2007, was 66,555,733.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
Portions of the Registrant’s proxy statement for the annual meeting of stockholders to be held January 30, 2008 are incorporated by reference into Part III.

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Pilgrim's Pride Corporation

PILGRIM’S PRIDE CORPORATION
FORM 10-K

PART I
 
   
Page
Business
4
Risk Factors
23
Unresolved Staff Comments
32
Properties
33
Legal Proceedings
35
Submission of Matters to a Vote of Security Holders
38
     
PART II
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
39
Selected Financial Data
44
Management’s Discussion and Analysis of Financial Condition and Results
 
 
of Operations
47
Quantitative and Qualitative Disclosures about Market Risk
66
Financial Statements and Supplementary Data (see Index to Financial Statements and
 
 
Schedules below)
68
Changes in and Disagreements with Accountants on Accounting and Financial
 
 
Disclosure
68
Controls and Procedures
68
Other Information
72
     
PART III
 
Directors and Executive Officers and Corporate Governance
74
Executive Compensation
74
Security Ownership of Certain Beneficial Owners and Management and Related
 
 
Stockholder Matters
74
Certain Relationships and Related Transactions, and Director Independence
74
Principal Accounting Fees and Services
75
     
PART IV
 
Exhibits and Financial Statement Schedules
76
 
83
     
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
 
86
87
 
88
 
89
 
90
91
 
118

 
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Pilgrim's Pride Corporation

 
Item 1.
Business
 
(a)  General Development of Business
 
Overview
 
The Company, which was incorporated in Texas in 1968 and reincorporated in Delaware in 1986, is the successor to a partnership founded in 1946 as a retail feed store.  Over the years, the Company grew through both internal growth and various acquisitions of farming operations and poultry processors including the significant acquisitions in fiscal 2004 and 2007 discussed below.  We are the world’s largest chicken company and have one of the best known brand names in the chicken industry.  In the U.S., we produce both prepared and fresh chicken and fresh turkey; while in Mexico and Puerto Rico, we exclusively produce fresh chicken.  Through vertical integration, we control the breeding, hatching and growing of chickens.  We also control the processing, preparation, packaging and sale of our product lines, which we believe has made us one of the highest quality, lowest-cost producers of chicken in North America.  We have consistently applied a long-term business strategy of focusing our growth efforts on the higher-value, higher-margin prepared foods products and have become a recognized industry leader in this market segment.  Accordingly, our sales efforts have traditionally been targeted to the foodservice industry, principally chain restaurants and food processors, and have more recently been targeted to retailers seeking value-added products.  We have continually made investments to ensure our prepared foods capabilities remain state-of-the-art and have complemented these investments with a substantial and successful research and development effort.  In fiscal 2007, we sold 7.7 billion pounds of dressed chicken and 151.7 million pounds of dressed turkey and generated net sales of $7.6 billion.  In fiscal 2007, our U.S. operations, including Puerto Rico, accounted for 93.3% of our net sales, with the remaining 6.7% arising from our Mexico operations.
 
Recent Business Acquisition Activities
 
On December 27, 2006, we acquired a majority of the outstanding common stock of Gold Kist Inc. (“Gold Kist”) through a tender offer.  We subsequently acquired all remaining Gold Kist shares and, on January 9, 2007, Gold Kist became our wholly owned subsidiary.  We sometimes refer to this acquisition as the “fiscal 2007 acquisition”.  For financial reporting purposes, we have not included the operating results and cash flows of Gold Kist in our consolidated financial statements for the period from December 27, 2006 through December 30, 2006. The operating results and cash flows of Gold Kist from December 27, 2006 through December 30, 2006 were not material.  Gold Kist operated a fully-integrated chicken production business that included live production, processing, marketing and distribution.  This acquisition has positioned us as the world’s leading chicken producer, and that position has provided us with enhanced abilities to compete more efficiently and provide even better customer service, expand our geographic reach and customer base, further pursue value-added and prepared foods opportunities, and offer long-term growth opportunities for our stockholders, employees and growers.  We are also better positioned to compete in the industry both internationally and in the U.S. as consolidations occur.
 
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Pilgrim's Pride Corporation
 
On November 23, 2003, we completed the purchase of all the outstanding stock of the corporations represented as the ConAgra Foods, Inc. chicken division (“ConAgra chicken division”).  We sometimes refer to this acquisition as the “fiscal 2004 acquisition.”  The acquired business has been included in our results of operations since the date of the acquisition.  The acquisition provided us with additional lines of specialty prepared chicken products, well-known brands, well-established distributor relationships and Southeastern U.S. processing facilities.  The acquisition also included the largest distributor of chicken products in Puerto Rico.
 
Strategy
 
Our objectives are (1) to increase sales, profit margins and earnings and (2) to outpace the growth of, and maintain our leadership position in, the chicken industry.  To achieve these goals, we plan to continue pursuing the following strategies:
 
 
Capitalize on significant scale with leading industry position and brand recognition.  We are the largest producer of chicken products in the U.S.  We estimate that our U.S. market share, based on the total annual chicken production in the U.S., is approximately 25%, which is approximately 20% higher than the second largest competitor in the chicken industry.  The complementary fit of markets, distributor relationships and geographic locations are a few of the many benefits we realized from our fiscal 2004 and 2007 acquisitions previously discussed.  We believe the acquired businesses’ established relationships with broad-line national distributors and retailers have enabled us to expand our customer base and provide nationwide distribution capabilities for all of our product lines.  As a result, we believe we are one of only two U.S. chicken producers that can supply the growing demand for a broad range of price competitive standard and specialized products with well-known brand names on a nationwide basis from a single source supplier.
 
Capitalize on attractive U.S. prepared foods market.  We focus our U.S. growth initiatives on sales of prepared foods to the foodservice and value-added retail markets because they continue to be two of the fastest growing and most profitable segments in the poultry industry.  Products sold to these market segments require further processing, which enables us to charge a premium for our products, reducing the impact of feed ingredient costs on our profitability and improving and stabilizing our profit margins.  Feed ingredient costs typically decrease from approximately 33%-49% of total production cost for fresh chicken products to approximately 17%-24% for prepared chicken products.  Due to increased demand from our customers and our fiscal 2004 and 2007 acquisitions, our sales of prepared chicken products grew from $921.1 million in fiscal 2003 to $2,492.4 million in fiscal 2007, a compounded annual growth rate of 28.3%.  Prepared foods sales represented 39.5% of our total U.S. chicken revenues in fiscal 2007, which we believe provides us with a significant competitive advantage and reduces our exposure to feed price fluctuations.  The addition of well-known brands, including Pierce® and Easy-Entree®, from our fiscal 2004 acquisition significantly expanded our already sizeable prepared foods chicken offerings.  Similarly, our acquisition of highly customized cooked chicken products, including breaded cutlets, sizzle strips and Wing-Dings®, for restaurants and specialty foodservice customers from this acquisition complemented our existing lines of pre-cooked
 
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Pilgrim's Pride Corporation
 
 
breast fillets, tenderloins, burgers, nuggets, salads and other prepared products for institutional foodservice, fast-food and retail customers.
 
 
-  Emphasize customer-driven research and technology.  We have a long-standing reputation for customer-driven research and development in designing new products and implementing advanced processing technology.  This enables us to better meet our customers’ changing needs for product innovation, consistent quality and cost efficiency.  In particular, customer-driven research and development is integral to our growth strategy for the prepared foods market in which customers continue to place greater importance on value-added services.  Our research and development personnel often work directly with customers in developing products for them, which we believe helps promote long-term relationships.
 
 
-  Enhance U.S. fresh chicken profitability through value-added, branded products.  Our U.S. fresh chicken sales accounted for $3,255.7 million, or 51.4%, of our U.S. chicken sales for fiscal 2007.  In addition to maintaining the sales of traditional fresh chicken products, our strategy is to shift the mix of our U.S. fresh chicken products by continuing to increase sales of higher margin, faster growing products, such as fixed weight packaged products and marinated chicken and chicken parts, and to continually shift portions of this product mix into the higher value and margin prepared chicken products.  Much of our fresh chicken products are sold under the Pilgrim’s Pride® brand name, which is a well-known brand in the chicken industry.
 
 
Improve operating efficiencies and increase capacity on a cost-effective basis.  As production and sales grow, we continue to focus on improving operating efficiencies by investing in state-of-the-art technology and processes, training and our total quality management program.  Specific initiatives include:
 
-  
standardizing lowest-cost production processes across our various facilities;
 
-  
centralizing purchasing and other shared services; and
 
-  
standardizing and upgrading technology where appropriate.
 
In addition, we have a proven history of increasing capacity while improving operating efficiencies at acquired properties in both the U.S. and Mexico.  As a result, according to industry data, since 1993 we have consistently been one of the lower-cost producers of chicken.
 
 
Continue to seek strategic acquisitions.  We have pursued opportunities to expand through acquisitions in the past.  We expect to continue to pursue acquisition opportunities in the future that would complement our existing businesses, broaden our production capabilities and/or improve our operating efficiencies.
 
Capitalize on export opportunities.  We intend to continue to focus on international opportunities to complement our U.S. chicken operations and capitalize on attractive export markets.  According to the USDA, the export of U.S. chicken products increased 9.7%
 
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Pilgrim's Pride Corporation
 
 
from 2002 through 2006.  We believe U.S. chicken exports will continue to grow as worldwide demand increases for high-grade, low-cost meat protein sources.  According to USDA data, the export market for chicken is expected to grow at a compounded annual growth rate of 1.8% from 2006 to 2011.  Historically, we have targeted international markets to generate additional demand for our dark chicken meat, which is a natural by-product of our U.S. operations given our concentration on prepared foods products and the U.S. customers’ general preference for white chicken meat.  As part of this initiative, we have created a significant international distribution network into several markets, including Mexico, which we now utilize not only for dark chicken meat distribution, but also for various higher margin prepared foods and other poultry products.  We employ both a direct international sales force and export brokers.  Our key international markets include Eastern Europe, including Russia; the Far East, including China; and Mexico.  We believe that we have substantial opportunities to expand our sales to these markets by capitalizing on direct international distribution channels supplemented by our existing export broker relationships.  Our export sales accounted for approximately 10.1% and 21.1% of our U.S. chicken sales and pounds, respectively, for fiscal 2007.
 
(b)  
Financial Information About Segments
 
We operate in three reportable business segments as (1) a producer and seller of chicken products, (2) a producer and seller of turkey products and (3) a seller of other products.  See a discussion of our business segments in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
(c)  
Narrative Description of Business
 
Products and Markets
 
 
Our chicken products consist primarily of:
 
(1) Prepared chicken products, which are products such as portion-controlled breast fillets, tenderloins and strips, delicatessen products, salads, formed nuggets and patties and bone-in chicken parts.  These products are sold either refrigerated or frozen and may be fully cooked, partially cooked or raw.  In addition, these products are breaded or non-breaded and either pre-marinated or non-marinated.
 
(2) Fresh chicken, which is refrigerated (non-frozen) whole or cut-up chicken sold to the foodservice industry either pre-marinated or non-marinated.  Fresh chicken also includes prepackaged case-ready chicken, which includes various combinations of freshly refrigerated, whole chickens and chicken parts in trays, bags or other consumer packs labeled and priced ready for the retail grocer's fresh meat counter.
 
(3) Export and other chicken products, which are primarily parts and whole chicken, either refrigerated or frozen for U.S. export or domestic use, and chicken prepared foods products for U.S. export.
 
Our turkey products consist primarily of fresh and frozen whole turkeys.
 
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Pilgrim's Pride Corporation
 
Our chicken and turkey products are sold primarily to:

(1) Foodservice customers, which are customers such as chain restaurants, food processors, foodservice distributors and certain other institutions.  We sell products to our foodservice customers ranging from portion-controlled refrigerated poultry parts to fully-cooked and frozen, breaded or non-breaded poultry parts or formed products.

(2) Retail customers, which are customers such as grocery store chains, wholesale clubs and other retail distributors.  We sell to our retail customers branded, pre-packaged, cut-up and whole poultry, and fresh refrigerated or frozen whole poultry and poultry parts in trays, bags or other consumer packs.

(3)  Export and other product customers, who purchase chicken products for export to Eastern Europe, including Russia; the Far East, including China; Mexico; and other world markets.  Our export and other chicken products, with the exception of our exported prepared foods products, consist of whole chickens and chicken parts sold primarily in bulk, non-branded form, either refrigerated to distributors in the U.S. or frozen for distribution to export markets.

Our other products consist of:
 

(1)  Other types of meat along with various other staples purchased and sold by our distribution centers as a convenience to our chicken customers who purchase through the distribution centers.

(2) The production and sale of table eggs, commercial feeds and related items, live hogs and proteins.

       The following table sets forth, for the periods beginning with fiscal 2003, net sales attributable to each of our primary product lines and markets served with those products.  Consistent with our long-term strategy, we emphasized our U.S. growth initiatives on sales of prepared foods products, primarily to the foodservice market.  This product and market segment has experienced, and we believe will continue to experience, greater growth than fresh chicken products.  We based the table on our internal sales reports and their classification of product types and customers.
 
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Pilgrim's Pride Corporation

   
Fiscal Year Ended
 
    Sept. 29, 2007(a)    
Sept. 30, 2006
   
Oct. 1, 2005
    Oct. 2, 2004(a)    
Sept. 27, 2003
 
   
(52 weeks)
   
(52 weeks)
   
(52 weeks)
   
(53 weeks)
   
(52 weeks)
 
U.S. Chicken Sales:
 
(in thousands)
 
Prepared Foods:
                             
Foodservice
  $ 1,897,643     $ 1,567,297     $ 1,622,901     $ 1,647,904     $ 731,331  
Retail
   
511,470
     
308,486
     
283,392
     
213,775
     
163,018
 
Total Prepared Foods
   
2,409,113
     
1,875,783
     
1,906,293
     
1,861,679
     
894,349
 
                                         
Fresh Chicken:
                                       
Foodservice
   
2,280,057
     
1,388,451
     
1,509,189
     
1,328,883
     
474,251
 
Retail
   
975,659
     
496,560
     
612,081
     
653,798
     
257,911
 
Total Fresh Chicken
   
3,255,716
     
1,885,011
     
2,121,270
     
1,982,681
     
732,162
 
                                         
Export and Other:
                                       
Export:
                                       
Prepared Foods
   
83,317
     
64,338
     
59,473
     
34,735
     
26,714
 
Chicken
   
559,429
     
257,823
     
303,150
     
212,611
     
85,087
 
         Total Export(b)     
642,746
     
322,161
     
362,623
     
247,346
     
111,801
 
Other Chicken By-Products
   
20,779
     
15,448
     
21,083
   
(b)
   
(b)
 
Total Export and Other
   
663,525
     
337,609
     
383,706
     
247,346
     
111,801
 
Total U.S. Chicken
   
6,328,354
     
4,098,403
     
4,411,269
     
4,091,706
     
1,738,312
 
                                         
Mexico Chicken Sales:
   
488,466
     
418,745
     
403,353
     
362,442
     
349,305
 
Total Chicken Sales
   
6,816,820
     
4,517,148
     
4,814,622
     
4,454,148
     
2,087,617
 
                                         
U.S. Turkey Sales:
                                       
Foodservice
   
14,025
     
30,269
     
73,908
     
120,676
     
138,405
 
Retail
   
104,239
     
96,968
     
125,741
     
154,289
     
154,552
 
     
118,264
     
127,237
     
199,649
     
274,965
     
292,957
 
      Export and other(b)    
4,100
     
3,664
     
5,189
     
11,287
     
12,721
 
Total U.S. Turkey Sales
   
122,364
     
130,901
     
204,838
     
286,252
     
305,678
 
                                         
Other Products:
                                       
United States
   
638,738
     
570,510
     
626,056
     
600,091
     
207,284
 
Mexico
   
20,677
     
17,006
     
20,759
     
23,232
     
18,766
 
Total Other Products
   
659,415
     
587,516
     
646,815
     
623,323
     
226,050
 
                                         
Total Net Sales
  $ 7,598,599     $ 5,235,565     $ 5,666,275     $ 5,363,723     $ 2,619,345  
                                         
Total Chicken Prepared Foods
  $ 2,492,430     $ 1,940,121     $ 1,965,766     $ 1,896,414     $ 921,063  
 
 
(a)  The fiscal 2007 acquisition on December 27, 2006 and fiscal 2004 acquisition on November 23, 2003 have been accounted for as purchases.  For financial reporting purposes, we have not included the operation results and cash flows of the fiscal 2007 acquisition in our consolidated financial statements for the period from December 27, 2006 through December 30, 2006.  The operating results and cash flows of the fiscal 2007 acquisition from December 27, 2006 through December 30, 2006 were not material.  The results of operations for the fiscal 2004 acquisition have been included in our consolidated results of operations since the acquisition date.

 
(b)  The Export and Other category historically included the sales of certain chicken by-products sold in international markets, as well as the export of chicken and turkey products.  Prior to fiscal 2005, by-product sales were not specifically identifiable from the Export and Other category.  Accordingly, a detail breakout is not available prior to such time; however, the Company believes that the relative split between these categories as shown in fiscal 2005 would not be dissimilar in the prior fiscal periods.  Export items include certain poultry parts that have greater value in some overseas markets than in the U.S.

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Pilgrim's Pride Corporation

     The following table sets forth, beginning with fiscal 2003, the percentage of net U.S. chicken and turkey sales attributable to each of our primary product lines and the markets serviced with those products.  We based the table and related discussion on our internal sales reports and their classification of product types and customers.
 
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Pilgrim's Pride Corporation
 
   
Fiscal Year Ended
 
   
Sept. 29, 2007  (a)
   
Sept. 30, 2006
   
Oct. 1, 2005
   
Oct. 2, 2004(a)
   
Sept. 27, 2003
 
U.S. Chicken Sales:
                             
Prepared Foods:
                             
Foodservice
   
30.1
     
38.2
     
36.8
     
40.3
     
42.1
 
Retail
   
8.1
     
7.5
     
6.4
     
5.2
     
9.4
 
Total Prepared Foods
    38.2 %     45.7 %     43.2 %     45.5 %     51.5 %
                                         
Fresh Chicken:
                                       
Foodservice
   
36.0
     
33.9
     
34.2
     
32.5
     
27.3
 
Retail
   
15.4
     
12.1
     
13.9
     
16.0
     
14.8
 
Total Fresh Chicken
    51.4 %     46.0 %     48.1 %     48.5 %     42.1 %
                                         
Export and Other:
                                       
Export:
                                       
Prepared Foods
   
1.3
     
1.6
     
1.3
     
0.8
     
1.5
 
Chicken
   
8.8
     
6.3
     
6.9
     
5.2
     
4.9
 
         Total Export(b)    
10.1
     
7.9
     
8.2
     
6.0
     
6.4
 
Other Chicken By-Products
   
0.3
     
0.4
     
0.5
   
(b)
   
(b)
 
Total Export and Other
    10.4 %     8.3 %     8.7 %     6.0 %     6.4 %  
Total U.S. Chicken
    100.0 %     100.0 %     100.0 %     100.0 %     100.0 %
                                         
Total Chicken Prepared Foods as a percentage of U.S. Chicken
    39.5 %     47.3 %     44.5 %     46.3 %     53.0 %  
                                         
U.S. Turkey Sales:
                                       
Foodservice
   
11.4
     
23.1
     
36.0
     
42.1
     
45.3
 
Retail
   
85.2
     
74.1
     
61.4
     
53.9
     
50.5
 
      96.6 %     97.2 %     97.4 %     96.0 %     95.8 %
     Export and Other(b)    
3.4
     
2.8
     
2.6
     
4.0
     
4.2
 
Total U.S. Turkey
    100.0 %     100.0 %     100.0 %     100.0 %     100.0 %  
                                         

 
(a)  The fiscal 2007 acquisition on December 27, 2006 and fiscal 2004 acquisition on November 23, 2003 have been accounted for as purchases.  For financial reporting purposes, we have not included the operating results and cash flows of the fiscal 2007 acquisition in our consolidated financial statements for the period from December 27, 2006 through December 30, 2006.  The operating results and cash flows of the fiscal 2007 acquisition from December 27, 2006 through December 30, 2006 were not material.  The results of operations for the fiscal 2004 acquisition have been included in our consolidated results of operations since the  acquisition date.

 
(b) The Export and Other category historically included the sales of certain chicken by-products sold in international markets as well as the export of chicken and turkey products.  Prior to fiscal 2005, by-product sales were not specifically identifiable from the Export and Other category.  Accordingly, a detail breakout is not available prior to such time; however, the Company believes that the relative split between these categories as shown in fiscal 2005 would not be dissimilar in the prior fiscal periods.  Export items include certain poultry parts that have greater value in some overseas markets than in the U.S.

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Pilgrim's Pride Corporation

UNITED STATES
 
Product Types
 
Chicken Products
 
Prepared Foods Overview.  During fiscal 2007, $2,409.1 million of our U.S. chicken sales were in prepared foods products to foodservice customers and retail distributors, as compared to $894.3 million in fiscal 2003.  These numbers reflect the strategic focus for our growth and our fiscal 2004 and 2007 acquisitions.  The market for prepared chicken products has experienced, and we believe will continue to experience, greater growth, higher average sales prices and higher margins than fresh chicken products.  Also, the production and sale in the U.S. of prepared foods products reduce the impact of the costs of feed ingredients on our profitability.  Feed ingredient costs are the single largest component of our total U.S. cost of sales, representing approximately 35.8% of our U.S. cost of sales for fiscal 2007.  The production of feed ingredients is positively or negatively affected primarily by weather patterns throughout the world, the global level of supply inventories, demand for feed ingredients and the agricultural policies of the U.S. and foreign governments.  As further processing is performed, feed ingredient costs become a decreasing percentage of a product’s total production cost, thereby reducing their impact on our profitability.  Products sold in this form enable us to charge a premium, reduce the impact of feed ingredient costs on our profitability and improve and stabilize our profit margins.
 
We establish prices for our prepared chicken products based primarily upon perceived value to the customer, production costs and prices of competing products.  The majority of these products are sold pursuant to agreements with varying terms that either set a fixed price for the products or set a price according to formulas based on an underlying commodity market, subject in many cases to minimum and maximum prices.
 
Fresh Chicken Overview.  Our fresh chicken business is an important component of our sales and accounted for $3,255.7 million, or 51.4%, of our total U.S. chicken sales for fiscal 2007.  In addition to maintaining sales of mature, traditional fresh chicken products, our strategy is to shift the mix of our U.S. fresh chicken products by continuing to increase sales of higher margin, faster growing products, such as marinated chicken and chicken parts, and to continually shift portions of this product mix into the higher value and margin prepared foods category.
 
Most fresh chicken products are sold to established customers, based upon certain weekly or monthly market prices reported by the USDA and other public price reporting services, plus a markup, which is dependent upon the customer’s location, volume, product specifications and other factors.  We believe our practices with respect to sales of fresh chicken are generally consistent with those of our competitors.  The majority of these products are sold pursuant to agreements with varying terms that either set a fixed price for the products or set a price according to formulas based on an underlying commodity market, subject in many cases to minimum and maximum prices.
 
       Export and Other Chicken Products Overview.  Our export and other products consist of whole chickens and chicken parts sold primarily in bulk, non-branded form, either refrigerated to
 
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September 29, 2007
 
distributors in the U.S. or frozen for distribution to export markets, and branded and non-branded prepared foods products for distribution to export markets.  In fiscal 2007, approximately $663.5 million, or 10.4%, of our total U.S. chicken sales were attributable to U.S. chicken export and other products.  These exports and other products, other than the prepared foods products, have historically been characterized by lower prices and greater price volatility than our more value-added product lines.
 
Turkey Products

Turkey Overview.  Our turkey business accounted for $122.4 million of sales in fiscal 2007.  As is typical for the industry, a significant portion of the sales of fresh and frozen whole turkeys is seasonal in nature, with the height of sales occurring during the Thanksgiving and Christmas holidays.
 
Most turkey products are sold to established customers pursuant to agreements with varying terms that either set a fixed price or are subject to a market driven formula with some agreements based upon market prices reported by the USDA and other public price reporting services, plus a markup, subject in many cases to minimum and maximum prices.  This is dependent upon the customer’s location, volume, product specifications and other factors.  We believe our practices with respect to sales of fresh turkey are generally consistent with those of our competitors with similar programs.

Markets for Chicken Products

Foodservice.  The foodservice market principally consists of chain restaurants, food processors, broad-line distributors and certain other institutions located throughout the continental U.S.  We supply chicken products ranging from portion-controlled refrigerated chicken parts to fully cooked and frozen, breaded or non-breaded chicken parts or formed products.
 
We believe the Company is well-positioned to be the primary or secondary supplier to many national and international chain restaurants who require multiple suppliers of chicken products.  Additionally, we believe we are well suited to be the sole supplier for many regional chain restaurants.  Regional chain restaurants often offer better margin opportunities and a growing base of business.
 
         We believe we have significant competitive strengths in terms of full-line product capabilities, high-volume production capacities, research and development expertise and extensive distribution and marketing experience relative to smaller and non-vertically integrated producers.  While the overall chicken market has grown consistently, we believe the majority of this growth in recent years has been in the foodservice market.  According to the National Chicken Council, from 2002 through 2006, sales of chicken products to the foodservice market grew at a compounded annual growth rate of approximately 7.9%, versus 4.9% growth for the chicken industry overall.  Foodservice growth is anticipated to continue as food-away-from-home expenditures continue to outpace overall industry rates.  According to Technomic Information Services, food-away-from-home expenditures grew at a compounded annual growth rate of approximately 5.5% from 2002 through 2006 and are projected to grow at a 4.8%

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compounded annual growth rate from 2007 through 2012.  Due to internal growth and our fiscal 2004 and 2007 acquisitions, our sales to the foodservice market from fiscal 2003 through fiscal 2007 grew at a compounded annual growth rate of 36.4% and represented 66.1% of the net sales of our U.S. chicken operations in fiscal 2007.

Foodservice – Prepared Foods.  Our prepared chicken products sales to the foodservice market were $1,897.6 million in fiscal 2007 compared to $731.3 million in fiscal 2003, a compounded annual growth rate of approximately 26.9%.  In addition to the significant increase in sales created by the fiscal 2004 and 2007 acquisitions, we attribute this growth in sales of prepared chicken products to the foodservice market to a number of factors:

First,there has been significant growth in the number of foodservice operators offering chicken on their menus and in the number of chicken items offered.

Second,foodservice operators are increasingly purchasing prepared chicken products, which allow them to reduce labor costs while providing greater product consistency, quality and variety across all restaurant locations.

Third,there is a strong need among larger foodservice companies for a single-source supplier in the prepared chicken products market.  A viable supplier must be able to ensure supply, demonstrate innovation and new product development and provide competitive pricing.  We have been successful in our objective of becoming a supplier of choice by being the primary or secondary prepared chicken products supplier to many large foodservice companies because:
 
- We are vertically integrated, giving us control over our supply of chicken and chicken parts;
 
- Our further processing facilities, with a wide range of capabilities, are particularly well suited to the high-volume production as well as low-volume custom production runs necessary to meet both the capacity and quality requirements of the foodservice market; and
 
- We have established a reputation for dependable quality, highly responsive service and excellent technical support.

Fourth,as a result of the experience and reputation developed with larger customers, we have increasingly become the principal supplier to mid-sized foodservice organizations.

Fifth,our in-house product development group follows a customer-driven research and development focus designed to develop new products to meet customers’ changing needs.  Our research and development personnel often work directly with institutional customers in developing products for these customers.

Sixth, we are a leader in utilizing advanced processing technology, which enables us to better meet our customers’ needs for product innovation, consistent quality and cost efficiency.

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Foodservice – Fresh Chicken.  We produce and market fresh, refrigerated chicken for sale to U.S. quick-service restaurant chains, delicatessens and other customers.  These chickens have the giblets removed, are usually of specific weight ranges and are usually pre-cut to customer specifications.  They are often marinated to enhance value and product differentiation.  By growing and processing to customers’ specifications, we are able to assist quick-service restaurant chains in controlling costs and maintaining quality and size consistency of chicken pieces sold to the consumer.

Retail.  The retail market consists primarily of grocery store chains, wholesale clubs and other retail distributors.  We concentrate our efforts in this market on sales of branded, prepackaged cut-up and whole chicken and chicken parts to grocery store chains and retail distributors.  For a number of years, we have invested in both trade and retail marketing designed to establish high levels of brand name awareness and consumer preferences.

We utilize numerous marketing techniques, including advertising, to develop and strengthen trade and consumer awareness and increase brand loyalty for consumer products marketed under the Pilgrim’s Pride® brand.  Our co-founder, Lonnie “Bo” Pilgrim, is the featured spokesperson in our television, radio and print advertising, and a trademark cameo of a person wearing a Pilgrim’s hat serves as the logo on all of our primary branded products.  As a result of this marketing strategy, Pilgrim’s Pride® is a well-known brand name in a number of markets.  We believe our efforts to achieve and maintain brand awareness and loyalty help to provide more secure distribution for our products.  We also believe our efforts at brand awareness generate greater price premiums than would otherwise be the case in certain markets.  We also maintain an active program to identify consumer preferences.  The program primarily consists of discovering and validating new product ideas, packaging designs and methods through sophisticated qualitative and quantitative consumer research techniques in key geographic markets.

Retail – Prepared Foods.  We sell retail-oriented prepared chicken products primarily to grocery store chains located throughout the U.S.  Our prepared chicken products sales to the retail market were $511.5 million in fiscal 2007 compared to $163.0 million in fiscal 2003, a compounded annual growth rate of approximately 33.1%.  We believe that our growth in this market segment will continue as retailers concentrate on satisfying consumer demand for more products that are quick, easy and convenient to prepare at home.

Retail – Fresh Chicken.  Our prepackaged retail products include various combinations of freshly refrigerated, whole chickens and chicken parts in trays, bags or other consumer packs labeled and priced ready for the retail grocer’s fresh meat counter.  Our retail fresh chicken products are sold in the midwestern, southwestern, southeastern and western regions of the U.S.  Our fresh chicken sales to the retail market were $975.7 million in fiscal 2007 compared to $257.9 million in fiscal 2003, a compounded annual growth rate of approximately 39.5% resulting primarily from our fiscal 2004 and 2007 acquisitions.  We believe the retail prepackaged fresh chicken business will continue to be a large and relatively stable market, providing opportunities for product differentiation and regional brand loyalty.

Export and Other Chicken Products.  Our export and other chicken products, with the exception of our exported prepared foods products, consist of whole chickens and chicken parts

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sold primarily in bulk, non-branded form either refrigerated to distributors in the U.S. or frozen for distribution to export markets.  In the U.S., prices of these products are negotiated daily or weekly and are generally related to market prices quoted by the USDA or other public price reporting services.  We sell U.S.-produced chicken products for export to Eastern Europe, including Russia; the Far East, including China; Mexico; and other world markets.
 
Historically, we have targeted international markets to generate additional demand for our dark chicken meat, which is a natural by-product of our U.S. operations given our concentration on prepared foods products and the U.S. customers’ general preference for white chicken meat.  We have also begun selling prepared chicken products for export to the international divisions of our U.S. chain restaurant customers.  We believe that U.S. chicken exports will continue to grow as worldwide demand increases for high-grade, low-cost meat protein sources.  We also believe that worldwide demand for higher margin prepared foods products will increase over the next several years.  Accordingly, we believe we are well positioned to capitalize on such growth.  Also included in this category are chicken by-products, which are converted into protein products and sold primarily to manufacturers of pet foods.

Markets for Turkey Products

Most of our turkey sales are derived from products sold to the retail market.  This market consists primarily of grocery store chains, wholesale clubs and other retail distributors.  We concentrate our efforts in this market on sales of branded, prepackaged whole turkeys to grocery store chains and retail distributors in the eastern and southwestern regions of the U.S.  We believe this regional marketing focus enables us to develop consumer brand franchises and capitalize on proximity to the trade customer in terms of lower transportation costs, more timely and responsive service and enhanced product freshness.
 
We utilize numerous marketing techniques, including advertising, to develop and strengthen trade and consumer awareness and increase brand loyalty for consumer products marketed generally under the Pilgrim’s Pride® and Pilgrim’s SignatureTMbrands.  We believe our efforts to achieve and maintain brand awareness and loyalty help to provide more secure distribution for our products.  We also believe our efforts at brand awareness generate greater price premiums than would otherwise be the case in certain markets in the eastern regions of the U.S.  We also maintain an active program to identify consumer preferences.  The program primarily consists of testing new product ideas, packaging designs and methods through sophisticated qualitative and quantitative consumer research techniques in key geographic markets.

Markets for Other Products

      We have regional distribution centers located in Arizona, Florida, Iowa, Mississippi, Ohio, Tennessee, Texas and Utah that are primarily focused on distributing our own chicken products; however, the distribution centers also distribute certain poultry and non-poultry products purchased from third parties to independent grocers and quick service restaurants.  Our non-chicken distribution business is conducted as an accommodation to our customers and to achieve greater economies of scale in distribution logistics.  Poultry sales from our regional distribution centers are included in the chicken and turkey sales amounts contained in the above tables; however, all non-poultry sales amounts are contained in the Other Products.  We believe the

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store-door delivery capabilities for our own poultry products provide a strategic service advantage in selling to quick service, national chain restaurants.

We market fresh eggs under the Pilgrim’s Pride®brand name, as well as under private labels, in various sizes of cartons and flats to U.S. retail grocery and institutional foodservice customers located primarily in Texas.  We have a housing capacity for approximately 2.1 million commercial egg laying hens which can produce approximately 42 million dozen eggs annually.  U.S. egg prices are determined weekly based upon reported market prices.  The U.S. egg industry has been consolidating over the last few years, with the 25 largest producers accounting for more than 74.3% of the total number of egg laying hens in service during 2007.  We compete with other U.S. egg producers primarily on the basis of product quality, reliability, price and customer service.

We market a high-nutrient egg called EggsPlus™.  This egg contains high levels of Omega-3 and Omega-6 fatty acids along with Vitamin E, making the egg a heart-friendly product.  Our marketing of EggsPlus™ has received national recognition for our progress in being an innovator in the “functional foods” category.

In addition, we produce and sell livestock feeds at our feed mill in Mt. Pleasant, Texas and at our farm supply store in Pittsburg, Texas to dairy farmers and livestock producers in northeastern Texas.  We engage in similar sales activities at our other U.S. feed mills.
 
We also have a small pork operation that we acquired through our 2007 acquisition that raises and sells live hogs to processors.

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MEXICO

Background

The Mexico market represented approximately 6.7% of our net sales in fiscal 2007.  We are the second largest producer and seller of chicken in Mexico.  We believe that we are one of the lower-cost producers of chicken in Mexico.

Product Types

While the market for chicken products in Mexico is less developed than in the U.S., with sales attributed to fewer, more basic products, we have been successful in differentiating our products through high quality client service and product improvements such as dry-air chilled eviscerated products.  The supermarket chains consider us the leaders in innovation for fresh products.  The market for value added products is increasing.  Our strategy is to capitalize on this trend through our vast U.S. experience in both products and quality and our well-known service.

Markets

We sell our chicken products primarily to wholesalers, large restaurant chains, fast food accounts, supermarket chains and direct retail distribution in selected markets.  We have national presence and are currently present in all but two of the 32 Mexican States, which in total represent 99% of the Mexican population.

Foreign Operations Risks
 
Our foreign operations pose special risks to our business and operations.  See Item 1A. “Risk Factors” for a discussion of foreign operations risks.

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GENERAL

Competitive Conditions

The chicken and turkey industries are highly competitive and our largest U.S. competitor has greater financial and marketing resources than we do.  In the U.S., Mexico and Puerto Rico, we compete principally with other vertically integrated poultry companies.  We are the largest producer of chicken in the U.S. and Puerto Rico, and the second largest producer in Mexico.  The second largest producer in the U.S. is Tyson Foods, Inc.  The largest producer in Mexico is Industrias Bachoco SA de CV.
 
In general, the competitive factors in the U.S. chicken and turkey industries include price, product quality, product development, brand identification, breadth of product line and customer service.  Competitive factors vary by major market.  In the foodservice market, competition is based on consistent quality, product development, service and price.  In the U.S. retail market, we believe that product quality, brand awareness, customer service and price are the primary bases of competition.  There is some competition with non-vertically integrated further processors in the U.S. prepared food business.  We believe vertical integration generally provides significant, long-term cost and quality advantages over non-vertically integrated further processors.
 
In Mexico, where product differentiation has traditionally been limited, product quality, service and price have been the most critical competitive factors.  The North American Free Trade Agreement eliminated tariffs for chicken and chicken products sold to Mexico on January 1, 2003.  However, in July 2003, the U.S. and Mexico entered into a safeguard agreement with regard to imports into Mexico of chicken leg quarters from the U.S.  Under this agreement, a tariff rate for chicken leg quarters of 98.8% of the sales price was established.  The tariff rate on import duties was reduced on January 1, 2007, to 19.8%, and on January 1, 2008 the tariff rate is scheduled to be reduced to zero.  As this tariff is reduced, we expect greater amounts of chicken to be imported into Mexico from the U.S., which could negatively affect the profitability of Mexican chicken producers.
 
We are not a significant competitor in the distribution business as it relates to products other than chicken.  We distribute these products solely as a convenience to our chicken customers.  The broad-line distributors do not consider us to be a factor in those markets.  The competition related to our other products such as table eggs, feed and protein are much more regionalized and no one competitor is dominant.

Key Customers

Our two largest customers accounted for approximately 18% of our net sales in fiscal 2007, and our largest customer, Wal-Mart Stores Inc., accounted for 12% of our net sales.

Regulation and Environmental Matters

        The chicken and turkey industries are subject to government regulation, particularly in the health and environmental areas, including provisions relating to the discharge of materials into

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the environment, by the Centers for Disease Control, the USDA, the Food and Drug Administration (“FDA”) and the Environmental Protection Agency (“EPA”) in the U.S. and by similar governmental agencies in Mexico. Our chicken processing facilities in the U.S. are subject to on-site examination, inspection and regulation by the USDA.  The FDA inspects the production of our feed mills in the U.S.  Our Mexican food processing facilities and feed mills are subject to on-site examination, inspection and regulation by a Mexican governmental agency, which performs functions similar to those performed by the USDA and FDA.  We believe that we are in substantial compliance with all applicable laws and regulations relating to the operations of our facilities.
 
We anticipate increased regulation by the USDA concerning food safety, by the FDA concerning the use of medications in feed and by the EPA and various other state agencies concerning discharges to the environment.  Although we do not anticipate any regulations having a material adverse effect upon us, a material adverse effect may occur.

Employees and Labor Relations

As of September 29, 2007, we employed approximately 49,800 persons in the U.S. and 5,100 persons in Mexico.  Approximately 16,350 employees at various facilities in the U.S. are members of collective bargaining units.  In Mexico, approximately 2,950 employees are covered by collective bargaining agreements.  We have not experienced any work stoppage at any location in over five years.  We believe our relations with our employees are satisfactory.  At any given time, we will be in some stage of contract negotiation with various collective bargaining units.

Financial Information about Foreign Operations

The Company’s foreign operations are in Mexico.  Geographic financial information is set forth in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

Available Information; NYSE CEO Certification

The Company’s Internet website is http://www.pilgrimspride.com.  The Company makes available, free of charge, through its Internet website, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Directors and Officers Forms 3, 4 and 5, and amendments to those reports, as soon as reasonably practicable after electronically filing such materials with, or furnishing them to, the Securities and Exchange Commission.  The public may read and copy any materials that the Company files with the Securities and Exchange Commission at its Public Reference Room at 100 F Street, NE, Washington, DC 20549 and may obtain information about the operation of the Public Information Room by calling the Securities and Exchange Commission at 1-800-SEC-0330.
 
       In addition, the Company makes available, through its Internet website, the Company’s Business Code of Conduct and Ethics, Corporate Governance Guidelines and the written charter of the Audit Committee, each of which is available in print to any stockholder who requests it by

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contacting the Secretary of the Company at 4845 U.S. Highway 271 North, Pittsburg, Texas 75686-0093.
 
As required by the rules of the New York Stock Exchange, the Company submitted its unqualified Section 303A.12(a) Co-Principal Executive Officers Certification for the preceding year to the New York Stock Exchange.
 
      We included the certifications of the Co-Principal Executive Officers and the Chief Financial Officer of the Company required by Section 302 of the Sarbanes-Oxley Act of 2002 and related rules, relating to the quality of the Company's public disclosure, in this report on Form 10-K as Exhibits 31.1,  31.2 and 31.3.

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Executive Officers

Set forth below is certain information relating to our current executive officers:
 
Name
 
Age
 
Positions
Lonnie "Bo" Pilgrim
 
79
 
Senior Chairman of the Board
Lonnie Ken Pilgrim
 
49
 
Chairman of the Board
Clifford E. Butler
 
65
 
Vice Chairman of the Board
O.B. Goolsby, Jr.
 
60
 
President, Chief Executive Officer, and Director
Richard A. Cogdill
 
47
 
Chief Financial Officer
       
Secretary, Treasurer and Director
J. Clinton Rivers
 
48
 
Chief Operating Officer
Robert A. Wright
 
53
 
Executive Vice President of Sales and Marketing
         

         Lonnie "Bo" Pilgrim has served as Senior Chairman of the Board since July 2007.  He served as Chairman of the Board since the organization of Pilgrim's Pride in July 1968 until July 2007.  He also served as Chief Executive Officer from July 1968 to June 1998.  Prior to the incorporation of Pilgrim's Pride, Mr. Pilgrim was a partner in its predecessor partnership business founded in 1946.
 
        Lonnie Ken Pilgrim has served as Chairman of the Board since July 2007.  He served as Executive Vice President, Assistant to Chairman from November 2004 until July 2007, and he served as Senior Vice President, Transportation from August 1997 to November 2004.  Prior to that he served as Vice President. He has been a member of the Board of Directors since March 1985, and he has been employed by Pilgrim’s Pride since 1977.  He is a son of Lonnie “Bo” Pilgrim.
 
       Clifford E. Butler serves as Vice Chairman of the Board.  On October 10, 2007, Clifford E. Butler announced his retirement from his position as Vice Chairman of the Board effective December 31, 2007, and that he will not stand for re-election as a director.  Mr. Butler joined us as Controller and director in 1969, was named Senior Vice President of Finance in 1973, became Chief Financial Officer and Vice Chairman of the Board in July 1983, became Executive President in January 1997 and served in such capacity through July 1998.
 
        O.B. Goolsby, Jr. has served as President and Chief Executive Officer since September 2004.  Mr. Goolsby served as President and Chief Operating Officer from November 2002 to September 2004.  Prior to being named as President and Chief Operating Officer in November 2002, Mr. Goolsby served as Executive Vice President, Prepared Foods Complexes from June 1998 to November 2002.  He was previously Senior Vice President, Prepared Foods Operations from August 1992 to June 1998 and Vice President, Prepared Foods Operations from September 1987 to August 1992 and was employed by the Company in other capacities from November 1969 to January 1981.
 
        Richard A. Cogdillhas served as Chief Financial Officer, Secretary and Treasurer since January 1997.  Mr. Cogdill became a Director in September 1998.  Previously he served as Senior Vice President, Corporate Controller, from August 1992 through December 1996 and as

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Vice President, Corporate Controller from October 1991 through August 1992.  Prior to October 1991, he was a Senior Manager with Ernst & Young LLP.  Mr. Cogdill is a Certified Public Accountant.

J. Clinton Rivers has served as Chief Operating Officer since October 2004.  He served as Executive Vice President of Prepared Food Operations from November 2002 to October 2004.  Mr. Rivers was the Senior Vice President of Prepared Foods Operations from 1999 to November 2002, and was the Vice President of Prepared Foods Operations from 1992 to 1999.  From 1989 to 1992, he served as Plant Manager of the Mount Pleasant, Texas Production Facility.  Mr. Rivers joined Pilgrim’s Pride in 1986 as the Quality Assurance Manager, and also held positions at Perdue Farms and Golden West Foods.

Robert A. Wright has served as Executive Vice President of Sales and Marketing since June 2004.  He served as Executive Vice President, Turkey Division from October 2003 to June 2004.  Prior to October 2003, Mr. Wright served as President of Butterball Turkey Company for five years.


Forward Looking Statements

Statements of our intentions, beliefs, expectations or predictions for the future, denoted by the words "anticipate," "believe," "estimate," "expect," "plan," "project," "imply," "intend," "foresee" and similar expressions, are forward-looking statements that reflect our current views about future events and are subject to risks, uncertainties and assumptions.  Such risks, uncertainties and assumptions include those described under "Risk Factors" below and elsewhere in this Annual Report on Form 10-K.
 
Actual results could differ materially from those projected in these forward-looking statements as a result of these factors, among others, many of which are beyond our control.
 
In making these statements, we are not undertaking, and specifically decline to undertake, any obligation to address or update each or any factor in future filings or communications regarding our business or results, and we are not undertaking to address how any of these factors may have caused changes in information contained in previous filings or communications.  The risks described below are not the only risks we face, and additional risks and uncertainties may also impair our business operations.  The occurrence of any one or more of the following or other currently unknown factors could materially adversely affect our business and operating results.

Risk Factors

        The following risk factors should be read carefully in connection with evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K.  Any of the following risks could materially adversely affect our business, operations, industry or financial position or our future financial performance.  While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that

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adversely affect our business, operations, industry, financial position and financial performance in the future.

Cyclicality and Commodity Prices. Industry cyclicality can affect our earnings, especially due to fluctuations in commodity prices of feed ingredients, chicken and turkey.

      Profitability in the chicken and turkey industries is materially affected by the commodity prices of feed ingredients, chicken and turkey, which are determined by supply and demand factors.  As a result, the chicken and turkey industries are subject to cyclical earnings fluctuations.
 
     The production of feed ingredients is positively or negatively affected primarily by weather patterns throughout the world, the global level of supply inventories and demand for feed ingredients and the agricultural policies of the United States and foreign governments.  In particular, weather patterns often change agricultural conditions in an unpredictable manner.  A significant change in weather patterns could affect supplies of feed ingredients, as well as both the industry's and our ability to obtain feed ingredients, grow chickens and turkeys or deliver products.
 
      The cost of corn and soybean meal, our primary feed ingredients, increased significantly from August 2006 to the date of this report and there can be no assurance that the price of corn or soybean meal will not continue to rise as a result of, among other things, increasing demand for these products around the world and alternative uses of these products, such as ethanol and biodiesel production.
 
      High feed ingredient prices have had a material adverse effect on our operating results.  We periodically seek, to the extent available, to enter into advance purchase commitments or financial hedging contracts for the purchase of feed ingredients in an effort to manage our feed ingredient costs.  The use of such instruments may not be successful.

Livestock and Poultry Disease, including Avian Influenza.  Outbreaks of livestock diseases in general and poultry diseases in particular, including avian influenza, can significantly affect our ability to conduct our operations and demand for our products.

      We take precautions designed to ensure that our flocks are healthy and that our processing plants and other facilities operate in a sanitary and environmentally-sound manner.  However, events beyond our control, such as the outbreaks of disease, either in our own flocks or elsewhere, could significantly affect demand for our products or our ability to conduct our operations.  Furthermore, an outbreak of disease could result in governmental restrictions on the import and export of our fresh chicken, turkey or other products to or from our suppliers, facilities or customers, or require us to destroy one or more of our flocks.  This could also result in the cancellation of orders by our customers and create adverse publicity that may have a material adverse effect on our ability to market our products successfully and on our business, reputation and prospects.
 
      During the first half of fiscal 2006, there was substantial publicity regarding a highly pathogenic strain of avian influenza, known as H5N1, which has been affecting Asia since 2002

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and which has also been found in Europe and Africa.  It is widely believed that H5N1 is being spread by migratory birds, such as ducks and geese.  There have also been some cases where H5N1 is believed to have passed from birds to humans as humans came into contact with live birds that were infected with the disease.
 
Although highly pathogenic H5N1 has not been identified in North America, there have been outbreaks of low pathogenic strains of avian influenza in North America, and in Mexico outbreaks of both high and low-pathogenic strains of avian influenza are a fairly common occurrence.  Historically, the outbreaks of low pathogenic avian influenza have not generated the same level of concern, or received the same level of publicity or been accompanied by the same reduction in demand for poultry products in certain countries as that associated with the highly pathogenic H5N1 strain.  Accordingly, even if the highly pathogenic H5N1 strain does not spread to North or Central America, there can be no assurance that it will not materially adversely affect demand for North or Central American produced poultry internationally and/or domestically, and, if it were to spread to North or Central America, there can be no assurance that it would not significantly affect our ability to conduct our operations and/or demand for our products, in each case in a manner having a material adverse effect on our business, reputation and/or prospects.

Contamination of Products.  If our poultry products become contaminated, we may be subject to product liability claims and product recalls.

Poultry products may be subject to contamination by disease-producing organisms, or pathogens, such as Listeria monocytogenes, Salmonella and generic E.coli.  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 poultry products.  These pathogens can also be introduced as a result of improper handling at the further processing, foodservice or consumer level.  These risks may be controlled, although not eliminated, by adherence to good manufacturing practices and finished product testing.  We have little, if any, control over proper handling once the product has been shipped.  Illness and death may result if the pathogens are not eliminated at the further processing, foodservice or consumer level.  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 and prospects.
 
In October 2002, one product sample produced in our Franconia, Pennsylvania facility that had not been shipped to customers tested positive for Listeria.  We later received information from the USDA suggesting environmental samples taken at the facility had tested positive for both the strain of Listeria identified in the product and a strain having characteristics similar to those of the strain identified in a Northeastern Listeria outbreak.  As a result, we voluntarily recalled all cooked deli products produced at the plant from May 1, 2002 through October 11, 2002.  We carried insurance designed to cover the direct recall related expenses and certain aspects of the related business interruption caused by the recall.

Product Liability.  Product liability claims or product recalls can adversely affect our business reputation and expose us to increased scrutiny by federal and state regulators.
 
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Pilgrim's Pride Corporation

The packaging, marketing and distribution of food products entail an inherent risk of product liability and product recall and the resultant adverse publicity.  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 or damage to the products.  In addition to the risks of product liability or product recall due to deficiencies caused by our production or processing operations, we may encounter the same risks if any third party tampers with our products.  We cannot assure you that we will not be required to perform product recalls, or that product liability claims will not be asserted against us, in the future.  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 or on our business, reputation, prospects, financial condition and results of operations.
 
If our poultry products become contaminated, we may be subject to product liability claims and product recalls.  There can be no assurance that any litigation or reputational injury associated with product recalls will not have a material adverse effect on our ability to market our products successfully or on our business, reputation, prospects, financial condition and results of operations.

Substantial Leverage.  Our substantial indebtedness could adversely affect our financial condition.

Our acquisition of Gold Kist increased our indebtedness significantly. We currently have a substantial amount of indebtedness, which could adversely affect our financial condition and could have important consequences to you.  For example, it could:
 
-  
Make it more difficult for us to satisfy our obligations under our debt securities;
 
-  
Increase our vulnerability to general adverse economic conditions;
 
-  
Limit our ability to obtain necessary financing and to fund future working capital, capital expenditures and other general corporate requirements;
 
-  
Require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and for other general corporate purposes;
 
-  
Limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
 
-  
Place us at a competitive disadvantage compared to our competitors that have less debt;
 
-  
Limit our ability to pursue acquisitions and sell assets; and
 
Limit, along with the financial and other restrictive covenants in our indebtedness, our ability to borrow additional funds.  Failing to comply with those covenants could

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Pilgrim's Pride Corporation
 
-  
result in an event of default or require redemption of indebtedness.  Either of these events could have a material adverse effect on us.
 
Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future, which is dependent on various factors.  These factors include the commodity prices of feed ingredients, chicken and turkey and general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

Additional Borrowings Available.  Despite our substantial indebtedness, we may still be able to incur significantly more debt; this could intensify the risks described above.

Despite our significant indebtedness, we are not prohibited from incurring significant additional indebtedness in the future.  If additional debt is added to our current substantial debt levels, the related risks that we now face could intensify.

Insurance.  We are exposed to risks relating to product liability, product recall, property damage and injuries to persons for which insurance coverage is expensive, limited and potentially inadequate.

Our business operations entail a number of risks, including risks relating to product liability claims, product recalls, property damage and injuries to persons.  We currently maintain insurance with respect to certain of these risks, including product liability insurance, property insurance, workers compensation insurance and general liability insurance, but in many cases such insurance is expensive, difficult to obtain and no assurance can be given that such insurance can be maintained in the future on acceptable terms, or in sufficient amounts to protect us against losses due to any such events, or at all.  Moreover, even though our insurance coverage may be designed to protect us from losses attributable to certain events, it may not adequately protect us from liability and expenses we incur in connection with such events.  For example, the losses attributable to our October 2002 recall of cooked deli-products produced at one of our facilities significantly exceeded available insurance coverage.  Additionally, in the past, two of our insurers encountered financial difficulties and were unable to fulfill their obligations under the insurance policies as anticipated and, separately, two of our other insurers contested coverage with respect to claims covered under policies purchased, forcing us to litigate the issue of coverage before we were able to collect under these policies.

Significant Competition.  Competition in the chicken and turkey industries with other vertically integrated poultry companies may make us unable to compete successfully in these industries, which could adversely affect our business.

The chicken and turkey industries are highly competitive. In both the U.S. and Mexico, we primarily compete with other vertically integrated poultry companies.
 
In general, the competitive factors in the U.S. poultry industry include:
 
-  
Price;
 
-  
Product quality;
 
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Pilgrim's Pride Corporation

-  
Product development;
 
-  
Brand identification;
 
-  
Breadth of product line; and
 
-  
Customer service.
 
Competitive factors vary by major market.  In the foodservice market, competition is based on consistent quality, product development, service and price.  In the U.S. retail market, we believe that competition is based on product quality, brand awareness, customer service and price.  Further, there is some competition with non-vertically integrated further processors in the prepared food business.
 
In Mexico, where product differentiation has traditionally been limited, product quality and price have been the most critical competitive factors.  The North American Free Trade Agreement eliminated tariffs for chicken and chicken products sold to Mexico on January 1, 2003.  However, in July 2003, the U.S. and Mexico entered into a safeguard agreement with regard to imports into Mexico of chicken leg quarters from the U.S.  Under this agreement, a tariff rate for chicken leg quarters of 98.8% of the sales price was established.  This tariff was reduced on January 1, 2006 to 39.5%, and was further reduced to 19.8% on January 1, 2007. On January 1, 2008, the tariff is scheduled to be reduced to zero.  In connection with the reduction of the tariffs in Mexico, increased competition from chicken imported into Mexico from the U.S. may have a material adverse effect on the Mexican chicken industry in general, and on our Mexican operations in particular.

Loss of Key Customers.  The loss of one or more of our largest customers could adversely affect our business.

Our two largest customers accounted for approximately 18% of our net sales in fiscal 2007, and our largest customer, Wal-Mart Stores Inc., accounted for 12% of our net sales.  Our business could suffer significant setbacks in revenues and operating income if we lost one or more of our largest customers, or if our customers' plans and/or markets should change significantly.

Integration of Gold Kist.  There can be no assurance that Gold Kist can be combined successfully with our business.

In evaluating the terms of our acquisition of Gold Kist, we analyzed the respective businesses of the Company and Gold Kist and made certain assumptions concerning their respective future operations.  A principal assumption was that the acquisition will produce operating results better than those historically experienced or expected to be experienced in the future by us in the absence of the acquisition.  There can be no assurance, however, that this assumption is correct or that the businesses of the Company and Gold Kist will be successfully integrated in a timely manner.

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Synergies of Gold Kist.  There can be no assurance that we will achieve anticipated synergies from our acquisition of Gold Kist.

We consummated the Gold Kist acquisition with the expectation that it will result in beneficial synergies, such as cost savings and enhanced growth.  Success in realizing these benefits and the timing of this realization depend upon the successful integration of the operations of Gold Kist into the Company, and upon general and industry-specific economic factors.  The integration of two independent companies is a complex, costly and time-consuming process.  The difficulties of combining the operations of the companies include, among others:
 
-  
Transitioning and preserving Gold Kist's customer, contractor, supplier and other important third-party relationships;
 
-  
Integrating corporate and administrative infrastructures;
 
-  
Coordinating sales and marketing functions;
 
-  
Minimizing the diversion of management's attention from ongoing business concerns;
 
-  
Coordinating geographically separate organizations; and
 
-  
Retaining key employees.
 
Even if we are able to effectively integrate the operations of Gold Kist into our existing operations and economic conditions remain stable, there can be no assurance that the anticipated synergies will be achieved.

Assumption of Unknown Liabilities in Acquisitions.  Assumption of unknown liabilities in acquisitions may harm our financial condition and operating results.

Acquisitions may be structured in such a manner that would result in the assumption of unknown liabilities not disclosed by the seller or uncovered during pre-acquisition due diligence.  For example, our acquisition of Gold Kist was structured as a stock purchase.  In that acquisition we assumed all of the liabilities of Gold Kist, including liabilities that may be unknown.  These obligations and liabilities could harm our financial condition and operating results.

Potential Acquisitions.  We intend to pursue opportunities to acquire complementary businesses, which could increase leverage and debt service requirements and could adversely affect our financial situation if we fail to successfully integrate the acquired business.

       We intend to pursue selective acquisitions of complementary businesses in the future.  Inherent in any future acquisitions are certain risks such as increasing leverage and debt service requirements and combining company cultures and facilities, which could have a material adverse effect on our operating results, particularly during the period immediately following such acquisitions.  Additional debt or equity capital may be required to complete future

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acquisitions, and there can be no assurance that we will be able to raise the required capital.  Furthermore, acquisitions involve a number of risks and challenges, including:
 
-  
Diversion of management's attention;
 
-  
The need to integrate acquired operations;
 
-  
Potential loss of key employees and customers of the acquired companies;
 
-  
Lack of experience in operating in the geographical market of the acquired business;
and
 
-  
An increase in our expenses and working capital requirements.
 
Any of these and other factors could adversely affect our ability to achieve anticipated cash flows at acquired operations or realize other anticipated benefits of acquisitions.
 
Foreign Operations Risks.  Our foreign operations pose special risks to our business and operations.
 
We have significant operations and assets located in Mexico and may participate in or acquire operations and assets in other foreign countries in the future.  Foreign operations are subject to a number of special risks, including among others:
 
-  
Currency exchange rate fluctuations;
 
-  
Trade barriers;
 
-  
Exchange controls;
 
-  
Expropriation; and
 
-  
Changes in laws and policies, including those governing foreign-owned operations.
 
Currency exchange rate fluctuations have adversely affected us in the past.  Exchange rate fluctuations or one or more other risks may have a material adverse effect on our business or operations in the future.
 
Our operations in Mexico are conducted through subsidiaries organized under the laws of Mexico. We may rely in part on intercompany loans and distributions from our subsidiaries to meet our obligations.  Claims of creditors of our subsidiaries, including trade creditors, will generally have priority as to the assets of our subsidiaries over our claims.  Additionally, the ability of our Mexican subsidiaries to make payments and distributions to us will be subject to, among other things, Mexican law.  In the past, these laws have not had a material adverse effect on the ability of our Mexican subsidiaries to make these payments and distributions.  However, laws such as these may have a material adverse effect on the ability of our Mexican subsidiaries to make these payments and distributions in the future.

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Pilgrim's Pride Corporation

In October 2007, Mexico’s legislative bodies enacted La Ley del Impuesto Empresarial a Tasa Única (“IETU”), a new minimum corporation tax, which will be assessed on companies doing business in Mexico beginning January 1, 2008.  We are currently evaluating the anticipated impact that IETU will have on our business and operating results.  Because of IETU, there can be no assurance that we will be able to utilize the net operating loss carryovers and other deferred tax benefits generated in Mexico.  There can also be no assurance that IETU will not have a material adverse effect on our financial results.

Disruptions in International Markets and Distribution Channels.  Disruptions in international markets and distribution channels could adversely affect our business.

Historically, we have targeted international markets to generate additional demand for our chicken dark meat, specifically leg quarters, which are a natural by-product of our U.S. operations, given our concentration on prepared foods products and the U.S. customers’ general preference for white meat. As part of this initiative, we have created a significant international distribution network into several markets, including Eastern Europe, including Russia; the Far East, including China; and Mexico.  Our success in these markets could be, and in recent periods has been, adversely affected by disruptions in poultry export markets.  These disruptions are often caused by restrictions on imports of U.S.-produced poultry products imposed by foreign governments for a variety of reasons, including the protection of their domestic poultry producers and allegations of consumer health issues, and may also be caused by outbreaks of disease such as avian influenza, either in our own flocks or elsewhere in the world, and resulting changes in consumer preferences. There can be no assurance that one or more of these or other disruptions in our international markets and distribution channels will not adversely affect our business.

Extreme Weather and Natural Disasters.  Extreme weather or natural disasters could negatively impact our business.

Extreme weather or natural disasters, including droughts, floods, excessive cold or heat, hurricanes or other storms, could impair the health or growth of our flocks or interfere with our operations due to power outages, fuel shortages, damage to our production and processing facilities or disruption of transportation channels, among other things. Any of these factors could have an adverse effect on our financial results.

Government Regulation.  Regulation, present and future, is a constant factor affecting our business.

Our operations are subject to federal, state and local governmental regulation, including in the health, safety and environmental areas.  We anticipate increased regulation by various agencies concerning food safety, the use of medication in feed formulations and the disposal of poultry by-products and wastewater discharges.
 
        Also, changes in laws or regulations or the application thereof may lead to government enforcement actions and the resulting litigation by private litigants.  We are aware of an industry-wide investigation by the Wage and Hour Division of the U.S. Department of Labor to ascertain compliance with various wage and hour issues, including the compensation of employees for the
 
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Pilgrim's Pride Corporation

time spent on such activities such as donning and doffing work equipment.  We have been named a defendant in a number of related suits brought by employees.  Due, in part, to the government investigation and the recent U.S. Supreme Court decision in IBP, Inc. v. Alvarez, it is possible that we may be subject to additional employee claims.
        Unknown matters, new laws and regulations, or stricter interpretations of existing laws or regulations may materially affect our business or operations in the future.

Immigration Legislation and Enforcement New immigration legislation or increased enforcement efforts in connection with existing immigration legislation could cause our costs of doing business to increase, cause us to change the way in which we do business or otherwise disrupt our operations.

Immigration reform continues to attract significant attention in the public arena and the United States Congress.  If new federal immigration legislation is enacted or if states in which we do business enact immigration laws, such laws may contain provisions that could make it more difficult or costly for us to hire United States citizens and/or legal immigrant workers.  In such case, we may incur additional costs to run our business or may have to change the way we conduct our operations, either of which could have a material adverse effect on our business, operating results and financial condition.  Also, despite our past and continuing efforts to hire only United States citizens and/or persons legally authorized to work in the United States, increased enforcement efforts with respect to existing immigration laws by governmental authorities may disrupt a portion of our workforce or our operations at one or more of our facilities, thereby negatively impacting our business.

Control of Voting Stock Control over the Company is maintained by members of the family of Lonnie "Bo" Pilgrim.

As described in more detail in Item 12. "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters," through two limited partnerships and related trusts and voting agreements, Lonnie "Bo" Pilgrim, Patricia R. Pilgrim, his wife, and Lonnie Ken Pilgrim, his son, control 62.225% of the voting power of our outstanding common stock.  Accordingly, they control the outcome of all actions requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of the Company or its assets.  This ensures their ability to control the foreseeable future direction and management of the Company.  In addition, an event of default under certain agreements related to our indebtedness will occur if Lonnie "Bo" Pilgrim and certain members of his family cease to own at least a majority of the voting power of the outstanding common stock.

Item 1B.  Unresolved Staff Comments

None.

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Pilgrim's Pride Corporation

Item 2.  Properties

Operating Facilities

We operate 34 poultry processing plants in the U.S.  Of this total, 33 process chicken and are located in Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, North Carolina, South Carolina, Tennessee, Texas, Virginia, and West Virginia.  We have one turkey processing plant in Pennsylvania, one chicken processing plant in Puerto Rico and three chicken processing plants in Mexico.
 
The U.S. chicken processing plants have weekly capacity to process 42.5 million broilers and operated at 92.8% of capacity in fiscal 2007.
 
Our turkey plant has the weekly capacity to process 0.2 million birds under current inspection and line configurations and operates at 94% of capacity.  Our Mexico facilities have the capacity to process 3.2 million broilers per week and operated at 89% of capacity in fiscal 2007.  Our Puerto Rico processing plant has the capacity to process 0.3 million birds per week based on one eight-hour shift per day.  For segment reporting purposes, we include Puerto Rico with our U.S. operations.
 
In the U.S., the processing plants are supported by 42 hatcheries, 31 feed mills and 12 rendering plants.  The hatcheries, feed mills and rendering plants operated at 85%, 84% and 76% of capacity, respectively, in fiscal 2007.  In Puerto Rico, the processing plant is supported by one hatchery and one feed mill which operated at 82% and 50% of capacity, respectively, in fiscal 2007.  In Mexico, the processing plants are supported by six hatcheries, four feed mills and two rendering facilities.  The Mexico hatcheries, feed mills and rendering facilities operated at 97%, 80% and 70% of capacity, respectively, in fiscal 2007.
 
We also operate twelve prepared foods plants.  These plants are located in Alabama, Georgia, Louisiana, Pennsylvania, South Carolina, Tennessee, Texas and West Virginia.  These plants have the capacity to produce approximately 1,545 million pounds of further processed product per year and in fiscal 2007 operated at approximately 87% of capacity based on the current product mix and six-day production at most facilities and 24/7 production at two facilities.

Other Facilities and Information

We own a partially automated distribution freezer located outside of Pittsburg, Texas, which includes 125,000 square feet of storage area.  We operate a commercial egg operation and farm store in Pittsburg, Texas, a commercial feed mill in Mt. Pleasant, Texas and a pork grow-out operation in Jefferson, Georgia. We own office buildings in Pittsburg, Texas and Atlanta, Georgia, which house our executive offices, our Logistics and Customer Service offices and our general corporate functions as well as an office building in Mexico City, which houses our Mexican marketing offices, and an office building in Broadway, Virginia, which houses additional sales and marketing, research and development, and support activities.  We lease offices in Dallas, Texas and Duluth, Georgia, which house additional sales and marketing and support activities.

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Pilgrim's Pride Corporation

We have 13 regional distribution centers located in Arizona, Florida, Iowa, Mississippi, Ohio, Tennessee, Texas, and Utah, five of which we own and eight of which we lease.
 
Most of our domestic property, plant and equipment is pledged as collateral on our long-term debt and credit facilities.  See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”


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Pilgrim's Pride Corporation

Item 3.  Legal Proceedings

On July 1, 2002, three individuals, on behalf of themselves and a putative class of chicken growers, filed their original class action complaint against the Company in the United States District Court for the Eastern District of Texas, Texarkana Division, styled “Cody Wheeler, et al. vs. Pilgrim’s Pride Corporation.”  In their lawsuit, plaintiffs initially alleged that the Company violated the Packers and Stockyards Act (7 U.S.C. Section 192) (the “PSA”) and breached fiduciary duties allegedly owed to the plaintiff growers.  The plaintiffs also brought individual actions under the Packers and Stockyards Act alleging, among other things, breach of fiduciary duties and breach of contract.  On September 30, 2005, plaintiffs amended their lawsuit to join Tyson Foods, Inc. as a co-defendant.  Two additional former chicken growers were also added as plaintiffs to the lawsuit.  This amendment, which occurred 38 months after the lawsuit’s initial filing, virtually re-wrote most of the allegations.  Now the plaintiffs contend that the Company and Tyson are involved in a conspiracy to violate federal antitrust laws.  The plaintiffs’ initial allegations, although still contained in the amended lawsuit, are no longer the sole focus of the case.  On January 3, 2006, the Court entered an Order severing the plaintiffs’ Packers and Stockyards Act and antitrust claims.  The Court ordered that the plaintiffs may proceed with their Packers and Stockyards Act claims as set forth in Plaintiffs’ Third Amended Complaint.  The Court also ordered that the plaintiffs may proceed with their respective antitrust claims asserted against the Company and Tyson in a separate cause of action styled “Cody Wheeler, et al vs. Pilgrim’s Pride Corporation, et al.”  On March 6, 2006, the plaintiffs filed their motion for class certification in the original lawsuit.  Pilgrim’s Pride attacked the plaintiffs’ class certification brief on several grounds, and ultimately the plaintiffs voluntarily withdrew their Motion for Class Certification on May 26, 2006.  As a result, the Court canceled the class certification hearing and on June 2, 2006 the Court entered an Order withdrawing Plaintiffs’ Motion for Class Certification and prohibiting the plaintiffs from filing any additional class-action claims against Pilgrim’s Pride in this lawsuit.  Additionally, the two former growers who joined the lawsuit on September 30, 2005 withdrew from the case.  On March 30, 2007, the Court issued an order granting in part and denying in part the Company’s pending motion for summary judgment.  In the order, the Court ruled that plaintiffs do not have to demonstrate an adverse effect on competition in order to prevail under the PSA.  This ruling is inconsistent with many other jurisdictions’ interpretation of the PSA.  The Court issued an order staying the lawsuit until the issue is decided by the Fifth Circuit.  On June 29, 2007, the Fifth Circuit accepted the appeal.  The matter is currently being briefed by the parties.  The Company intends to defend vigorously against the plaintiffs’ individual claims.  The Company does not expect this matter to have a material impact on its financial position, operations or liquidity.
 
        On January 3, 2006, an action styled "Cody Wheeler, et al. vs. Pilgrim's Pride Corporation, et al.," arising out of the original Wheeler litigation described above, was filed in the United States District Court for the Eastern District of Texas, Texarkana Division.  The lawsuit was filed by the three original plaintiffs and a former grower, both in their individual capacities and on behalf of a putative class of chicken growers.  In the lawsuit, the four plaintiffs allege that the Company and Tyson are involved in a conspiracy to violate federal antitrust laws.  On September 28, 2007, the court issued an order denying plaintiffs’ request to certify a class action.  Plaintiffs filed the Petition for Permission to Appeal the District Court’s Order on October 15, 2007 with the U.S. Court of Appeals for the Fifth Circuit.  The Company intends to defend vigorously any attempts by the Plaintiffs to reverse the District Court’s Order denying certification to the matter as a class

35

Pilgrim's Pride Corporation

action and the merits of the four plaintiffs’ individual claims.  The Company does not expect this matter to have a material impact on its financial position, operations or liquidity.
 
On December 31, 2003, we were served with a purported class action complaint styled “Angela Goodwin, Gloria Willis, Johnny Gill, Greg Hamilton, Nathan Robinson, Eddie Gusby, Pat Curry, Persons Similarly Situated v. ConAgra Poultry Company and Pilgrim’s Pride, Incorporated” in the United States District Court, Western District of Arkansas, El Dorado Division, alleging racial and age discrimination at one of the facilities we acquired from ConAgra.  Two of the named plaintiffs, Greg Hamilton and Gloria Willis, were voluntarily dismissed from this action.  The Company deposed all of the remaining plaintiffs and filed individual motions for summary judgment against each of them.  On March 28, 2006, the Court issued Orders concerning the motions for summary judgment.  It granted the Company’s motion against Plaintiff Robert Nelson and dismissed all of his claims in their entirety based on the theory of judicial estoppel.  The Court heard oral argument on the Plaintiffs’ Class Certification Motion on August 11, 2006, and the Court took the matter under advisement.  On May 15, 2007, the Court issued its order denying Plaintiffs’ Motion for Class Certification in its entirety.  The plaintiffs subsequently withdrew their petition to appeal to the Eight Circuit Court of Appeals.  Thus, the Court’s order denying plaintiffs’ class certification motion stands as a final, binding judgment.  On July 18, 2007, the Court ordered the remaining six individual Plaintiffs to file their own individual lawsuits without any class action allegations.  In contravention of the Court’s instructions, Plaintiffs’ counsel added new and/or dismissed allegations to each new Complaint.  On October 1, 2007, Pilgrim’s moved to strike those allegations and filed its Answers subject to same.  The Court entered an Order striking the errant allegations, and the Plaintiffs are in the process of redrafting their individual Complaints.  The Company intends to re-file its already completed motions for summary judgment after the individual Complaints are re-filed.   The Company intends to defend vigorously against the Plaintiffs’ individual claims.  The Company believes it has meritorious defenses to these individual claims and intends to vigorously defend these claims.  The ultimate liability with respect to these claims cannot be determined at this time; however, the Company does not expect this matter to have a material impact on its financial position, operations or liquidity.
 
The Wage and Hour Division of the U.S. Department of Labor conducted an industry wide investigation to ascertain compliance with various wage and hour issues, including the compensation of employees for the time spent on such activities such as donning and doffing work equipment.  Due, in part, to the government investigation and the recent U.S. Supreme Court decision in IBP, Inc. v. Alvarez, employees have brought claims against the Company.  The claims filed against the Company as of the date of this Annual Report include:  “Juan Garcia, et al. v. Pilgrim’s Pride Corporation, a/k/a Wampler Foods, Inc.”, filed in Pennsylvania state court on January 27, 2006 and subsequently removed to the U.S. District Court for the Eastern District of Pennsylvania; “Esperanza Moya, et al. v. Pilgrim’s Pride Corporation and Maxi Staff, LLC”, filed March 23, 2006 in the Eastern District of Pennsylvania; “Barry Antee, et al. v. Pilgrim’s Pride Corporation” filed April 20, 2006 in the Eastern District of Texas; “Stephania Aaron, et al. v. Pilgrim’s Pride Corporation” filed August 22, 2006 in the Western District of Arkansas; “Salvador Aguilar, et al. v. Pilgrim’s Pride Corporation” filed August 23, 2006 in the Northern District of Alabama; “Benford v. Pilgrim’s Pride Corporation” filed November 2, 2006 in the Northern District of Alabama; and “Porter v. Pilgrim’s Pride Corporation” filed December 7, 2006 in the Eastern District of Tennessee; “Freida Brown, et al

36

Pilgrim's Pride Corporation

v. Pilgrim’s Pride Corporation” filed March 14, 2007 in the Middle District of Georgia, Athens Division; “Roy Menser, et al v. Pilgrim’s Pride Corporation” filed February 28, 2007 in the Western District of Paducah, Kentucky; “Victor Manuel Hernandez v. Pilgrim’s Pride Corporation” filed January 30, 2007 in the Northern District of Georgia, Rome Division; “Angela Allen et al v. Pilgrim’s Pride Corporation” filed March 27, 2007 in United States District Court, Middle District of Georgia, Athens Division;  Daisy Hammond and Felicia Pope v. Pilgrim’s Pride Corporation, in the Gainesville Division, Northern District of Georgia, filed on June 6, 2007; Gary Price v. Pilgrim’s Pride Corporation, in the U.S. District Court for the Northern District of Georgia, Atlanta Division, filed on May 21, 2007; and Kristin Roebuck et al v. Pilgrim’s Pride Corporation, in the U.S. District Court, Athens, Georgia, Middle District, filed on May 23, 2007.  The plaintiffs generally purport to bring a collective action for unpaid wages, unpaid overtime wages, liquidated damages, costs, attorneys' fees, and declaratory and/or injunctive relief and generally allege that they are not paid for the time it takes to either clear security, walk to their respective workstations, don and doff protective clothing, and/or sanitize clothing and equipment.  The presiding judge in the consolidated action in El Dorado issued an initial Case Management order on July 9, 2007.  Plaintiffs’ counsel filed a Consolidated Amended Complaint and the parties filed a Joint Rule 26(f) Report.   A complete scheduling order has not been issued, and discovery has not yet commenced.  Plaintiffs have filed a consolidated motion for conditional certification in the consolidated case.  On October 12, 2007, Pilgrim’s filed its response in opposition to that motion.  As of the date of this Annual Report, the following suits have been filed against Gold Kist, now merged into Pilgrim’s Pride Corporation, which make one or more of the allegations referenced above: Merrell v. Gold Kist, Inc., in the U.S. District Court for the Northern District of Georgia, Gainesville Division, filed on December 21, 2006; Harris v. Gold Kist, Inc., in the U.S. District Court for the Northern District of Georgia, Newnan Division, filed on December 21, 2006; Blanke v. Gold Kist, Inc., in the U.S. District Court for the Southern District of Georgia, Waycross Division, filed on December 21, 2006; Clarke v. Gold Kist, Inc., in the U.S. District Court for the Middle District of Georgia, Athens Division, filed on December 21, 2006; Atchison v. Gold Kist, Inc., in the U.S. District Court for the Northern District of Alabama, Middle Division, filed on October 3, 2006;  Carlisle v. Gold Kist, Inc., in the U.S. District Court for the Northern District of Alabama, Middle Division, filed on October 2, 2006; Benbow v. Gold Kist, Inc., in the U.S. District Court for the District of South Carolina, Columbia Division, filed on October 2, 2006; Bonds v. Gold Kist, Inc., in the U.S. District Court for the Northern District of Alabama, Northwestern Division, filed on October 2, 2006.  On April 23, 2007, Pilgrim’s filed a Motion to Transfer and Consolidate with the Judicial Panel on Multidistrict Litigation (“JPML”) requesting that all of the pending Gold Kist cases be consolidated into one case.  Pilgrim’s withdrew its Motion subject to the Plaintiffs’ counsel’s agreement to consolidate the seven separate actions into the pending Benbow case by dismissing those lawsuits and refiling/consolidating them into the Benbow action.  Motions to Dismiss have been filed in all of the pending seven cases, and all of these cases have been formally dismissed.  Pursuant to the Court’s April 16, 2007 Order, the parties reached agreement on the terms of class notice and the Court granted conditional class certification.  Discovery has recently been initiated.  The Company intends to assert a vigorous defense to the litigation.  The amount of ultimate liability with respect to any of these cases cannot be determined at this time.
 
We are subject to various other legal proceedings and claims, which arise in the ordinary course of our business.  In the opinion of management, the amount of ultimate liability with
 
37

Pilgrim's Pride Corporation
 
respect to these actions will not materially affect our financial position or results of operations.  See Note J “Commitments and Contingencies” of Item 8 “Financial Statements and Supplementary Data”, which is incorporated herein by reference.

Item 4.  Submission of Matters to a Vote of Security Holders

None.


38

Pilgrim's Pride Corporation


Item 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 

Quarterly Stock Prices and Dividends

High and low prices of and dividends relating to the Company’s common stock for the periods indicated were:

 
Fiscal 2007 Prices
 
Fiscal 2006 Prices
 
Dividends
 
Fiscal Quarter
High
Low
 
High
Low
 
2007
2006
 
                   
PPC Common Stock
         
First
  $ 29.54     $ 23.64     $ 37.75     $ 30.11     $ .0225     $ 1.0225  
Second
   
33.19
     
28.59
     
27.00
     
20.95
     
.0225
     
.0225
 
Third
   
38.17
     
32.77
     
28.09
     
20.85
     
.0225
     
.0225
 
Fourth
   
40.59
     
32.29
     
29.00
     
23.11
     
.0225
     
.0225
 
           

Holders

The Company’s common stock (ticker symbol “PPC”) is traded on the New York Stock Exchange.  The Company estimates there were approximately 35,000 holders (including individual participants in security position listings) of the Company’s common stock as of November 9, 2007.

Dividends

Starting in the first quarter of fiscal 2006, the Company’s Board of Directors has declared quarterly cash dividends of $0.0225 per share of common stock.  Additionally, in the first quarter of fiscal 2006, the Company’s Board of Directors declared a special $1.00 dividend per share of common stock.  Prior to fiscal 2006 and with the exception of two quarters in 1993, the Company's Board of Directors declared cash dividends of $0.015 per share of common stock (on a split adjusted basis) every fiscal quarter since the Company's initial public offering in 1986.  Payment of future dividends will depend upon the Company's financial condition, results of operations and other factors deemed relevant by the Company's Board of Directors, as well as any limitations imposed by lenders under the Company's credit facilities.  The Company's revolving credit facility and revolving/term borrowing facility currently limit dividends to a maximum of $26 million per year.  See Note E of the notes to Consolidated Financial Statements included in Item 15 for additional discussions of the Company's credit facilities.

39

Pilgrim's Pride Corporation

Issuer Purchases of Equity Security in Fiscal 2007

The Company did not repurchase any of its equity securities in fiscal 2007.

Total Return on Registrant’s Common Equity

The following graphs compare the performance of the Company with that of the Russell 2000 composite index and a peer group of companies with the investment weighted on market capitalization. The total cumulative return on investment (change in the year-end stock price plus reinvested dividends) for each of the periods for the Company, the Russell 2000 composite index and the peer group is based on the stock price or composite index at the beginning of the applicable period.  Companies in the peer group index include Cagle's, Inc., Sanderson Farms Inc., Hormel Foods Corp., Smithfield Foods Inc. and Tyson Foods Inc.
 
The first graph covers the period from November 21, 2003 through September 29, 2007 and shows the performance of the Company's single class of common stock. On November 21, 2003, each share of the Company's then outstanding Class A common stock and Class B common stock was reclassified into one share of new common stock, which is now the only authorized class of the Company's common stock.
 
The second graph covers the five fiscal year period ending September 29, 2007 and shows the performance of the Company's Class A and Class B shares after giving effect to the reclassification into the Company's single class of common stock on November 21, 2003 based on a one to one exchange ratio.  The third graph covers the period from September 29, 2002 through November 20, 2003, the last date on which the Company's Class A and Class B shares traded on the New York Stock Exchange prior to reclassification into a single new class of shares of common stock.
 
The stock price performance represented by these graphs is not necessarily indicative of future stock performance.
 

Comparison of 46 Month Cumulative


 
 
11/21/03
10/2/04
10/1/05
9/30/06
9/29/07
             
Pilgrim's Pride Corporation
100.00
190.89
254.14
197.18
251.08
Russell 2000
 
100.00
113.10
129.73
142.61
160.21
Peer Group
 
100.00
112.59
131.40
127.35
140.41

41

Pilgrim's Pride Corporation
 
Comparison of 5 Year Cumulative
 
 
                                                                                                                              
 
9/28/02
9/27/03
11/20/03
10/2/04
10/1/05
9/30/06
9/29/07
               
Pilgrim's Pride Corporation Class A(1)
100.00
180.96
195.33
383.25
510.23
395.88
504.10
Pilgrim's Pride Corporation Class B(1)
100.00
140.92
150.72
298.92
397.96
308.77
393.18
Russell 2000
100.00
136.01
146.80
166.94
191.49
210.50
236.47
Peer Group
100.00
119.32
132.39
147.39
172.02
166.72
183.81


(1)  
 On November 21, 2003, each share of the Company’s then outstanding Class A common stock and Class B common stock was reclassified into one share of new common stock, which is now the only authorized class of the Company’s common stock.

42

Pilgrim's Pride Corporation

 
 
 
 
 
Comparison of 13 Month Cumulative
 
 
 
 
9/28/02
9/27/03
11/20/03
       
Pilgrim's Pride Corporation Class A(1)
100.00
180.96
195.33
Pilgrim's Pride Corporation Class B(1)
100.00
140.92
150.72
Russell 2000
100.00
136.01
146.80
Peer Group
100.00
119.32
132.39


(1)  On November 21, 2003, each share of the Company’s then outstanding Class A common stock and Class B common stock was reclassified into one share of new common stock, which is now the only authorized class of the Company’s common stock.
 
 
43

Pilgrim's Pride Corporation

Item 6. Selected Financial Data
 
(In thousands, except ratios and per share data)
 
Eleven Years Ended September 29, 2007
 
   
2007(a)
 
 
 
2006
     
2005
     
2004(b)(c)
 
                           
(53 weeks)
 
Income Statement Data:
                             
Net sales
  $ 7,598,599       $ 5,235,565       $ 5,666,275       $ 5,363,723  
Gross profit(e)
   
591,538
       
297,600
       
745,199
       
529,039
 
Operating income(e)
   
232,537
       
3,002
       
435,812
       
265,314
 
Interest expense, net
   
125,757
       
40,553
       
43,932
       
52,129
 
Loss on early extinguishment of debt
   
26,463
       
--
       
--
       
--
 
Income (loss) before income taxes(e)
   
91,607
        (36,317 )      
403,523
       
208,535
 
Income tax expense (benefit)(f)
   
44,590
        (2,085 )      
138,544
       
80,195
 
Net income (loss)(e)
   
47,017
        (34,232 )      
264,979
       
128,340
 
Ratio of earnings to fixed charges(g)
    1.57 x    
(f)
        7.19 x       4.08 x
Per Common Share Data:(h)
                                     
Net income (loss)
  $ 0.71       $ (0.51 )     $ 3.98       $ 2.05  
Cash dividends
   
0.09
       
1.09
       
0.06
       
0.06
 
Book value
   
17.61
       
16.79
       
18.38
       
13.87
 
Balance Sheet Summary:
                                     
Working capital
  $ 379,132       $ 528,836       $ 404,601       $ 383,726  
Total assets
   
3,774,236
       
2,426,868
       
2,511,903
       
2,245,989
 
Notes payable and current maturities of long-term debt
   
2,872
       
10,322
       
8,603
       
8,428
 
Long-term debt, less current maturities
   
1,318,558
       
554,876
       
518,863
       
535,866
 
Total stockholders’ equity
   
1,172,221
       
1,117,327
       
1,223,598
       
922,956
 
Cash Flow Summary:
                                     
Operating cash flow
  $ 463,964       $ 30,382       $ 493,073       $ 272,404  
Depreciation & amortization(i)
   
204,903
       
135,133
       
134,944
       
113,788
 
Purchases of investment securities
   
125,045
       
318,266
       
305,458
       
--
 
Proceeds from sale or maturity of investment securities
   
208,676
       
490,764
       
--
       
--
 
Capital expenditures
   
172,323
       
143,882
       
116,588
       
79,642
 
Business acquisitions, net of equity consideration(a)(b) (d)
   
1,102,069
       
--
       
--
       
272,097
 
Financing activities, net provided by (used in)
   
630,229
        (38,750 )      
18,860
       
96,665
 
Other Data:
                                     
EBITDA(j)
  $ 411,073       $ 136,763       $ 580,078       $ 372,501  
Key Indicators (as a percentage of net sales):
                                     
Gross profit(e)
   
7.8
 
%
   
5.7
 
%
   
13.2
 
%
    9.9 %
Selling, general and
administrative expenses
   
4.7
 
%
   
5.6
 
%
   
5.5
 
%
    4.8 %
Operating income (e)
   
3.1
 
%
   
0.8
 
%
   
7.7
 
%
    4.9 %
Interest expense, net
   
1.6
 
%
   
1.0
 
%
   
0.9
 
%
    1.0 %
Net income (loss)(e)
   
0.6
 
%
    (0.7 )
%
   
4.7
 
%
    2.4 %

44

Pilgrim's Pride Corporation

Eleven Years Ended September 29, 2007
 
2003
     
2002
     
2001(d)
     
2000
     
1999
     
1998
     
1997
 
                               
(53 weeks)
                 
                                                   
$ 2,619,345       $ 2,533,718       $ 2,214,712       $ 1,499,439       $ 1,357,403       $ 1,331,545       $ 1,277,649  
 
200,483
       
165,165
       
213,950
       
165,828
       
185,708
       
136,103
       
114,467
 
 
63,613
       
29,904
       
94,542
       
80,488
       
109,504
       
77,256
       
63,894
 
 
37,981
       
32,003
       
29,342
       
17,779
       
17,666
       
20,148
       
22,075
 
 
--
       
--
       
1,433
       
--
       
--
       
--
       
--
 
 
63,235
       
1,910
       
61,861
       
62,786
       
90,904
       
56,522
       
43,824
 
 
7,199
        (12,425 )      
20,724
       
10,442
       
25,651
       
6,512
       
2,788
 
 
56,036
       
14,335
       
41,137
       
52,344
       
65,253
       
50,010
       
41,036
 
  2.24 x    
(g)
        2.13 x       3.04 x       4.33 x       2.96 x       2.57 x
                                                                 
$ 1.36       $ 0.35       $ 1.00       $ 1.27       $ 1.58       $ 1.21       $ 0.99  
 
0.06
       
0.06
       
0.06
       
0.06
       
0.045
       
0.04
       
0.04
 
 
10.46
       
9.59
       
9.27
       
8.33
       
7.11
       
5.58
       
4.41
 
                                                                 
$ 211,119       $ 179,037       $ 203,350       $ 124,531       $ 154,242       $ 147,040       $ 133,542  
 
1,257,484
       
1,227,890
       
1,215,695
       
705,420
       
655,762
       
601,439
       
579,124
 
 
2,680
       
3,483
       
5,099
       
4,657
       
4,353
       
5,889
       
11,596
 
 
415,965
       
450,161
       
467,242
       
165,037
       
183,753
       
199,784
       
224,743
 
 
446,696
       
394,324
       
380,932
       
342,559
       
294,259
       
230,871
       
182,516
 
                                                                 
$ 98,892       $ 98,113       $ 87,833       $ 130,803       $ 81,452       $ 85,016       $ 49,615  
 
74,187
       
70,973
       
55,390
       
36,027
       
34,536
       
32,591
       
29,796
 
 
--
       
--
       
--
       
--
       
--
       
--
       
--
 
 
--
       
--
       
--
       
--
       
--
       
--
       
--
 
 
53,574
       
80,388
       
112,632
       
92,128
       
69,649
       
53,518
       
50,231
 
 
4,499
       
--
       
239,539
       
--
       
--
       
--
       
--
 
  (39,767 )       (21,793 )      
246,649
        (24,769 )       (19,634 )       (32,498 )      
348
 
                                                                 
$ 173,926       $ 103,469       $ 146,166       $ 115,356       $ 142,043       $ 108,268       $ 94,782  
                                                                 
 
7.7
 
%
   
6.5
 
%
   
9.7
 
%
   
11.1
 
%
   
13.7
 
%
   
10.2
 
%
    9.0 %
 
5.2
 
%
   
5.3
 
%
   
5.4
 
%
   
5.7
 
%
   
5.6
 
%
   
4.4
 
%
    4.0 %
 
2.4
 
%
   
1.2
 
%
   
4.3
 
%
   
5.4
 
%
   
8.1
 
%
   
5.8
 
%
    5.0 %
 
1.5
 
%