Building a world-class food company




PILGRIM’S PRIDE CORPORATION 2007 ANNUAL REPORT
Corporate and                                                  Corporate Office
Shareholder Information                   ...
Pilgrim’s Pride Facility Locations




Chicken Processing - Fresh   Feed Mills
Aibonito, Puerto Rico        Ambrose, Georg...
Dear Fellow Shareholders:

Fscal 2007 proved to be a year of sgnfcant change for Plgrm’s Prde Corporaton as we completed
t...
In addton, our export busness contnues to grow, accountng for approxmately 10% of our U.S.
chcken sales. Chna emerged as a...
UNITED STATES
                           SECURITIES AND EXCHANGE COMMISSION

                                          Was...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
Indcate by check mark f the regstrant s a well-known seasoned ssuer, as def...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
PILGRIM’S PRIDE CORPORATION
                                            FOR...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
                                                 PART I

Item 1.    Busines...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
    On November 23, 2003, we completed the purchase of all the outstandng s...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
    Emphasize customer-driven research and technology. We have a long-stand...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
   natural by-product of our U.S. operatons gven our concentraton on prepar...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
Our chcken and turkey products are sold prmarly to:

   (1) Foodservce cust...
PILGRIM’S PRIDE CORPORATION
September 29, 2007

                                                                          ...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
(b)     The Export and Other category hstorcally ncluded the sales of certa...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
(b)    The Export and Other category hstorcally ncluded the sales of certan...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
compettors. The majorty of these products are sold pursuant to agreements w...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
rates. Accordng to Technomc Informaton Servces, food-away-from-home expendt...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
    Foodservice – Fresh Chicken. We produce and market fresh, refrgerated c...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
    Export and Other Chicken Products. Our export and other chcken products...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
n dstrbuton logstcs. Poultry sales from our regonal dstrbuton centers are n...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
                                               MEXICO

Background

   The M...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
                                              GENERAL

Competitive Conditio...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
agences n Mexco. Our chcken processng facltes n the U.S. are subject to on-...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
    We ncluded the certfcatons of the Co-Prncpal Executve Offcers and the C...
PILGRIM’S PRIDE CORPORATION
September 29, 2007
   Richard A. Cogdill has served as Chef Fnancal Offcer, Secretary and Trea...
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  1. 1. Building a world-class food company PILGRIM’S PRIDE CORPORATION 2007 ANNUAL REPORT
  2. 2. Corporate and Corporate Office Shareholder Information 4845 U.S. Hwy. 271 North P.O. Box 93 ANNUAL MEETING Pittsburg, Texas 75686 The Annual Meeting of Shareholders of Pilgrim’s Pride (903) 434-1000 Corporation will be held January 30, 2008, at (903) 856-7505 (fax) 11:00 a.m., CST at the company’s headquarters building, 4845 U.S. Hwy. 271 North, Pittsburg, Texas. National Sales Office FORM 10-K AND CEO/CFO CERTIFICATIONS Upon written request, we will provide without charge 2777 Stemmons Freeway a copy of our Form 10-K for the fiscal year ended Suite 850 September 29, 2007. Requests should be directed to: Dallas, Texas 75207-2268 (214) 920-2200 Shareholder Relations Officer (800) 824-1159 4845 U.S. Hwy. 271 North (214) 920-2396 (fax) P.O. Box 93 Pittsburg, Texas 75686 Web Site Our Form 10-K also is available on our Web site at www.pilgrimspride.com www.pilgrimspride.com. The most recent certifications by our Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits to our Form 10-K. We have also filed with the New York Stock Exchange the most recent Annual CEO Certification as required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual. Stock Exchange and Shareholders of Record STOCK EXCHANGE SYMBOLS New York Stock Exchange: NYSE Common Stock Ticker Symbol: PPC SHAREHOLDERS OF RECORD Approximately 35,000 holders of record (including individual participants in security position listings) as of November 19, 2007. Independent Auditors Ernst & Young LLP 2121 San Jacinto Street Dallas, Texas 75201 TRANSFER AGENT AND REGISTRAR Questions regarding stock holdings, certificate replacements/transfer, dividends, and address changes should be directed to: Computershare Investor Services, LLC 2 North LaSalle Street Chicago, Illinois 60602 by telephone: (312) 360-5463 by email: www.computershare.com/contactus web page: www.computershare.com DUPLICATE MAILINGS If you receive duplicate mailings because you have more than one account listing, you may wish to save Pilgrim’s Pride Corporation money by consolidating your accounts. Please phone or write to the agent at the above address.
  3. 3. Pilgrim’s Pride Facility Locations Chicken Processing - Fresh Feed Mills Aibonito, Puerto Rico Ambrose, Georgia Crossville, Alabama Athens, Alabama Arcadia, Louisiana Cullman, Alabama Athens, Georgia (2) Athens, Georgia De Queen, Arkansas Batesville, Arkansas Atkins, Arkansas Douglas, Georgia P Franconia Boaz, Alabama Batesville, Arkansas El Dorado, Arkansas New Oxford T Broadway, Virginia Bonlee, North Carolina Enterprise, Alabama Oskaloosa D Salt Lake City D Canton, Georgia Calhoun, Georgia Farmerville, Louisiana Moorefield PC Carrollton, Georgia Canton, Georgia Ft. Payne, Alabama Broadway C Cincinnati D Chattanooga, Tennessee Chattanooga, Tennessee Gainesville, Georgia Clinton, Arkansas Colón, Mexico Jasper, Alabama Dallas, Texas Commerce, Georgia Live Oak, Florida C Siler City Dalton, Georgia El Dorado, Arkansas Mayfield, Kentucky (2) Mayfield C Sanford C De Queen, Arkansas Enterprise, Alabama Moorefield, West Virginia Chicken Processing - Fresh D Nashville C C Marshville P C Chattanooga C Batesville Douglas, Georgia Falkville, Alabama Moulton, Alabama Prepared Foods P C Dalton C Clinton C Athens C Ellijay P C Sumter El Dorado, Arkansas Gainesville, Georgia Nacogdoches, Texas Turkey Processing - Fresh C Guntersville C Gainesville T C Russellville C Canton P Elberton Ellijay, Georgia Guntersville, Alabama Nashville, Arkansas Distribution Center P C Boaz C Athens D C De Queen C Carrollton Enterprise, Alabama Harrisonburg, Virginia Natchitoches, Louisiana Phoenix D C El Dorado World Headquarters D P C Mt. Pleasant Farmerville, Louisiana Hope, Arkansas Pittsburg, Texas (3) Pittsburg P C Farmerville C Douglas D Arlington Gainesville, Georgia Las Piedras, Puerto Rico Querétaro, Mexico (5) P Bossier City D Jackson P C Dallas C Natchitoches El Paso C Enterprise D Guntersville, Alabama Live Oak, Florida Ranburne, Alabama P C Nacogdoches P Waco C Live Oak C Lufkin Live Oak, Florida Many, Louisiana Russellville, Alabama Los Cues, Mexico Mayfield, Kentucky Saltillo, Mexico Houston D Lufkin, Texas Moorefield, West Virginia San Luis Potosí, Mexico San Antonio D Plant City D Marshville, North Carolina Mt. Pleasant, Texas Siler City, North Carolina Pompano Beach D Mayfield, Kentucky Nacogdoches, Texas Staley, North Carolina Moorefield, West Virginia Nashville, Arkansas Sumter, South Carolina Mt. Pleasant, Texas (2) Pittsburg, Texas Talking Rock, Georgia Nacogdoches, Texas Querétaro, Mexico Talmo, Georgia Reynosa D Natchitoches, Louisiana Saltillo, Mexico Monterrey Torreón D D Russellville, Alabama San Luis Potosí, Mexico Distribution Centers San Luis Potosí, Mexico Staley, North Carolina Aguascalientes, Mexico Aibonito Ciudad Victoria DC D Sanford, North Carolina Sumter, South Carolina Aibonito, Puerto Rico Siler City, North Carolina Teneha, Texas D C San Luis Potosí Arlington, Texas Aguascalientes D Tampico D Sumter, South Carolina Tuscumbia, Alabama Salt Lake City, Utah Cincinnati, Ohio Tepeji del Rio, Mexico Waco, Georgia D Guadalajara D Querétaro San Antonio, Texas Ciudad Victoria, Mexico Puerto Vallarta C Los Cues D D Poza Rica Wingate, North Carolina San Luis Potosí, Mexico (2) D C Tepeji del Rio Coatzacoalcos, Mexico Tampico, Mexico Morelia D Veracruz D Prepared Foods Processing El Paso, Texas D Tlalnepantla Tepeji del Rio, Mexico Hatcheries Boaz, Alabama Guadalajara, Mexico Coatzacoalcos Tlalnepantla, Mexico (2) D Bossier City, Louisiana Aibonito, Puerto Rico Houston, Texas Torreón, Mexico Chattanooga, Tennessee Albertville, Alabama Jackson, Mississippi Veracruz, Mexico Dallas, Texas Athens, Georgia Monterrey, Mexico Elberton, Georgia Atkins, Arkansas Morelia, Mexico Farmerville, Louisiana Batesville, Arkansas Mt. Pleasant, Texas Administration and Sales Franconia, Pennsylvania Bowdon, Georgia Nashville, Tennessee Aibonito, Puerto Rico Moorefield, West Virginia Broadway, Virginia Oskaloosa, Iowa Atlanta, Georgia Mt. Pleasant, Texas Calhoun, Georgia Phoenix, Arizona Bentonville, Arkansas Nacogdoches, Texas Canton, Georgia Plant City, Florida Dallas, Texas Sumter, South Carolina Center, Texas Pompano Beach, Florida Mexico City, Mexico Waco, Texas Choudrant, Louisiana Poza Rica, Mexico Pittsburg, Texas Cohutta, Georgia Puerto Vallarta, Mexico Querétaro, Mexico Commerce, Georgia Querétaro, Mexico Rockwall, Texas Turkey Processing - Fresh Concord, North Carolina Reynosa, Mexico Timberville, Virginia New Oxford, Pennsylvania
  4. 4. Dear Fellow Shareholders: Fscal 2007 proved to be a year of sgnfcant change for Plgrm’s Prde Corporaton as we completed the largest acquston n our 61-year hstory and returned to proftablty on the strength of hgher market prcng, strong export demand, cost savngs and growth n our consumer retal busness. Our $1.2 bllon purchase of Gold Kst Inc. n December 2006 created the world’s largest chcken company. Whle the ntegraton of Gold Kst has commanded a great deal of tme, attenton and resources over the past year, we beleve the acquston has postoned us for stronger growth n the years ahead by broadenng our geographc reach, expandng our customer base and strengthenng our product lne. By all accounts, the process of combnng Plgrm’s Prde and Gold Kst nto one organzaton wth a common culture and focus on the customer has been an overwhelmng success. Thanks to the hard work and commtment of our 55,000 employees n the Unted States, Puerto Rco and Mexco, we trpled our orgnal synergy target and delvered $150 mllon n annualzed cost savngs three months ahead of schedule. Whle we stll have a lot of work head of us, our employees deserve a lot of credt for achevng so much so quckly. Those cost savngs wll be mportant n the year ahead, as hgher feed-ngredent and fuel costs pose a sgnfcant challenge to our busness n 2008. Our costs for corn, soybean meal and other feed ngredents rose more than $600 mllon n fscal 2007, and current projectons for 2008 call for further ncreases. Growng demand for corn-based ethanol s fuelng much of these. Fortunately, we were able to overcome much of those cost ncreases n 2007 through hgher market prcng brought about by producton cutbacks by Plgrm’s Prde and several other poultry companes. Those cutbacks helped ncrease market prcng last wnter and nto the sprng, a tme when demand s seasonally low and prces are typcally weak. That strong prcng held nto the summer months, helpng Plgrm’s Prde return to proftablty n the second half of the year and, for the full 2007 fscal year, earn $47.0 mllon, or $0.71 a share, on record sales of $7.6 bllon. There were several notable achevements n fscal 2007: Our consumer retal segment contnued to post good growth as a result of ncreased penetraton of  supermarket meat and del cases and our growng role as a category management partner. For example, we have seen strong demand for a number of our wng products, ncludng our consumer-preferred Wng Dngs and Wng Zngs products, and we’re ganng busness wth customers as a result. Plgrm’s Prde’s foodservce busness turned n another good year as a result of growth n our  Top 10 accounts and contnued progress n school foodservce accounts, health care, mltary and other markets. We were successful n makng mprovements to the acqured Gold Kst product mx, upgradng  some of the commodty-type meat nto hgher-margn, value-added products. Ths s a key part of our growth strategy and an area n whch we have enjoyed good success over the years. We realgned the reportng structure wthn the operatons group so that we can delver mproved  servce to our customers and operate more effcently.
  5. 5. In addton, our export busness contnues to grow, accountng for approxmately 10% of our U.S. chcken sales. Chna emerged as an aggressve buyer of U.S. chcken and a number of smaller countres, ncludng Cuba, ncreased ther purchases. Plgrm’s Prde has a large and growng presence n many of these markets. And n 2007, our Mexco operatons returned to proftablty as a result of mproved prcng. We also faced our share of challenges over the past year. Despte favorable ndustry fundamentals and our return to proftablty n 2007, our net earnngs for the year came n below our own expectatons. Ths was mostly ted to operatonal neffcences, labor shortages and hgher fuel costs whch resulted n hgher producton and freght costs. Automaton wll be a key focus of our captal nvestment program n fscal 2008. We beleve ths nvestment, whch ncludes labor-reducng technology, wll enable us to move more products through our plants effcently and help allevate some of the challenges we faced n 2007 from a tght labor market and hgher nput costs. One thng s clear: we smply must fnd ways to operate more effcently, as nearly all of our costs are rsng. At Plgrm’s Prde, we are always huntng for ways to run our busness more cost-effectvely. In addton to our company-wde focus on process mprovement teams snce 1992, we have cross-organzatonal and synergy teams scourng every ste for new ways to take costs out of our busness. These teams have drlled down nto every aspect of our operatons, from sales and logstcs to processng and renderng. There s no queston that we are facng a tough – and volatle – operatng envronment. Lookng ahead, we beleve that managng our busness n ths envronment of expected volatlty s the greatest challenge facng us today, but one that we thnk s certanly achevable. It wll requre several actons. Frst, we must be very cautous n expandng the chcken supply. At Plgrm’s Prde, we have to be prudent n our decsons to ensure that we are able to manage our nput costs. Second, we must take advantage of every opportunty to effectvely manage our nput costs aganst our longer-term contracts. Thrd, we must keep open the lnes of communcaton wth our customers so they understand the challenges we face n such a volatle envronment and the mportance of workng together to address these ssues. And fnally, we must stay focused on drvng out costs and fndng ways to serve our customers better so that we can poston our company for sustaned, proftable growth n the future and create new value for our shareholders. We apprecate your contnued support and commtment as we work toward achevng our vson of beng a “world-class food company…better than the best” and n fulfllng our msson of provdng “outstandng customer satsfacton…every day!” Sncerely, Lonne “Bo” Plgrm Lonne Ken Plgrm Senor Charman Charman
  6. 6. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) 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 _______________ Commsson Fle number 1-9273 PILGRIM’S PRIDE CORPORATION (Exact name of regstrant as specfed n ts charter) Delaware 75-1285071 (State or other jursdcton of (I.R.S. Employer Identfcaton No.) ncorporaton or organzaton) 4845 US Hwy 271 North Pttsburg, Texas 75686-0093 (Address of prncpal executve offces) (Zp code) Regstrant’s telephone number, ncludng area code: (903) 434-1000 Securtes regstered pursuant to Secton 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 Securtes regstered pursuant to Secton 12(g) of the Act: None
  7. 7. PILGRIM’S PRIDE CORPORATION September 29, 2007 Indcate by check mark f the regstrant s a well-known seasoned ssuer, as defned n Rule 405 of the Securtes Act. Yes  No  Indcate by check mark f the regstrant s not requred to fle reports pursuant to Secton 13 or Secton 15(d) of the Exchange Act. Yes  No  Indcate by check mark whether the Regstrant (1) has fled all reports requred to be fled by Secton 13 or 15(d) of the Securtes Exchange Act of 1934 durng the precedng 12 months (or for such shorter perod that the Regstrant was requred to fle such reports), and (2) has been subject to such flng requrements for the past 90 days. Yes  No  Indcate by check mark f dsclosure of delnquent flers pursuant to Item 405 of Regulaton S-K s not contaned heren, and wll not be contaned, to the best of Regstrant’s knowledge, n defntve proxy or nformaton statements ncorporated by reference n Part III of ths Form 10-K or any amendment to ths Form 10-K.  Indcate by check mark whether the regstrant s a large accelerated fler, an accelerated fler, or a non- accelerated fler. See defnton of “accelerated fler” and “large accelerated fler” n Rule 12B-2 of the Exchange Act. Large Accelerated Fler  Accelerated Fler  Non-accelerated Fler  Indcate by check mark whether the regstrant s a shell company (as defned n Rule 12b-2 of the Exchange Act). Yes  No  The aggregate market value of the Regstrant’s Common Stock, $0.01 par value, held by non-afflates of the Regstrant as of March 31, 2007, was $1,340,874,524. For purposes of the foregong calculaton only, all drectors, executve offcers and 5% benefcal owners have been deemed afflates. Number of shares of the Regstrant’s Common Stock outstandng as of November 13, 2007, was 66,555,733. DOCUMENTS INCORPORATED BY REFERENCE Portons of the Regstrant’s proxy statement for the annual meetng of stockholders to be held January 30, 2008 are ncorporated by reference nto Part III. 2
  8. 8. PILGRIM’S PRIDE CORPORATION September 29, 2007 PILGRIM’S PRIDE CORPORATION FORM 10-K TABLE OF CONTENTS PART I Page Item 1. Busness 4 Item 1A. Rsk Factors 21 Item 1B. Unresolved Staff Comments 30 Item 2. Propertes 30 Item 3. Legal Proceedngs 32 Item 4. Submsson of Matters to a Vote of Securty Holders 34 PART II Item 5. Market for Regstrant’s Common Equty, Related Stockholder Matters and Issuer Purchases of Equty Securtes 35 Item 6. Selected Fnancal Data 40 Item 7. Management’s Dscusson and Analyss of Fnancal Condton and Results of Operatons 43 Item 7A. Quanttatve and Qualtatve Dsclosures about Market Rsk 62 Item 8. Fnancal Statements and Supplementary Data (see Index to Fnancal Statements and Schedules below) 63 Item 9. Changes n and Dsagreements wth Accountants on Accountng and Fnancal Dsclosure 63 Item 9A. Controls and Procedures 63 Item 9B. Other Informaton 68 PART III Item 10. Drectors and Executve Offcers and Corporate Governance 68 Item 11. Executve Compensaton 68 Item 12. Securty Ownershp of Certan Benefcal Owners and Management and Related Stockholder Matters 68 Item 13. Certan Relatonshps and Related Transactons, and Drector Independence 68 Item 14. Prncpal Accountng Fees and Servces 69 PART IV Item 15. Exhbts and Fnancal Statement Schedules 69 Sgnatures 76 INDEX TO FINANCIAL STATEMENTS AND SCHEDULES Report of Independent Regstered Publc Accountng Frm 79 Consoldated Balance Sheets as of September 29, 2007 and September 30, 2006 80 Consoldated Statements of Operatons for each of the three years ended September 29, 2007 81 Consoldated Statements of Stockholders’ Equty for each of the three years ended September 29, 2007 82 Consoldated Statements of Cash Flows for each of the three years ended September 29, 2007 83 Notes to Consoldated Fnancal Statements 84 Schedule II - Valuaton and Qualfyng Accounts for each of the three years ended September 29, 2007 110 3
  9. 9. PILGRIM’S PRIDE CORPORATION September 29, 2007 PART I Item 1. Business (a) General Development of Business Overview The Company, whch was ncorporated n Texas n 1968 and rencorporated n Delaware n 1986, s the successor to a partnershp founded n 1946 as a retal feed store. Over the years, the Company grew through both nternal growth and varous acqustons of farmng operatons and poultry processors ncludng the sgnfcant acqustons n fscal 2004 and 2007 dscussed below. We are the world’s largest chcken company and have one of the best known brand names n the chcken ndustry. In the U.S., we produce both prepared and fresh chcken and fresh turkey; whle n Mexco and Puerto Rco, we exclusvely produce fresh chcken. Through vertcal ntegraton, we control the breedng, hatchng and growng of chckens. We also control the processng, preparaton, packagng and sale of our product lnes, whch we beleve has made us one of the hghest-qualty, lowest-cost producers of chcken n North Amerca. We have consstently appled a long-term busness strategy of focusng our growth efforts on the hgher-value, hgher-margn prepared foods products and have become a recognzed ndustry leader n ths market segment. Accordngly, our sales efforts have tradtonally been targeted to the foodservce ndustry, prncpally chan restaurants and food processors, and have more recently been targeted to retalers seekng value-added products. We have contnually made nvestments to ensure our prepared foods capabltes reman state-of-the-art and have complemented these nvestments wth a substantal and successful research and development effort. In fscal 2007, we sold 7.7 bllon pounds of dressed chcken and 151.7 mllon pounds of dressed turkey and generated net sales of $7.6 bllon. In fscal 2007, our U.S. operatons, ncludng Puerto Rco, accounted for 93.3% of our net sales, wth the remanng 6.7% arsng from our Mexco operatons. Recent Business Acquisition Activities On December 27, 2006, we acqured a majorty of the outstandng common stock of Gold Kst Inc. (“Gold Kst”) through a tender offer. We subsequently acqured all remanng Gold Kst shares and, on January 9, 2007, Gold Kst became our wholly owned subsdary. We sometmes refer to ths acquston as the “fscal 2007 acquston.” For fnancal reportng purposes, we have not ncluded the operatng results and cash flows of Gold Kst n our consoldated fnancal statements for the perod from December 27, 2006 through December 30, 2006. The operatng results and cash flows of Gold Kst from December 27, 2006 through December 30, 2006 were not materal. Gold Kst operated a fully-ntegrated chcken producton busness that ncluded lve producton, processng, marketng and dstrbuton. Ths acquston has postoned us as the world’s leadng chcken producer, and that poston has provded us wth enhanced abltes to compete more effcently and provde even better customer servce, expand our geographc reach and customer base, further pursue value-added and prepared foods opportuntes, and offer long-term growth opportuntes for our stockholders, employees and growers. We are also better postoned to compete n the ndustry both nternatonally and n the U.S. as consoldatons occur. 4
  10. 10. PILGRIM’S PRIDE CORPORATION September 29, 2007 On November 23, 2003, we completed the purchase of all the outstandng stock of the corporatons represented as the ConAgra Foods, Inc. chcken dvson (“ConAgra chcken dvson”). We sometmes refer to ths acquston as the “fscal 2004 acquston.” The acqured busness has been ncluded n our results of operatons snce the date of the acquston. The acquston provded us wth addtonal lnes of specalty prepared chcken products, well-known brands, well-establshed dstrbutor relatonshps and Southeastern U.S. processng facltes. The acquston also ncluded the largest dstrbutor of chcken products n Puerto Rco. Strategy Our objectves are (1) to ncrease sales, proft margns and earnngs and (2) to outpace the growth of, and mantan our leadershp poston n, the chcken ndustry. To acheve these goals, we plan to contnue pursung the followng strateges: Capitalize on significant scale with leading industry position and brand recognition. We are - the largest producer of chcken products n the U.S. We estmate that our U.S. market share, based on the total annual chcken producton n the U.S., s approxmately 25%, whch s approxmately 20% hgher than the second largest compettor n the chcken ndustry. The complementary ft of markets, dstrbutor relatonshps and geographc locatons are a few of the many benefts we realzed from our fscal 2004 and 2007 acqustons prevously dscussed. We beleve the acqured busnesses’ establshed relatonshps wth broad-lne natonal dstrbutors and retalers have enabled us to expand our customer base and provde natonwde dstrbuton capabltes for all of our product lnes. As a result, we beleve we are one of only two U.S. chcken producers that can supply the growng demand for a broad range of prce compettve standard and specalzed products wth well-known brand names on a natonwde bass from a sngle source suppler. Capitalize on attractive U.S. prepared foods market. We focus our U.S. growth ntatves on - sales of prepared foods to the foodservce and value-added retal markets because they contnue to be two of the fastest growng and most proftable segments n the poultry ndustry. Products sold to these market segments requre further processng, whch enables us to charge a premum for our products, reducng the mpact of feed ngredent costs on our proftablty and mprovng and stablzng our proft margns. Feed ngredent costs typcally decrease from approxmately 33%- 49% of total producton cost for fresh chcken products to approxmately 17%-24% for prepared chcken products. Due to ncreased demand from our customers and our fscal 2004 and 2007 acqustons, our sales of prepared chcken products grew from $921.1 mllon n fscal 2003 to $2,492.4 mllon n fscal 2007, a compounded annual growth rate of 28.3%. Prepared foods sales represented 39.5% of our total U.S. chcken revenues n fscal 2007, whch we beleve provdes us wth a sgnfcant compettve advantage and reduces our exposure to feed prce fluctuatons. The addton of well-known brands, ncludng Perce® and Easy-Entree®, from our fscal 2004  acquston sgnfcantly expanded our already szeable prepared foods chcken offerngs. Smlarly, our acquston of hghly customzed cooked chcken products, ncludng breaded cutlets, szzle strps and Wng-Dngs®, for restaurants and specalty foodservce customers from ths acquston complemented our exstng lnes of pre-cooked breast fllets, tenderlons, burgers, nuggets, salads and other prepared products for nsttutonal foodservce, fast-food and retal customers. 5
  11. 11. PILGRIM’S PRIDE CORPORATION September 29, 2007 Emphasize customer-driven research and technology. We have a long-standng reputaton for - customer-drven research and development n desgnng new products and mplementng advanced processng technology. Ths enables us to better meet our customers’ changng needs for product nnovaton, consstent qualty and cost effcency. In partcular, customer-drven research and development s ntegral to our growth strategy for the prepared foods market n whch customers contnue to place greater mportance on value-added servces. Our research and development personnel often work drectly wth customers n developng products for them, whch we beleve helps promote long-term relatonshps. Enhance U.S. fresh chicken profitability through value-added, branded products. Our U.S. - fresh chcken sales accounted for $3,255.7 mllon, or 51.4%, of our U.S. chcken sales for fscal 2007. In addton to mantanng the sales of tradtonal fresh chcken products, our strategy s to shft the mx of our U.S. fresh chcken products by contnung to ncrease sales of hgher margn, faster growng products, such as fxed weght packaged products and marnated chcken and chcken parts, and to contnually shft portons of ths product mx nto the hgher value and margn prepared chcken products. Much of our fresh chcken products are sold under the Plgrm’s Prde® brand name, whch s a well-known brand n the chcken ndustry. Improve operating efficiencies and increase capacity on a cost-effective basis. As producton - and sales grow, we contnue to focus on mprovng operatng effcences by nvestng n state-of- the-art technology and processes, tranng and our total qualty management program. Specfc ntatves nclude: - standardzng lowest-cost producton processes across our varous facltes; - centralzng purchasng and other shared servces; and - standardzng and upgradng technology where approprate. In addton, we have a proven hstory of ncreasng capacty whle mprovng operatng effcences at acqured propertes n both the U.S. and Mexco. As a result, accordng to ndustry data, snce 1993 we have consstently been one of the lower-cost producers of chcken. Continue to seek strategic acquisitions. We have pursued opportuntes to expand through - acqustons n the past. We expect to contnue to pursue acquston opportuntes n the future that would complement our exstng busnesses, broaden our producton capabltes and/or mprove our operatng effcences. Capitalize on export opportunities. We ntend to contnue to focus on nternatonal opportuntes - to complement our U.S. chcken operatons and captalze on attractve export markets. Accordng to the USDA, the export of U.S. chcken products ncreased 9.7% from 2002 through 2006. We beleve U.S. chcken exports wll contnue to grow as worldwde demand ncreases for hgh-grade, low-cost meat proten sources. Accordng to USDA data, the export market for chcken s expected to grow at a compounded annual growth rate of 1.8% from 2006 to 2011. Hstorcally, we have targeted nternatonal markets to generate addtonal demand for our dark chcken meat, whch s a 6
  12. 12. PILGRIM’S PRIDE CORPORATION September 29, 2007 natural by-product of our U.S. operatons gven our concentraton on prepared foods products and the U.S. customers’ general preference for whte chcken meat. As part of ths ntatve, we have created a sgnfcant nternatonal dstrbuton network nto several markets, ncludng Mexco, whch we now utlze not only for dark chcken meat dstrbuton, but also for varous hgher margn prepared foods and other poultry products. We employ both a drect nternatonal sales force and export brokers. Our key nternatonal markets nclude Eastern Europe, ncludng Russa; the Far East, ncludng Chna; and Mexco. We beleve that we have substantal opportuntes to expand our sales to these markets by captalzng on drect nternatonal dstrbuton channels supplemented by our exstng export broker relatonshps. Our export sales accounted for approxmately 10.1% and 21.1% of our U.S. chcken sales and pounds, respectvely, for fscal 2007. (b) Financial Information About Segments We operate n three reportable busness segments as (1) a producer and seller of chcken products, (2) a producer and seller of turkey products and (3) a seller of other products. See a dscusson of our busness segments n Item 7. “Management’s Dscusson and Analyss of Fnancal Condton and Results of Operatons.” (c) Narrative Description of Business Products and Markets Our chcken products consst prmarly of: (1) Prepared chcken products, whch are products such as porton-controlled breast fllets, tenderlons and strps, delcatessen products, salads, formed nuggets and pattes and bone-n chcken parts. These products are sold ether refrgerated or frozen and may be fully cooked, partally cooked or raw. In addton, these products are breaded or non-breaded and ether pre- marnated or non-marnated. (2) Fresh chcken, whch s refrgerated (non-frozen) whole or cut-up chcken sold to the foodservce ndustry ether pre-marnated or non-marnated. Fresh chcken also ncludes prepackaged case- ready chcken, whch ncludes varous combnatons of freshly refrgerated, whole chckens and chcken parts n trays, bags or other consumer packs labeled and prced ready for the retal grocer’s fresh meat counter. (3) Export and other chcken products, whch are prmarly parts and whole chcken, ether refrgerated or frozen for U.S. export or domestc use, and chcken prepared foods products for U.S. export. Our turkey products consst prmarly of fresh and frozen whole turkeys. 7
  13. 13. PILGRIM’S PRIDE CORPORATION September 29, 2007 Our chcken and turkey products are sold prmarly to: (1) Foodservce customers, whch are customers such as chan restaurants, food processors, foodservce dstrbutors and certan other nsttutons. We sell products to our foodservce customers rangng from porton-controlled refrgerated poultry parts to fully-cooked and frozen, breaded or non-breaded poultry parts or formed products. (2) Retal customers, whch are customers such as grocery store chans, wholesale clubs and other retal dstrbutors. We sell to our retal customers branded, pre-packaged, cut-up and whole poultry, and fresh refrgerated or frozen whole poultry and poultry parts n trays, bags or other consumer packs. (3) Export and other product customers, who purchase chcken products for export to Eastern Europe, ncludng Russa; the Far East, ncludng Chna; Mexco; and other world markets. Our export and other chcken products, wth the excepton of our exported prepared foods products, consst of whole chckens and chcken parts sold prmarly n bulk, non-branded form, ether refrgerated to dstrbutors n the U.S. or frozen for dstrbuton to export markets. Our other products consst of: (1) Other types of meat along wth varous other staples purchased and sold by our dstrbuton centers as a convenence to our chcken customers who purchase through the dstrbuton centers. (2) The producton and sale of table eggs, commercal feeds and related tems, lve hogs and protens. The followng table sets forth, for the perods begnnng wth fscal 2003, net sales attrbutable to each of our prmary product lnes and markets served wth those products. Consstent wth our long-term strategy, we emphaszed our U.S. growth ntatves on sales of prepared foods products, prmarly to the foodservce market. Ths product and market segment has experenced, and we beleve wll contnue to experence, greater growth than fresh chcken products. We based the table on our nternal sales reports and ther classfcaton of product types and customers. 8
  14. 14. PILGRIM’S PRIDE CORPORATION September 29, 2007 Fiscal Year Ended (a) Oct. 2, 2004(a) Sept. 29, 2007 Sept. 30, 2006 Oct. 1, 2005 Sept. 27, 2003 (52 weeks) (52 weeks) (52 weeks) (53 weeks) (52 weeks) U.S. Chicken Sales: (In thousands) Prepared Foods: Foodservce $ 1,897,643 $ 1,567,297 $ 1,622,901 $ 1,647,904 $ 731,331 Retal 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 Chcken: Foodservce 2,280,057 1,388,451 1,509,189 1,328,883 474,251 Retal 975,659 496,560 612,081 653,798 257,911 Total Fresh Chcken 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 Chcken 559,429 257,823 303,150 212,611 85,087 Total Export(b) 642,746 322,161 362,623 247,346 111,801 Other Chcken 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. Chcken 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 Chcken Sales 6,816,820 4,517,148 4,814,622 4,454,148 2,087,617 U.S. Turkey Sales: Foodservce 14,025 30,269 73,908 120,676 138,405 Retal 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: Unted States 638,738 570,510 626,056 600,091 207,284 Mexco 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 Chcken Prepared Foods $ 2,492,430 $ 1,940,121 $ 1,965,766 $ 1,896,414 $ 921,063 (a) The fscal 2007 acquston on December 27, 2006 and fscal 2004 acquston on November 23, 2003 have been accounted for as purchases. For fnancal reportng purposes, we have not ncluded the operatng results and cash flows of the fscal 2007 acquston n our consoldated fnancal statements for the perod from December 27, 2006 through December 30, 2006. The operatng results and cash flows of the fscal 2007 acquston from December 27, 2006 through December 30, 2006 were not materal. The results of operatons for the fscal 2004 acquston have been ncluded n our consoldated results of operatons snce the acquston date. 9
  15. 15. PILGRIM’S PRIDE CORPORATION September 29, 2007 (b) The Export and Other category hstorcally ncluded the sales of certan chcken by-products sold n nternatonal markets, as well as the export of chcken and turkey products. Pror to fscal 2005, by-product sales were not specfcally dentfable from the Export and Other category. Accordngly, a detal breakout s not avalable pror to such tme; however, the Company beleves that the relatve splt between these categores as shown n fscal 2005 would not be dssmlar n the pror fscal perods. Export tems nclude certan poultry parts that have greater value n some overseas markets than n the U.S. The followng table sets forth, begnnng wth fscal 2003, the percentage of net U.S. chcken and turkey sales attrbutable to each of our prmary product lnes and the markets servced wth those products. We based the table and related dscusson on our nternal sales reports and ther classfcaton of product types and customers. Fiscal Year Ended (a) Oct. 2, 2004(a) Sept. 29, 2007 Sept. 30, 2006 Oct. 1, 2005 Sept. 27, 2003 U.S. Chicken Sales: Prepared Foods: Foodservce 30.1 % 38.2 % 36.8 % 40.3 % 42.1 % Retal 8.1 % 7.5 % 6.4 % 5.2 % 9.4 % Total Prepared Foods 38.2 % 45.7 % 43.2 % 45.5 % 51.5 % Fresh Chcken: Foodservce 36.0 % 33.9 % 34.2 % 32.5 % 27.3 % Retal 15.4 % 12.1 % 13.9 % 16.0 % 14.8 % Total Fresh Chcken 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 % Chcken 8.8 % 6.3 % 6.9 % 5.2 % 4.9 % Total Export(b) 10.1 % 7.9 % 8.2 % 6.0 % 6.4 % Other Chcken 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. Chcken 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Total Chcken Prepared Foods as a percentage of U.S. Chcken 39.5 % 47.3 % 44.5 % 46.3 % 53.0 % U.S. Turkey Sales: Foodservce 11.4 % 23.1 % 36.0 % 42.1 % 45.3 % Retal 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 fscal 2007 acquston on December 27, 2006 and fscal 2004 acquston on November 23, 2003 have been accounted for as purchases. For fnancal reportng purposes, we have not ncluded the operatng results and cash flows of the fscal 2007 acquston n our consoldated fnancal statements for the perod from December 27, 2006 through December 30, 2006. The operatng results and cash flows of the fscal 2007 acquston from December 27, 2006 through December 30, 2006 were not materal. The results of operatons for the fscal 2004 acquston have been ncluded n our consoldated results of operatons snce the acquston date. 10
  16. 16. PILGRIM’S PRIDE CORPORATION September 29, 2007 (b) The Export and Other category hstorcally ncluded the sales of certan chcken by-products sold n nternatonal markets as well as the export of chcken and turkey products. Pror to fscal 2005, by-product sales were not specfcally dentfable from the Export and Other category. Accordngly, a detal breakout s not avalable pror to such tme; however, the Company beleves that the relatve splt between these categores as shown n fscal 2005 would not be dssmlar n the pror fscal perods. Export tems nclude certan poultry parts that have greater value n some overseas markets than n the U.S. UNITED STATES Product Types Chicken Products Prepared Foods Overview. Durng fscal 2007, $2,409.1 mllon of our U.S. chcken sales were n prepared foods products to foodservce customers and retal dstrbutors, as compared to $894.3 mllon n fscal 2003. These numbers reflect the strategc focus for our growth and our fscal 2004 and 2007 acqustons. The market for prepared chcken products has experenced, and we beleve wll contnue to experence, greater growth, hgher average sales prces and hgher margns than fresh chcken products. Also, the producton and sale n the U.S. of prepared foods products reduce the mpact of the costs of feed ngredents on our proftablty. Feed ngredent costs are the sngle largest component of our total U.S. cost of sales, representng approxmately 35.8% of our U.S. cost of sales for fscal 2007. The producton of feed ngredents s postvely or negatvely affected prmarly by weather patterns throughout the world, the global level of supply nventores, demand for feed ngredents and the agrcultural polces of the U.S. and foregn governments. As further processng s performed, feed ngredent costs become a decreasng percentage of a product’s total producton cost, thereby reducng ther mpact on our proftablty. Products sold n ths form enable us to charge a premum, reduce the mpact of feed ngredent costs on our proftablty and mprove and stablze our proft margns. We establsh prces for our prepared chcken products based prmarly upon perceved value to the customer, producton costs and prces of competng products. The majorty of these products are sold pursuant to agreements wth varyng terms that ether set a fxed prce for the products or set a prce accordng to formulas based on an underlyng commodty market, subject n many cases to mnmum and maxmum prces. Fresh Chicken Overview. Our fresh chcken busness s an mportant component of our sales and accounted for $3,255.7 mllon, or 51.4%, of our total U.S. chcken sales for fscal 2007. In addton to mantanng sales of mature, tradtonal fresh chcken products, our strategy s to shft the mx of our U.S. fresh chcken products by contnung to ncrease sales of hgher margn, faster growng products, such as marnated chcken and chcken parts, and to contnually shft portons of ths product mx nto the hgher value and margn prepared foods category. Most fresh chcken products are sold to establshed customers, based upon certan weekly or monthly market prces reported by the USDA and other publc prce reportng servces, plus a markup, whch s dependent upon the customer’s locaton, volume, product specfcatons and other factors. We beleve our practces wth respect to sales of fresh chcken are generally consstent wth those of our 11
  17. 17. PILGRIM’S PRIDE CORPORATION September 29, 2007 compettors. The majorty of these products are sold pursuant to agreements wth varyng terms that ether set a fxed prce for the products or set a prce accordng to formulas based on an underlyng commodty market, subject n many cases to mnmum and maxmum prces. Export and Other Chicken Products Overview. Our export and other products consst of whole chckens and chcken parts sold prmarly n bulk, non-branded form, ether refrgerated to dstrbutors n the U.S. or frozen for dstrbuton to export markets, and branded and non-branded prepared foods products for dstrbuton to export markets. In fscal 2007, approxmately $663.5 mllon, or 10.4%, of our total U.S. chcken sales were attrbutable to U.S. chcken export and other products. These exports and other products, other than the prepared foods products, have hstorcally been characterzed by lower prces and greater prce volatlty than our more value-added product lnes. Turkey Products Turkey Overview. Our turkey busness accounted for $122.4 mllon of sales n fscal 2007. As s typcal for the ndustry, a sgnfcant porton of the sales of fresh and frozen whole turkeys s seasonal n nature, wth the heght of sales occurrng durng the Thanksgvng and Chrstmas holdays. Most turkey products are sold to establshed customers pursuant to agreements wth varyng terms that ether set a fxed prce or are subject to a market drven formula wth some agreements based upon market prces reported by the USDA and other publc prce reportng servces, plus a markup, subject n many cases to mnmum and maxmum prces. Ths s dependent upon the customer’s locaton, volume, product specfcatons and other factors. We beleve our practces wth respect to sales of fresh turkey are generally consstent wth those of our compettors wth smlar programs. Markets for Chicken Products Foodservice. The foodservce market prncpally conssts of chan restaurants, food processors, broad-lne dstrbutors and certan other nsttutons located throughout the contnental U.S. We supply chcken products rangng from porton-controlled refrgerated chcken parts to fully cooked and frozen, breaded or non-breaded chcken parts or formed products. We beleve the Company s well-postoned to be the prmary or secondary suppler to many natonal and nternatonal chan restaurants who requre multple supplers of chcken products. Addtonally, we beleve we are well suted to be the sole suppler for many regonal chan restaurants. Regonal chan restaurants often offer better margn opportuntes and a growng base of busness. We beleve we have sgnfcant compettve strengths n terms of full-lne product capabltes, hgh-volume producton capactes, research and development expertse and extensve dstrbuton and marketng experence relatve to smaller and non-vertcally ntegrated producers. Whle the overall chcken market has grown consstently, we beleve the majorty of ths growth n recent years has been n the foodservce market. Accordng to the Natonal Chcken Councl, from 2002 through 2006, sales of chcken products to the foodservce market grew at a compounded annual growth rate of approxmately 7.9%, versus 4.9% growth for the chcken ndustry overall. Foodservce growth s antcpated to contnue as food-away-from-home expendtures contnue to outpace overall ndustry 12
  18. 18. PILGRIM’S PRIDE CORPORATION September 29, 2007 rates. Accordng to Technomc Informaton Servces, food-away-from-home expendtures grew at a compounded annual growth rate of approxmately 5.5% from 2002 through 2006 and are projected to grow at a 4.8% compounded annual growth rate from 2007 through 2012. Due to nternal growth and our fscal 2004 and 2007 acqustons, our sales to the foodservce market from fscal 2003 through fscal 2007 grew at a compounded annual growth rate of 36.4% and represented 66.1% of the net sales of our U.S. chcken operatons n fscal 2007. Foodservice – Prepared Foods. Our prepared chcken products sales to the foodservce market were $1,897.6 mllon n fscal 2007 compared to $731.3 mllon n fscal 2003, a compounded annual growth rate of approxmately 26.9%. In addton to the sgnfcant ncrease n sales created by the fscal 2004 and 2007 acqustons, we attrbute ths growth n sales of prepared chcken products to the foodservce market to a number of factors: First, there has been sgnfcant growth n the number of foodservce operators offerng chcken on ther menus and n the number of chcken tems offered. Second, foodservce operators are ncreasngly purchasng prepared chcken products, whch allow them to reduce labor costs whle provdng greater product consstency, qualty and varety across all restaurant locatons. Third, there s a strong need among larger foodservce companes for a sngle-source suppler n the prepared chcken products market. A vable suppler must be able to ensure supply, demonstrate nnovaton and new product development and provde compettve prcng. We have been successful n our objectve of becomng a suppler of choce by beng the prmary or secondary prepared chcken products suppler to many large foodservce companes because: - We are vertcally ntegrated, gvng us control over our supply of chcken and chcken parts; - Our further processng facltes, wth a wde range of capabltes, are partcularly well suted to the hgh-volume producton as well as low-volume custom producton runs necessary to meet both the capacty and qualty requrements of the foodservce market; and - We have establshed a reputaton for dependable qualty, hghly responsve servce and excellent techncal support. Fourth, as a result of the experence and reputaton developed wth larger customers, we have ncreasngly become the prncpal suppler to md-szed foodservce organzatons. Fifth, our n-house product development group follows a customer-drven research and development focus desgned to develop new products to meet customers’ changng needs. Our research and development personnel often work drectly wth nsttutonal customers n developng products for these customers. Sixth, we are a leader n utlzng advanced processng technology, whch enables us to better meet our customers’ needs for product nnovaton, consstent qualty and cost effcency. 13
  19. 19. PILGRIM’S PRIDE CORPORATION September 29, 2007 Foodservice – Fresh Chicken. We produce and market fresh, refrgerated chcken for sale to U.S. quck-servce restaurant chans, delcatessens and other customers. These chckens have the gblets removed, are usually of specfc weght ranges and are usually pre-cut to customer specfcatons. They are often marnated to enhance value and product dfferentaton. By growng and processng to customers’ specfcatons, we are able to assst quck-servce restaurant chans n controllng costs and mantanng qualty and sze consstency of chcken peces sold to the consumer. Retail. The retal market conssts prmarly of grocery store chans, wholesale clubs and other retal dstrbutors. We concentrate our efforts n ths market on sales of branded, prepackaged cut-up and whole chcken and chcken parts to grocery store chans and retal dstrbutors. For a number of years, we have nvested n both trade and retal marketng desgned to establsh hgh levels of brand name awareness and consumer preferences. We utlze numerous marketng technques, ncludng advertsng, to develop and strengthen trade and consumer awareness and ncrease brand loyalty for consumer products marketed under the Plgrm’s Prde® brand. Our co-founder, Lonne “Bo” Plgrm, s the featured spokesperson n our televson, rado and prnt advertsng, and a trademark cameo of a person wearng a Plgrm’s hat serves as the logo on all of our prmary branded products. As a result of ths marketng strategy, Plgrm’s Prde® s a well-known brand name n a number of markets. We beleve our efforts to acheve and mantan brand awareness and loyalty help to provde more secure dstrbuton for our products. We also beleve our efforts at brand awareness generate greater prce premums than would otherwse be the case n certan markets. We also mantan an actve program to dentfy consumer preferences. The program prmarly conssts of dscoverng and valdatng new product deas, packagng desgns and methods through sophstcated qualtatve and quanttatve consumer research technques n key geographc markets. Retail – Prepared Foods. We sell retal-orented prepared chcken products prmarly to grocery store chans located throughout the U.S. Our prepared chcken products sales to the retal market were $511.5 mllon n fscal 2007 compared to $163.0 mllon n fscal 2003, a compounded annual growth rate of approxmately 33.1%. We beleve that our growth n ths market segment wll contnue as retalers concentrate on satsfyng consumer demand for more products that are quck, easy and convenent to prepare at home. Retail – Fresh Chicken. Our prepackaged retal products nclude varous combnatons of freshly refrgerated, whole chckens and chcken parts n trays, bags or other consumer packs labeled and prced ready for the retal grocer’s fresh meat counter. Our retal fresh chcken products are sold n the mdwestern, southwestern, southeastern and western regons of the U.S. Our fresh chcken sales to the retal market were $975.7 mllon n fscal 2007 compared to $257.9 mllon n fscal 2003, a compounded annual growth rate of approxmately 39.5% resultng prmarly from our fscal 2004 and 2007 acqustons. We beleve the retal prepackaged fresh chcken busness wll contnue to be a large and relatvely stable market, provdng opportuntes for product dfferentaton and regonal brand loyalty. 14
  20. 20. PILGRIM’S PRIDE CORPORATION September 29, 2007 Export and Other Chicken Products. Our export and other chcken products, wth the excepton of our exported prepared foods products, consst of whole chckens and chcken parts sold prmarly n bulk, non-branded form ether refrgerated to dstrbutors n the U.S. or frozen for dstrbuton to export markets. In the U.S., prces of these products are negotated daly or weekly and are generally related to market prces quoted by the USDA or other publc prce reportng servces. We sell U.S.- produced chcken products for export to Eastern Europe, ncludng Russa; the Far East, ncludng Chna; Mexco; and other world markets. Hstorcally, we have targeted nternatonal markets to generate addtonal demand for our dark chcken meat, whch s a natural by-product of our U.S. operatons gven our concentraton on prepared foods products and the U.S. customers’ general preference for whte chcken meat. We have also begun sellng prepared chcken products for export to the nternatonal dvsons of our U.S. chan restaurant customers. We beleve that U.S. chcken exports wll contnue to grow as worldwde demand ncreases for hgh-grade, low-cost meat proten sources. We also beleve that worldwde demand for hgher margn prepared foods products wll ncrease over the next several years. Accordngly, we beleve we are well postoned to captalze on such growth. Also ncluded n ths category are chcken by- products, whch are converted nto proten products and sold prmarly to manufacturers of pet foods. Markets for Turkey Products Most of our turkey sales are derved from products sold to the retal market. Ths market conssts prmarly of grocery store chans, wholesale clubs and other retal dstrbutors. We concentrate our efforts n ths market on sales of branded, prepackaged whole turkeys to grocery store chans and retal dstrbutors n the eastern and southwestern regons of the U.S. We beleve ths regonal marketng focus enables us to develop consumer brand franchses and captalze on proxmty to the trade customer n terms of lower transportaton costs, more tmely and responsve servce and enhanced product freshness. We utlze numerous marketng technques, ncludng advertsng, to develop and strengthen trade and consumer awareness and ncrease brand loyalty for consumer products marketed generally under the Plgrm’s Prde® and Plgrm’s Sgnature™ brands. We beleve our efforts to acheve and mantan brand awareness and loyalty help to provde more secure dstrbuton for our products. We also beleve our efforts at brand awareness generate greater prce premums than would otherwse be the case n certan markets n the eastern regons of the U.S. We also mantan an actve program to dentfy consumer preferences. The program prmarly conssts of testng new product deas, packagng desgns and methods through sophstcated qualtatve and quanttatve consumer research technques n key geographc markets. Markets for Other Products We have regonal dstrbuton centers located n Arzona, Florda, Iowa, Msssspp, Oho, Tennessee, Texas and Utah that are prmarly focused on dstrbutng our own chcken products; however, the dstrbuton centers also dstrbute certan poultry and non-poultry products purchased from thrd partes to ndependent grocers and quck servce restaurants. Our non-chcken dstrbuton busness s conducted as an accommodaton to our customers and to acheve greater economes of scale 15
  21. 21. PILGRIM’S PRIDE CORPORATION September 29, 2007 n dstrbuton logstcs. Poultry sales from our regonal dstrbuton centers are ncluded n the chcken and turkey sales amounts contaned n the above tables; however, all non-poultry sales amounts are contaned n the Other Products. We beleve the store-door delvery capabltes for our own poultry products provde a strategc servce advantage n sellng to quck servce, natonal chan restaurants. We market fresh eggs under the Plgrm’s Prde® brand name, as well as under prvate labels, n varous szes of cartons and flats to U.S. retal grocery and nsttutonal foodservce customers located prmarly n Texas. We have a housng capacty for approxmately 2.1 mllon commercal egg layng hens whch can produce approxmately 42 mllon dozen eggs annually. U.S. egg prces are determned weekly based upon reported market prces. The U.S. egg ndustry has been consoldatng over the last few years, wth the 25 largest producers accountng for more than 74.3% of the total number of egg layng hens n servce durng 2007. We compete wth other U.S. egg producers prmarly on the bass of product qualty, relablty, prce and customer servce. We market a hgh-nutrent egg called EggsPlus™. Ths egg contans hgh levels of Omega-3 and Omega-6 fatty acds along wth Vtamn E, makng the egg a heart-frendly product. Our marketng of EggsPlus™ has receved natonal recognton for our progress n beng an nnovator n the “functonal foods” category. In addton, we produce and sell lvestock feeds at our feed mll n Mt. Pleasant, Texas and at our farm supply store n Pttsburg, Texas to dary farmers and lvestock producers n northeastern Texas. We engage n smlar sales actvtes at our other U.S. feed mlls. We also have a small pork operaton that we acqured through our 2007 acquston that rases and sells lve hogs to processors. 16
  22. 22. PILGRIM’S PRIDE CORPORATION September 29, 2007 MEXICO Background The Mexco market represented approxmately 6.7% of our net sales n fscal 2007. We are the second-largest producer and seller of chcken n Mexco. We beleve that we are one of the lower-cost producers of chcken n Mexco. Product Types Whle the market for chcken products n Mexco s less developed than n the U.S., wth sales attrbuted to fewer, more basc products, we have been successful n dfferentatng our products through hgh qualty clent servce and product mprovements such as dry-ar chlled evscerated products. The supermarket chans consder us the leaders n nnovaton for fresh products. The market for value added products s ncreasng. Our strategy s to captalze on ths trend through our vast U.S. experence n both products and qualty and our well-known servce. Markets We sell our chcken products prmarly to wholesalers, large restaurant chans, fast food accounts, supermarket chans and drect retal dstrbuton n selected markets. We have natonal presence and are currently present n all but two of the 32 Mexcan States, whch n total represent 99% of the Mexcan populaton. Foreign Operations Risks Our foregn operatons pose specal rsks to our busness and operatons. See Item 1A. “Rsk Factors” for a dscusson of foregn operatons rsks. 17
  23. 23. PILGRIM’S PRIDE CORPORATION September 29, 2007 GENERAL Competitive Conditions The chcken and turkey ndustres are hghly compettve and our largest U.S. compettor has greater fnancal and marketng resources than we do. In the U.S., Mexco and Puerto Rco, we compete prncpally wth other vertcally ntegrated poultry companes. We are the largest producer of chcken n the U.S. and Puerto Rco, and the second largest producer n Mexco. The second largest producer n the U.S. s Tyson Foods, Inc. The largest producer n Mexco s Industras Bachoco SA de CV. In general, the compettve factors n the U.S. chcken and turkey ndustres nclude prce, product qualty, product development, brand dentfcaton, breadth of product lne and customer servce. Compettve factors vary by major market. In the foodservce market, competton s based on consstent qualty, product development, servce and prce. In the U.S. retal market, we beleve that product qualty, brand awareness, customer servce and prce are the prmary bases of competton. There s some competton wth non-vertcally ntegrated further processors n the U.S. prepared food busness. We beleve vertcal ntegraton generally provdes sgnfcant, long-term cost and qualty advantages over non-vertcally ntegrated further processors. In Mexco, where product dfferentaton has tradtonally been lmted, product qualty, servce and prce have been the most crtcal compettve factors. The North Amercan Free Trade Agreement elmnated tarffs for chcken and chcken products sold to Mexco on January 1, 2003. However, n July 2003, the U.S. and Mexco entered nto a safeguard agreement wth regard to mports nto Mexco of chcken leg quarters from the U.S. Under ths agreement, a tarff rate for chcken leg quarters of 98.8% of the sales prce was establshed. The tarff rate on mport dutes was reduced on January 1, 2007, to 19.8%, and on January 1, 2008 the tarff rate s scheduled to be reduced to zero. As ths tarff s reduced, we expect greater amounts of chcken to be mported nto Mexco from the U.S., whch could negatvely affect the proftablty of Mexcan chcken producers. We are not a sgnfcant compettor n the dstrbuton busness as t relates to products other than chcken. We dstrbute these products solely as a convenence to our chcken customers. The broad-lne dstrbutors do not consder us to be a factor n those markets. The competton related to our other products such as table eggs, feed and proten are much more regonalzed and no one compettor s domnant. Key Customers Our two largest customers accounted for approxmately 18% of our net sales n fscal 2007, and our largest customer, Wal-Mart Stores Inc., accounted for 12% of our net sales. Regulation and Environmental Matters The chcken and turkey ndustres are subject to government regulaton, partcularly n the health and envronmental areas, ncludng provsons relatng to the dscharge of materals nto the envronment, by the Centers for Dsease Control, the USDA, the Food and Drug Admnstraton (“FDA”) and the Envronmental Protecton Agency (“EPA”) n the U.S. and by smlar governmental 18
  24. 24. PILGRIM’S PRIDE CORPORATION September 29, 2007 agences n Mexco. Our chcken processng facltes n the U.S. are subject to on-ste examnaton, nspecton and regulaton by the USDA. The FDA nspects the producton of our feed mlls n the U.S. Our Mexcan food processng facltes and feed mlls are subject to on-ste examnaton, nspecton and regulaton by a Mexcan governmental agency, whch performs functons smlar to those performed by the USDA and FDA. We beleve that we are n substantal complance wth all applcable laws and regulatons relatng to the operatons of our facltes. We antcpate ncreased regulaton by the USDA concernng food safety, by the FDA concernng the use of medcatons n feed and by the EPA and varous other state agences concernng dscharges to the envronment. Although we do not antcpate any regulatons havng a materal adverse effect upon us, a materal adverse effect may occur. Employees and Labor Relations As of September 29, 2007, we employed approxmately 49,800 persons n the U.S. and 5,100 persons n Mexco. Approxmately 16,350 employees at varous facltes n the U.S. are members of collectve barganng unts. In Mexco, approxmately 2,950 employees are covered by collectve barganng agreements. We have not experenced any work stoppage at any locaton n over fve years. We beleve our relatons wth our employees are satsfactory. At any gven tme, we wll be n some stage of contract negotaton wth varous collectve barganng unts. Financial Information about Foreign Operations The Company’s foregn operatons are n Mexco. Geographc fnancal nformaton s set forth n Item 7. “Management’s Dscusson and Analyss of Fnancal Condton and Results of Operaton.” Available Information; NYSE CEO Certification The Company’s Internet webste s http://www.plgrmsprde.com. The Company makes avalable, free of charge, through ts Internet webste, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Drectors and Offcers Forms 3, 4 and 5, and amendments to those reports, as soon as reasonably practcable after electroncally flng such materals wth, or furnshng them to, the Securtes and Exchange Commsson. The publc may read and copy any materals that the Company fles wth the Securtes and Exchange Commsson at ts Publc Reference Room at 100 F Street, NE, Washngton, DC 20549 and may obtan nformaton about the operaton of the Publc Informaton Room by callng the Securtes and Exchange Commsson at 1- 800-SEC-0330. In addton, the Company makes avalable, through ts Internet webste, the Company’s Busness Code of Conduct and Ethcs, Corporate Governance Gudelnes and the wrtten charter of the Audt Commttee, each of whch s avalable n prnt to any stockholder who requests t by contactng the Secretary of the Company at 4845 U.S. Hghway 271 North, Pttsburg, Texas 75686-0093. As requred by the rules of the New York Stock Exchange, the Company submtted ts unqualfed Secton 303A.12(a) Co-Prncpal Executve Offcers Certfcaton for the precedng year to the New York Stock Exchange. 19
  25. 25. PILGRIM’S PRIDE CORPORATION September 29, 2007 We ncluded the certfcatons of the Co-Prncpal Executve Offcers and the Chef Fnancal Offcer of the Company requred by Secton 302 of the Sarbanes-Oxley Act of 2002 and related rules, relatng to the qualty of the Company’s publc dsclosure, n ths report on Form 10-K as Exhbts 31.1, 31.2 and 31.3. Executive Officers Set forth below s certan nformaton relatng to our current executve offcers: Name Age Positions Lonne “Bo” Plgrm 79 Senor Charman of the Board Lonne Ken Plgrm 49 Charman of the Board Clfford E. Butler 65 Vce Charman of the Board O.B. Goolsby, Jr. 60 Presdent, Chef Executve Offcer, and Drector Rchard A. Cogdll 47 Chef Fnancal Offcer Secretary, Treasurer and Drector J. Clnton Rvers 48 Chef Operatng Offcer Robert A. Wrght 53 Executve Vce Presdent of Sales and Marketng Lonnie “Bo” Pilgrim has served as Senor Charman of the Board snce July 2007. He served as Charman of the Board snce the organzaton of Plgrm’s Prde n July 1968 untl July 2007. He also served as Chef Executve Offcer from July 1968 to June 1998. Pror to the ncorporaton of Plgrm’s Prde, Mr. Plgrm was a partner n ts predecessor partnershp busness founded n 1946. Lonnie Ken Pilgrim has served as Charman of the Board snce July 2007. He served as Executve Vce Presdent, Assstant to Charman from November 2004 untl July 2007, and he served as Senor Vce Presdent, Transportaton from August 1997 to November 2004. Pror to that, he served as Vce Presdent. He has been a member of the Board of Drectors snce March 1985, and he has been employed by Plgrm’s Prde snce 1977. He s a son of Lonne “Bo” Plgrm. Clifford E. Butler serves as Vce Charman of the Board. On October 10, 2007, Clfford E. Butler announced hs retrement from hs poston as Vce Charman of the Board effectve December 31, 2007, and that he wll not stand for re-electon as a drector. Mr. Butler joned us as Controller and drector n 1969, was named Senor Vce Presdent of Fnance n 1973, became Chef Fnancal Offcer and Vce Charman of the Board n July 1983, became Executve Presdent n January 1997 and served n such capacty through July 1998. O.B. Goolsby, Jr. has served as Presdent and Chef Executve Offcer snce September 2004. Mr. Goolsby served as Presdent and Chef Operatng Offcer from November 2002 to September 2004. Pror to beng named as Presdent and Chef Operatng Offcer n November 2002, Mr. Goolsby served as Executve Vce Presdent, Prepared Foods Complexes from June 1998 to November 2002. He was prevously Senor Vce Presdent, Prepared Foods Operatons from August 1992 to June 1998 and Vce Presdent, Prepared Foods Operatons from September 1987 to August 1992 and was employed by the Company n other capactes from November 1969 to January 1981. 20
  26. 26. PILGRIM’S PRIDE CORPORATION September 29, 2007 Richard A. Cogdill has served as Chef Fnancal Offcer, Secretary and Treasurer snce January 1997. Mr. Cogdll became a Drector n September 1998. Prevously he served as Senor Vce Presdent, Corporate Controller, from August 1992 through December 1996 and as Vce Presdent, Corporate Controller from October 1991 through August 1992. Pror to October 1991, he was a Senor Manager wth Ernst Young LLP. Mr. Cogdll s a Certfed Publc Accountant. J. Clinton Rivers has served as Chef Operatng Offcer snce October 2004. He served as Executve Vce Presdent of Prepared Food Operatons from November 2002 to October 2004. Mr. Rvers was the Senor Vce Presdent of Prepared Foods Operatons from 1999 to November 2002, and was the Vce Presdent of Prepared Foods Operatons from 1992 to 1999. From 1989 to 1992, he served as Plant Manager of the Mount Pleasant, Texas Producton Faclty. Mr. Rvers joned Plgrm’s Prde n 1986 as the Qualty Assurance Manager, and also held postons at Perdue Farms and Golden West Foods. Robert A. Wright has served as Executve Vce Presdent of Sales and Marketng snce June 2004. He served as Executve Vce Presdent, Turkey Dvson from October 2003 to June 2004. Pror to October 2003, Mr. Wrght served as Presdent of Butterball Turkey Company for fve years. Item 1A. Risk Factors Forward-Looking Statements Statements of our ntentons, belefs, expectatons or predctons for the future, denoted by the words “antcpate,” “beleve,” “estmate,” “expect,” “plan,” “project,” “mply,” “ntend,” “foresee” and smlar expressons, are forward-lookng statements that reflect our current vews about future events and are subject to rsks, uncertantes and assumptons. Such rsks, uncertantes and assumptons nclude those descrbed under “Rsk Factors” below and elsewhere n ths Annual Report on Form 10-K. Actual results could dffer materally from those projected n these forward-lookng statements as a result of these factors, among others, many of whch are beyond our control. In makng these statements, we are not undertakng, and specfcally declne to undertake, any oblgaton to address or update each or any factor n future flngs or communcatons regardng our busness or results, and we are not undertakng to address how any of these factors may have caused changes n nformaton contaned n prevous flngs or communcatons. The rsks descrbed below are not the only rsks we face, and addtonal rsks and uncertantes may also mpar our busness operatons. The occurrence of any one or more of the followng or other currently unknown factors could materally adversely affect our busness and operatng results. Risk Factors The followng rsk factors should be read carefully n connecton wth evaluatng our busness and the forward-lookng nformaton contaned n ths Annual Report on Form 10-K. Any of the followng rsks could materally adversely affect our busness, operatons, ndustry or fnancal poston or our future fnancal performance. Whle we beleve we have dentfed and dscussed below the key rsk factors affectng our busness, there may be addtonal rsks and uncertantes that are not presently known or that are not currently beleved to be sgnfcant that may adversely affect our busness, operatons, ndustry, fnancal poston and fnancal performance n the future. 21

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