Edgar Filing: PILGRIMS PRIDE CORP

form10q_body.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 28, 2008

¨	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

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
incorporation or organization)		Identification No.)

4845 US Hwy 271 N, Pittsburg, TX		75686-0093
(Address of principal executive offices)		(Zip code)


Registrant’s telephone number, including area code: (903) 434-1000

Not Applicable

(Former name, former address and former fiscal year, if changed since last report.)

PILGRIM’S PRIDE CORPORATION

June 28, 2008

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Number of shares outstanding of the issuer’s common stock, as of July 29, 2008, was 74,055,733.

PILGRIM’S PRIDE CORPORATION

June 28, 2008

INDEX PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)
		Consolidated Balance Sheets June 28, 2008 and September 29, 2007
		Consolidated Statements of Operations Three months and nine months ended June 28, 2008 and June 30, 2007
		Consolidated Statements of Cash Flows Nine months ended June 28, 2008 and June 30, 2007
		Notes to Consolidated Financial Statements as of June 28, 2008
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk
	Item 4.	Controls and Procedures

PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings
	Item 1A.	Risk Factors
	Item 6.	Exhibits

SIGNATURES
EXHIBIT INDEX

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PILGRIM’S PRIDE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
	June 28, 2008		September 29, 2007
Assets:	(In thousands)
Cash and cash equivalents	$	54,071	$	66,168
Investment in available-for-sale securities		10,790		8,153
Trade accounts and other receivables, less allowance for doubtful accounts		110,490		114,678
Inventories		1,103,168		925,340
Income taxes receivable		22,990		61,901
Current deferred income taxes		25,532		8,095
Other current assets		82,331		47,959
Assets held for sale		3,900		15,534
Assets of discontinued business		40,731		53,232

Total current assets		1,454,003		1,301,060

Investment in available-for-sale securities		54,342		46,035
Other assets		123,544		138,546
Goodwill		499,669		505,166
Property, plant and equipment, net		1,715,627		1,783,429

	$	3,847,185	$	3,774,236

Liabilities and stockholders’ equity:
Accounts payable		466,056		398,512
Accrued expenses		444,338		497,262
Current maturities of long-term debt		2,295		2,872
Liabilities of discontinued business		5,648		6,556

Total current liabilities		918,337		905,202

Long-term debt, less current maturities		1,518,979		1,318,558
Deferred income taxes		178,102		326,570
Other long-term liabilities		84,721		51,685
Commitments and contingencies		—		—

Preferred stock		—		—
Common stock		741		665
Additional paid-in capital		646,923		469,779
Retained earnings		486,557		687,775
Accumulated other comprehensive income		12,825		14,002

Total stockholders’ equity		1,147,046		1,172,221

	$	3,847,185	$	3,774,236
See notes to consolidated financial statements.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	Three Months Ended						Nine Months Ended
	June 28, 2008			June 30, 2007			June 28, 2008			June 30, 2007
	(In thousands, except share and per share data)
Net sales	$	2,207,476		$	2,104,499		$	6,355,623		$	5,383,641
Cost of sales		2,154,265			1,869,674			6,220,688			5,002,528
Asset impairment		—			—			12,022			—

Gross profit		53,211			234,825			122,913			381,113

Selling, general and administrative expenses		92,291			97,929			299,283			259,792
Restructuring charges		3,451			—			9,120			—

Operating income (loss)		(42,531	)		136,896			(185,490	)		121,321

Other expense (income):
Interest expense		35,500			40,018			99,212			92,309
Interest income		(646	)		(198	)		(1,600	)		(3,191	)
Loss on early extinguishment of debt		—			—			—			14,475
Miscellaneous, net		(590	)		(2,869	)		(4,614	)		(7,548	)

Total other expense		34,264			36,951			92,998			96,045

Income (loss) from continuing operations before income taxes		(76,795	)		99,945			(278,488	)		25,276

Income tax expense (benefit)		(28,451	)		36,668			(85,477	)		10,844

Income (loss) from continuing operations		(48,344	)		63,277			(193,011	)		14,432

Loss from operation of discontinued business, net of tax		(4,437	)		(636	)		(4,450	)		(603	)

Gain on sale of discontinued business, net of tax		—			—			903			—

Net income (loss)	$	(52,781	)	$	62,641		$	(196,558	)	$	13,829

Income (loss) per common share—basic and diluted:
Continuing operations	$	(0.69	)	$	0.95		$	(2.85	)	$	0.22
Discontinued business		(0.06	)		(0.01	)		(0.05	)		(0.01	)

Net income (loss)	$	(0.75	)	$	0.94		$	(2.90	)	$	0.21

Dividends declared per common share	$	0.0225		$	0.0225		$	0.0675		$	0.0675

Weighted average shares outstanding		70,182,107			66,555,733			67,764,524			66,555,733

Reconciliation of net income (loss) to comprehensive income (loss):
Net income (loss)	$	(52,781	)	$	62,641		$	(196,558	)	$	13,829
Unrealized gain (loss) on securities		(491	)		44			(1,177	)		3,370

Comprehensive income (loss)	$	(53,272	)	$	62,685		$	(197,735	)	$	17,199
See notes to consolidated financial statements.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
	Nine Months Ended
	June 28, 2008			June 30, 2007
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	(196,558	)	$	13,829
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Depreciation and amortization		176,802			145,678
Asset impairment		12,022			—
Loss on early extinguishment of debt		—			7,099
Gain on property disposals		(4,141	)		(492	)
Deferred income tax expense (benefit)		(87,489	)		1,395
Changes in operating assets and liabilities, net of effect of business acquired:
Accounts and other receivables		12,106			(58,066	)
Inventories		(175,458	)		(112,353	)
Other current assets		(30,196	)		(7,984	)
Accounts payable and accrued expenses		(37,661	)		(15,984	)
Income taxes, net		(5,089	)		32,474
Other		(16,107	)		9,012

Cash provided by (used in) operating activities		(351,769	)		14,608

Cash flows for investing activities:
Acquisitions of property, plant and equipment		(97,641	)		(134,951	)
Purchases of investment securities		(25,491	)		(360,485	)
Proceeds from sale or maturity of investment securities		18,770			441,987
Business acquisitions		—			(1,108,817	)
Proceeds from property disposals		19,217			5,184

Cash used in investing activities		(85,145	)		(1,157,082	)

Cash flows from financing activities:
Proceeds from sale of common stock		177,220			—
Borrowing for acquisition		—			1,230,000
Proceeds from long-term debt		1,217,020			774,791
Payments on long-term debt		(1,016,983	)		(982,723	)
Change in outstanding cash management obligations		57,678			41,450
Debt issue costs		(5,457	)		(15,565	)
Cash dividends paid		(4,661	)		(4,493	)

Cash provided by financing activities		424,817			1,043,460

Decrease in cash and cash equivalents		(12,097	)		(99,014	)
Cash and cash equivalents at beginning of period		66,168			156,404

Cash and cash equivalents at end of period	$	54,071		$	57,390
See notes to consolidated financial statements.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE A—BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “the Company,” “we,” “us,” “our” or similar terms) have been prepared in accordance with accounting principles generally accepted in the United States (“US”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the US Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by US generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments unless otherwise disclosed) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended June 28, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending September 27, 2008. For further information, refer to the consolidated financial statements and footnotes thereto included in Pilgrim’s Current Report on Form 8-K dated May 12, 2008.

The consolidated financial statements include the accounts of Pilgrim’s and its majority-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated.

The assets and liabilities of the foreign subsidiaries are translated at end-of-period exchange rates, except for any non-monetary assets, which are translated at equivalent dollar costs at dates of acquisition using historical rates. Operations of foreign subsidiaries are translated at average exchange rates in effect during the period.

Certain reclassifications have been made to prior periods to conform to current period presentations.

The Company and certain retirement plans that it sponsors invest in a variety of financial instruments. In response to the continued turbulence in global financial markets, we have analyzed our portfolios of investments and, to the best of our knowledge, none of our investments, including money market funds units, commercial paper and municipal securities, have been downgraded because of this turbulence, and neither we nor any fund in which we participate hold significant amounts of structured investment vehicles, mortgage backed securities, collateralized debt obligations, auction-rate securities, credit derivatives, hedge funds investments, fund of funds investments or perpetual preferred securities.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

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. 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. The following unaudited financial information has been presented as if the acquisition had occurred at the beginning of fiscal 2007.

	Nine Months Ended June 30, 2007 Pro forma
	(In thousands, expect per share amounts and shares outstanding)
Net sales	$	5,911,451
Depreciation and amortization	$	169,722
Operating income	$	90,769
Interest expense, net	$	114,940
Loss from continuing operations before taxes	$	(29,659	)
Loss from continuing operations	$	(19,752	)
Net loss	$	(20,355	)
Loss from continuing operations per common share	$	(0.30	)
Net loss per common share	$	(0.31	)
Weighted average shares outstanding		66,555,733

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141(R), Business Combinations. This Statement improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects by establishing principles and requirements for how the acquirer (a) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree, (b) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and (c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The Company must apply prospectively SFAS No. 141(R) to business combinations for which the acquisition date occurs during or subsequent to the first quarter of fiscal 2010. The impact that adoption of SFAS No. 141(R) will have on the Company’s financial condition, results of operations and cash flows is dependent upon many factors. Such factors would include, among others, the fair values of the assets acquired and the liabilities assumed in any applicable business combination, the amount of any costs the Company would incur to effect any applicable business combination, and the amount of any restructuring costs the Company expected but was not obligated to incur as the result of any applicable business combination. Thus, we cannot accurately predict the effect SFAS No. 141(R) will have on future acquisitions at this time.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

In December 2007, the FASB also issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51. This Statement improves the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for how that reporting entity (a) identifies, labels and presents in its consolidated statement of financial position the ownership interests in subsidiaries held by parties other than itself, (b) identifies and presents on the face of its consolidated statement of operations the amount of consolidated net income attributable to itself and to the noncontrolling interest, (c) accounts for changes in its ownership interest while it retains a controlling financial interest in a subsidiary, (d) initially measures any retained noncontrolling equity investment in a subsidiary that is deconsolidated, and (e) discloses other information about its interests and the interests of the noncontrolling owners. The Company must apply prospectively the accounting requirements of SFAS No. 160 in the first quarter of fiscal 2010. The Company should also apply retroactively the presentation and disclosure requirements of the Statement for all periods presented at that time. The Company does not expect the adoption of SFAS No. 160 will have a material impact on its financial position, financial performance or cash flows.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133. This Statement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The Company must apply the requirements of SFAS No. 161 in the first quarter of fiscal 2010. The Company does not expect the adoption of SFAS No. 161 will have a material impact on its financial position, financial performance or cash flows.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

NOTE B—DISCONTINUED BUSINESS

The Company sold certain assets of its turkey business for $18.6 million and recorded a gain of $1.5 million ($0.9 million, net of tax) in Gain on sale of discontinued business, net of tax in the consolidated statement of operations during the second quarter of fiscal 2008. This business was composed of substantially all of our former turkey segment. The results of this business are included in Income (loss) from operation of discontinued business, net of tax for all periods presented.

For a period of time, we will continue to incur cash flow activities that are associated with our former turkey business. These activities are transitional in nature. We have entered into a short-term co-pack agreement with the acquirer of the former turkey business under which they will process turkeys for sale to our customers through the end of fiscal 2008. For the period of time until we have collected funds on the sale of these turkeys, we will continue to incur cash flow activity and to report operating activity in Income (loss) from operation of discontinued business, net of tax, although at a substantially reduced level. Upon completion of these activities, the cash flows and the operating activity reported in Income (loss) from operation of discontinued business, net of tax will be eliminated.

Neither our continued involvement in the distribution and sale of these turkeys or the co-pack agreement confers upon us the ability to influence the operating and/or financial policies of the turkey business under its new ownership.

The following amounts related to our turkey business have been segregated from continuing operations and included in Income (loss) from operation of discontinued business, net of tax and Gain on sale of discontinued business, net of tax in the consolidated statements of operations:

	Three Months Ended						Nine Months Ended
	June 28, 2008			June 30, 2007			June 28, 2008			June 30, 2007
	(In thousands)
Net sales	$	14,779		$	13,887		$	70,791		$	65,842

Loss from operation of discontinued business before income taxes	$	(7,127	)	$	(1,022	)	$	(7,149	)	$	(968	)
Income tax benefit		(2,690	)		(386	)		(2,699	)		(365	)

Loss from operation of discontinued business, net of tax	$	(4,437	)	$	(636	)	$	(4,450	)	$	(603	)

Gain on sale of discontinued business before income taxes	$	—		$	—		$	1,450		$	—
Income tax expense		—			—			547			—

Gain on sale of discontinued business, net of tax	$	—		$	—		$	903		$	—

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

Property, plant and equipment related to our turkey business has been segregated and included in Assets held for sale in the consolidated balance sheet as of September 29, 2007. The following assets and liabilities related to our turkey business have been segregated and included in Assets of discontinued business and Liabilities of discontinued business, as appropriate, in the consolidated balance sheets as of June 28, 2008 and September 29, 2007.

	June 28, 2008		September 29, 2007
	(In thousands)
Trade accounts and other receivables, less allowance for doubtful accounts	$	7,599	$	16,687
Inventories		33,132		36,545

Assets of discontinued business	$	40,731	$	53,232

Accounts payable	$	3,965	$	3,804
Accrued expenses		1,683		2,752

Liabilities of discontinued business	$	5,648	$	6,556

NOTE C—RESTRUCTURING ACTIVITIES

Results of operations for the three and nine months ended June 28, 2008 include restructuring charges related to the Company’s decision to close a processing complex in Siler City, North Carolina, an administrative office in Duluth, Georgia and distribution centers in Plant City and Pompano Beach, Florida; Oskaloosa, Iowa; Jackson, Mississippi; Cincinnati, Ohio; and Nashville, Tennessee. In March 2008, the Company’s Board of Directors approved the closings as part of a plan intended to curtail losses amid record-high costs for corn, soybean meal and other feed ingredients and an oversupply of chicken in the United States. The closings began in March 2008 and were completed in June 2008. The affected processing complex and distribution centers employed approximately 1,100 individuals. Virtually all of these individuals were impacted by the decision to close these facilities.

The Company incurred all anticipated restructuring costs during the second and third quarters of fiscal 2008. Almost all of these costs will result in cash expenditures. The Company recognized $3.4 million of lease commitment costs in the third quarter of fiscal 2008. The Company recognized $3.0 million of employee retention and severance costs and $2.7 million of miscellaneous closing costs in the second quarter of fiscal 2008. The Company also recorded a non-cash asset impairment of $12.0 million in the second quarter of fiscal 2008 to reduce the carrying amounts of certain assets to their estimated fair values.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

NOTE D—ACCOUNTS RECEIVABLE

In connection with the Receivables Purchase Agreement dated June 26, 1998, as amended (the “Agreement”), the Company sells, on a revolving basis, certain of its trade receivables (the “Pooled Receivables”) to a special purpose entity (“SPE”) wholly owned by the Company, which in turn sells a percentage ownership interest to third parties. The SPE is a separate corporate entity and its assets will be available first and foremost to satisfy the claims of its creditors. The aggregate amount of Pooled Receivables sold plus the remaining Pooled Receivables available for sale under this Agreement declined from $300.0 million at September 29, 2007 to $271.7 million at June 28, 2008. The outstanding amount of Pooled Receivables sold and the remaining Pooled Receivables available for sale under this Agreement at June 28, 2008 were $269.0 million and $2.7 million, respectively. The loss recognized on the sold receivables during the nine months ended June 28, 2008 was not material.

NOTE E—INVENTORIES

	June 28, 2008		September 29, 2007
	(In thousands)
Chicken:
Live chicken and hens	$	407,894	$	343,185
Feed and eggs		258,589		223,631
Finished chicken products		417,154		337,052

Total chicken inventories		1,083,637		903,868

Other products:
Commercial feed, table eggs, retail farm store and other	$	13,717	$	11,327
Distribution inventories (other than chicken products)		5,814		10,145

Total other products inventories		19,531		21,472

Total inventories	$	1,103,168	$	925,340

NOTE F—PROPERTY, PLANT AND EQUIPMENT

	June 28, 2008			September 29, 2007
	(In thousands)
Land	$	108,946		$	114,365
Buildings, machinery and equipment		2,438,491			2,366,418
Autos and trucks		64,185			59,489
Construction-in-progress		118,904			123,001

Property, plant and equipment, gross		2,730,526			2,663,273

Accumulated depreciation		(1,014,899	)		(879,844	)

Property, plant and equipment, net	$	1,715,627		$	1,783,429

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

NOTE G—NOTES PAYABLE AND LONG-TERM DEBT

	Maturity	June 28, 2008			September 29, 2007
		(In thousands)

Senior unsecured notes, at 7 5/8%	2015	$	400,000		$	400,000
Senior subordinated notes, at 8 3/8%	2017		250,000			250,000
Secured revolving credit facility with notes payable at LIBOR plus 1.25% to LIBOR plus 2.75%	2013		—			—
Secured revolving credit facility with notes payable at LIBOR plus 1.65% to LIBOR plus 3.125%	2011		54,120			26,293
Secured revolving/term credit facility with four notes payable at LIBOR plus a spread, one note payable at 7.34% and one note payable at 7.56%	2016		795,775			622,350
Other	Various		21,379			22,787

Notes payable and long-term debt			1,521,274			1,321,430

Current maturities of long-term debt			(2,295	)		(2,872	)

Notes payable and long-term debt, less current maturities		$	1,518,979		$	1,318,558

At June 28, 2008, $213.4 million was available for borrowing under the Company’s secured revolving credit facility expiring in 2013, $375.0 million was available for borrowing under the revolving portion of the Company’s secured revolving/term credit facility expiring in 2016 and no funds were available for borrowing under the Company’s secured revolving credit facility expiring in 2011.

The Company is required, by certain provisions of its debt agreements, to maintain certain levels of working capital and net worth, to limit dividends to a maximum of $26.0 million per year, and to maintain various fixed charge, leverage, current and debt-to-equity ratios. The Company’s debt agreements are also generally cross-defaulted with one another, and the Company’s leases are generally cross-defaulted with the credit agreements. At June 28, 2008, the Company has fully complied with these covenants. In April 2008, the Company and its lenders amended certain covenants in its credit facilities and receivables purchase facility effective through the end of fiscal 2009 to levels the Company believes it can comply with in the near-term despite the current economic issues facing the chicken industry.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

NOTE H—INCOME TAXES

We recorded an income tax benefit of $85.5 million for the nine months ended June 28, 2008 resulting from a loss from continuing operations before taxes of $278.5 million. The difference between the effective rate reflected in the provision for income taxes and the amounts determined by applying the applicable statutory United States tax rate for the nine months ended June 28, 2008 is primarily due to an increase in the valuation allowance on net operating loss carryforwards in Mexico recorded in the first quarter of fiscal 2008.

On September 30, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (“FIN 48”). This Interpretation required us to develop a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Adoption of FIN 48 had no significant effect on the Company’s financial condition. The net unrecognized tax benefits of $32.9 million include $26.3 million that, if recognized, would benefit our effective income tax rate and $6.6 million that, if recognized, would reduce goodwill.

The Company files numerous consolidated and separate income tax returns in the United States Federal jurisdiction, the Mexico Federal jurisdiction and in many state jurisdictions. With few exceptions, the Company is no longer subject to US Federal, state or local income tax examinations for years before 2003 and is no longer subject to Mexico income tax examinations by tax authorities for years before 2005. We are currently under audit by the Internal Revenue Service for the tax years ended September 26, 2003 to September 30, 2006. It is likely that the examination phase of the audit will conclude in 2008, and it is reasonably possible adjustments to our FIN 48 liability may occur; however, quantification of an estimated range cannot be made at this time.

Our continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. During the nine months ended June 28, 2008, we recognized $2.3 million in interest and penalties related to uncertain tax positions. As of June 28, 2008, we have accrued $14.1 million of interest and penalties related to uncertain tax positions.

In October 2007, Mexico enacted a new minimum corporation tax assessed on companies doing business in that country after January 1, 2008 (“IETU”). While the Company does not anticipate paying any significant taxes under IETU, the new law will affect the Company’s tax planning strategies to fully realize its deferred tax assets under Mexico’s regular income tax. The Company evaluated the impact of IETU on its Mexico operations and, because of the treatment of net operating losses under the new law, established a valuation allowance for net operating losses it believes do not meet the more likely than not realization criteria of SFAS No. 109, Accounting for Income Taxes; this valuation allowance resulted in a $12.7 million charge to tax expense in the first quarter of fiscal 2008.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

NOTE I—COMMON STOCK

In May 2008, the Company completed a public offering of 7.5 million shares of its common stock for total consideration of approximately $177.4 million ($177.2 million, net of costs incurred to complete the sale). The Company used the net proceeds of the offering to reduce outstanding indebtedness under two of its revolving credit facilities and for general corporate purposes.

NOTE J—RELATED PARTY TRANSACTIONS

Lonnie “Bo” Pilgrim, the Senior Chairman and, through certain related entities, the major stockholder of the Company (collectively, the “major stockholder”), owns an egg laying and a chicken growing operation.

Certain transactions with related parties are summarized as follows:

	Three Months Ended				Nine Months Ended
	June 28, 2008		June 30, 2007		June 28, 2008		June 30, 2007
	(In thousands)

Lease payments on commercial egg property	$	188	$	188	$	563	$	563
Contract grower pay	$	259	$	250	$	779	$	651
Other sales to major stockholder	$	205	$	148	$	557	$	460
Loan guaranty fees	$	1,304	$	1,081	$	3,431	$	2,582
Lease payments and operating expenses on airplane	$	116	$	121	$	351	$	371

NOTE K—COMMITMENTS AND CONTINGENCIES

We are a party to many routine contracts in which we provide general indemnities in the normal course of business to third parties for various risks. Among other considerations, we have not recorded a liability for any of these indemnities as based upon the likelihood of payment, the fair value of such indemnities would not have a material impact on our financial condition, results of operations and cash flows.

At June 28, 2008, the Company had $86.6 million in letters of credit outstanding relating to normal business transactions.

The Company is subject to various legal proceedings and claims which arise in the ordinary course of business. Below is a summary of the most significant claims outstanding against the Company. In the Company’s opinion, it has made appropriate and adequate accruals for claims where necessary, and the Company believes the probability of material losses beyond the amounts accrued to be remote; however, the ultimate liability for these matters is uncertain, and if significantly different than the amounts accrued, the ultimate outcome could have a material effect on the financial condition or results of operations of the Company. The Company believes it has substantial defenses to the claims made and intends to vigorously defend these cases.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

Among the claims presently pending against the Company are claims seeking unspecified damages brought by current and former employees seeking compensation for the time spent donning and doffing clothing and personal protective equipment. We are aware of an industry-wide investigation by the Wage and Hour Division of the US Department of Labor 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 clothing and personal protective equipment. Due, in part, to the government investigation and the recent US Supreme Court decision in IBP, Inc. v. Alvarez, it is possible that we may be subject to additional employee claims. We intend to assert vigorous defenses to the litigation. Nonetheless, there can be no assurances that other similar claims may not be brought against the Company.

US Immigration and Customs Enforcement has recently been investigating identity theft within our workforce. With our cooperation, during the past eight months US Immigration and Customs Enforcement has arrested approximately 350 of our employees believed to have engaged in identity theft at five of our facilities. No assurances can be given that further enforcement efforts by governmental authorities against our employees or the Company will not disrupt a portion of our workforce or our operations at one or more of our facilities, thereby negatively impacting our business.

NOTE L—BUSINESS SEGMENTS

Subsequent to the sale of our turkey operations, we operate in two reportable business segments as (1) a producer and seller of chicken products and (2) a seller of other products. The following table presents certain information regarding our segments:

	Three Months Ended					Nine Months Ended
	June 28, 2008			June 30, 2007		June 28, 2008(a)			June 30, 2007(a)
	(In thousands)
Net sales to customers
Chicken:
United States	$	1,829,163		$	1,809,317	$	5,280,272		$	4,523,729
Mexico		154,165			131,636		402,475			365,591
Total chicken		1,983,328			1,940,953		5,682,747			4,889,320

Other Products:
United States		214,135			157,794		648,431			482,114
Mexico		10,013			5,752		24,445			12,207
Total other products		224,148			163,546		672,876			494,321

	$	2,207,476		$	2,104,499	$	6,355,623		$	5,383,641
Operating income (loss)
Chicken:
United States	$	(65,425	)	$	116,749	$	(241,081	)	$	101,155
Mexico		6,964			14,427		(848	)		3,151
Total chicken		(58,461	)		131,176		(241,929	)		104,306

Other products:
United States		18,366			4,872		74,601			15,080
Mexico		1,015			848		2,980			1,935
Total other products		19,381			5,720		77,581			17,015

Asset impairment		—			—		(12,022	)		—
Restructuring charges		(3,451	)		—		(9,120	)		—

	$	(42,531	)	$	136,896	$	(185,490	)	$	121,321
Depreciation and amortization(b)(c)(d)
Chicken:
United States	$	54,292		$	53,629	$	158,624		$	130,120
Mexico		2,587			2,754		7,831			8,306
Total chicken		56,879			56,383		166,455			138,426

Other products:
United States		3,565			1,160		9,465			5,917
Mexico		62			58		187			156
Total other products		3,627			1,218		9,652			6,073

	$	60,506		$	57,601	$	176,107		$	144,499

(a)

The Company acquired Gold Kist on December 27, 2006 for $1.139 billion.

(b)

Includes amortization of capitalized financing costs of $1.7 million, $1.1 million, $3.8 million and $2.9 million recognized in the third quarter of fiscal 2008, the third quarter of fiscal 2007, the first nine months of fiscal 2008 and the first nine months of fiscal 2007, respectively.

(c)

Includes amortization of intangible assets of $2.5 million recognized in the third quarter of fiscal 2008 and $7.6 million recognized in the first nine months of fiscal 2008 related to the Gold Kist acquisition.

(d)

Excludes depreciation costs incurred by our discontinued turkey business of $0.4 million, $0.7 million and $1.2 million during the third quarter of fiscal 2007, the first nine months of fiscal 2008 and the first nine months of fiscal 2007, respectively. Our discontinued turkey business did not incur depreciation costs during the third quarter of fiscal 2008.

NOTE M—SUBSEQUENT EVENTS

In July 2008, the Company announced plans to close its distribution center in El Paso, Texas within 60 days. The distribution center currently employs 34 people.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Description of the Company

Pilgrim’s Pride is the world’s largest chicken company and has one of the best known brand names in the chicken industry. In the United States (“US”), we produce both prepared and fresh chicken. In Mexico and Puerto Rico, we exclusively produce fresh chicken. Through vertical integration we control the breeding, hatching and growing of chickens. Our products are sold to foodservice, retail and frozen entrée customers primarily through foodservice distributors, retailers and restaurants throughout the US and Puerto Rico and in the northern and central regions of Mexico. We operate in two business segments and two geographical areas.

Executive Summary

Feed ingredient prices increased substantially between the first quarter of fiscal 2007 and the date of this report, with nearby futures reaching a high of $7.54 per bushel for corn and $427.90 per ton for soybean meal in June 2008 and remaining $5.77 per bushel and $374.70 per ton, respectively, on July 25, 2008. While chicken selling prices have generally improved over the same period, chicken selling prices have not improved sufficiently to offset the higher costs of feed ingredients, which, along with the interest expense recognized on borrowings incurred due to the acquisition of Atlanta-based Gold Kist Inc. (“Gold Kist”) and to fund operating losses, were the primary contributors to our $52.8 million net loss for the third quarter of fiscal 2008. These same factors, along with deferred income tax valuation allowances recognized in Mexico in the first quarter of fiscal 2008, were the primary contributors to our $196.6 million net loss for the first nine months of fiscal 2008. Although we continue to focus substantial efforts on increasing our sales prices in order to cover these increased costs, there can be no assurances as to if or when we will be able to raise our prices sufficiently to offset these incremental costs or return to profitability.

In response to this challenging environment, we have taken a number of actions, including the closure of a processing plant, an administrative office and six distribution centers, a 5% planned reduction of production in the second half of fiscal 2008 when compared to the same prior-year period, and the planned consolidation of the tray-pack chicken business from our El Dorado, Arkansas processing complex into six other case-ready facilities and closure of a distribution center in El Paso, Texas. See Note C—Restructuring Activities and Note M—Subsequent Events of the notes to the consolidated financial statements included elsewhere herein. We are also continuing to evaluate our production facilities for potential mix changes, closure, sale and/or consolidation in an effort to position the Company for a return to profitability. However, there can be no assurances that we will be successful in any of these efforts or that continuing losses will not have a material adverse effect on our business, operations or financial condition.

Feed ingredient costs incurred during the third quarter of fiscal 2008 rose 44.3% in the US and 36.1% in Mexico over the same period last year principally because of higher corn and soybean meal prices. Our average chicken selling prices in the US and Mexico during the third quarter of fiscal 2008 increased 0.9% and 8.2%, respectively, over the same period last year mainly because of improved market pricing. Total pounds sold in the US during the third quarter of fiscal 2008 were up 0.2% from the same period last year and total pounds sold in Mexico during the third quarter of fiscal 2008 were up 8.3% from the same period last year.

Feed ingredient costs incurred during the first nine months of fiscal 2008 rose 32.6% in the US and 24.9% in Mexico over the same period last year principally because of higher corn and soybean meal prices. Our average chicken selling prices in the US and Mexico during the first nine months of fiscal 2008 increased 3.2% and 7.6%, respectively, over the same period last year mainly because of improved market pricing. Total pounds sold in the US during the first nine months of fiscal 2008 were up 13.1% from the same period last year due to the Gold Kist acquisition and total pounds sold in Mexico during the first nine months of fiscal 2008 were up 2.3% from the same period last year.

In March 2008, the Company sold certain assets of its turkey business for $18.6 million and recorded a gain of $1.5 million ($0.9 million, net of tax) in Gain on sale of discontinued business, net of tax in the consolidated statement of operations for the three and nine months ended June 28, 2008. This business was composed of substantially all of our former turkey segment. The results of this business are included in Income (loss) from operation of discontinued business, net of tax for all periods presented. See Note B—Discontinued Business of the notes to our consolidated financial statements included elsewhere herein.

Results of operations for the three and nine months ended June 28, 2008 include asset impairment and restructuring charges related to the Company’s decision to close a processing complex in Siler City, North Carolina, an administrative office in Duluth, Georgia and distribution centers in Plant City and Pompano Beach, Florida; Oskaloosa, Iowa; Jackson, Mississippi; Cincinnati, Ohio; and Nashville, Tennessee. The Company recognized restructuring charges of $3.5 million in the third quarter of fiscal 2008. The Company recognized non-cash asset impairment charges of $12.0 million and restructuring charges of $5.7 million during the second quarter of fiscal 2008. See Note C—Restructuring Activities of the notes to our consolidated financial statements included elsewhere herein.

On December 27, 2006, we acquired 88.9% of all outstanding common shares of Gold Kist. Gold Kist was the third-largest chicken company in the US, accounting for approximately 9% of all chicken produced domestically in recent years. On January 9, 2007, we acquired the remaining Gold Kist common shares, making Gold Kist a wholly owned subsidiary of Pilgrim’s Pride Corporation. 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 spanning from December 27, 2006 through December 30, 2006. The operating results and cash flows of Gold Kist for that period were not material.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

In July 2008, the Company announced plans to consolidate the tray-pack chicken business from its El Dorado, Arkansas processing complex into six other case-ready facilities within 60 days. Approximately 600 hourly positions will be eliminated by September 2008 because of this action. In July 2008, the Company also announced plans to close its distribution center in El Paso, Texas within 60 days. The distribution center currently employs 34 people.

Business Environment

Profitability in the chicken industry is materially affected by the commodity prices of chicken and feed ingredients that, in turn, are influenced by a variety of supply and demand factors. As a result, the chicken industry is subject to cyclical earnings fluctuations. Cyclical earnings fluctuations can be mitigated somewhat by (a) business strategy, (b) product mix, (c) sales and marketing plans and (d) operating efficiencies.

Feed ingredient purchases are the single largest component of our cost of sales. They represented 38.3% of our consolidated cost of sales in the first nine months of fiscal 2008. The production of feed ingredients is affected primarily by weather patterns throughout the world, the level of supply inventories, demand for feed ingredients, and the agricultural policies of the US and foreign governments. The costs of corn and soybean meal, our primary feed ingredients, increased significantly between the first quarter of fiscal 2007 and 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.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

In an effort to reduce price volatility and to generate higher, more consistent profit margins, we have concentrated on the production and marketing of prepared foods products. We believe that prepared foods products will generally have higher profit margins than our other products. In addition, we believe that the production and sale of prepared foods products in the US will generally reduce the impact of feed ingredient costs on our profitability. Feed ingredient costs become a decreasing percentage of a product’s total production cost as further processing is performed, thereby generally reducing their impact on our profitability. However, because a significant portion of these products have typically been sold under fixed price contracts that are only negotiated on an annual basis, sales of these products may not generate higher, more consistent profit margins during periods of selling price and input cost volatility. We are often unable to pass higher costs on to our customers in periods of rapidly escalating feed ingredient prices, such as that experienced in the past year, until the previous negotiated contract terms have expired. Given the current uncertainties surrounding input prices of our feed ingredient costs, to help mitigate this issue, we have begun negotiating with customers to reduce the contract periods to periods of less than one year whenever possible.

Since a significant portion of US chicken production is exported, the commodity prices of chicken can be adversely affected by disruptions in export markets. Material disruptions in recent years included the negative impact that concerns over avian influenza had on international demand for poultry products. Disruptions may also be caused by restrictions on imports of US-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. Both Russia and Japan have restricted the importation of US-produced poultry for both of these reasons in recent periods. In July 2003, the US and Mexico entered into a safeguard agreement with regard to imports into Mexico of chicken leg quarters from the US. Under this agreement, a tariff rate for chicken leg quarters of 98.8% of the sales price was established. This tariff was imposed because of concerns that the duty-free importation of such products as provided by the North American Free Trade Agreement would injure Mexico’s poultry industry. This tariff rate was eliminated on January 1, 2008. As a result of the elimination of this tariff, we expect greater amounts of chicken to be imported into Mexico from the US. This could negatively affect the profitability of Mexican chicken producers, including our Mexico operations. Because disruptions in poultry export markets are often political, no assurances can be given as to when the existing disruptions will be alleviated or that new ones will not arise.

Business Segments

	Three Months Ended					Nine Months Ended
	June 28, 2008			June 30, 2007		June 28, 2008(a)			June 30, 2007(a)
	(In thousands)
Net sales to customers
Chicken:
United States	$	1,829,163		$	1,809,317	$	5,280,272		$	4,523,729
Mexico		154,165			131,636		402,475			365,591
Total chicken		1,983,328			1,940,953		5,682,747			4,889,320

Other Products:
United States		214,135			157,794		648,431			482,114
Mexico		10,013			5,752		24,445			12,207
Total other products		224,148			163,546		672,876			494,321

	$	2,207,476		$	2,104,499	$	6,355,623		$	5,383,641
Operating income (loss)
Chicken:
United States	$	(65,425	)	$	116,749	$	(241,081	)	$	101,155
Mexico		6,964			14,427		(848	)		3,151
Total chicken		(58,461	)		131,176		(241,929	)		104,306

Other products:
United States		18,366			4,872		74,601			15,080
Mexico		1,015			848		2,980			1,935
Total other products		19,381			5,720		77,581			17,015

Asset impairment		—			—		(12,022	)		—
Restructuring charges		(3,451	)		—		(9,120	)		—

	$	(42,531	)	$	136,896	$	(185,490	)	$	121,321
Depreciation and amortization(b)(c)(d)
Chicken:
United States	$	54,292		$	53,629	$	158,624		$	130,120
Mexico		2,587			2,754		7,831			8,306
Total chicken		56,879			56,383		166,455			138,426

Other products:
United States		3,565			1,160		9,465			5,917
Mexico		62			58		187			156
Total other products		3,627			1,218		9,652			6,073

	$	60,506		$	57,601	$	176,107		$	144,499

(a)

The Company acquired Gold Kist on December 27, 2006 for $1.139 billion.

(b)

(c)

(d)

The following table presents certain items as a percentage of net sales for the periods indicated:

	Percentage of Net Sales
	Three Months Ended						Nine Months Ended
	June 28, 2008			June 30, 2007			June 28, 2008			June 30, 2007
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		97.6	%		88.8	%		97.9	%		92.9	%
Asset impairment		—	%		—	%		0.2	%		—	%
Gross profit		2.4	%		11.2	%		1.9	%		7.1	%
Selling, general and administrative (“SG&A”) expenses		4.2	%		4.7	%		4.7	%		4.8	%
Restructuring charges		0.2	%		—	%		0.1	%		—	%
Operating income (loss)		(2.0	) %		6.5	%		(2.9	) %		2.3	%
Interest expense		1.6	%		1.9	%		1.6	%		1.7	%
Income (loss) from continuing operations before income taxes		(3.5	) %		4.7	%		(4.4	) %		0.5	%
Income (loss) from continuing operations		(2.2	) %		3.0	%		(3.0	) %		0.3	%
Net income (loss)		(2.4	) %		3.0	%		(3.1	) %		0.3	%

All percentage of net sales ratios included above are calculated from the face of the Consolidated Financial Statements included elsewhere herein.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

Results of Operations

Fiscal Third Quarter 2008 Compared to Fiscal Third Quarter 2007

Net sales. Net sales for the third quarter of fiscal 2008 increased $103.0 million, or 4.9%, over the third quarter of fiscal 2007. The following table provides net sales information:

			Change from Three Months Ended June 30, 2007
Source	Three Months Ended June 28, 2008		Amount		Percentage
	(In millions, except percentages)
Chicken:
United States	$	1,829.1	$	19.7	1.1	%	(a)
Mexico		154.2		22.6	17.1	%	(b)
Total chicken		1,983.3		42.3	2.2	%

Other products:
United States		214.2		56.5	35.7	%	(c)
Mexico		10.0		4.2	74.1	%	(d)
Total other products		224.2		60.7	37.1	%

Total net sales	$	2,207.5	$	103.0	4.9	%

(a)

US chicken sales for the third quarter of fiscal 2008 increased from the same period last year primarily as the result of a 0.9% increase in revenue per pound sold and a 0.2% increase in pounds sold.

(b)

Mexico chicken sales in the current quarter increased from the third quarter of fiscal 2007 primarily because of an 8.2% increase in revenue per pound sold and an 8.3% increase in pounds sold.

(c)

US sales of other products increased mainly as the result of improved pricing on commercial eggs and protein conversion products and higher sales volumes of protein conversion products. Protein conversion is the process of converting poultry byproducts into raw materials for grease, animal feed, biodiesel and feed-stock for the chemical industry.

(d)

Mexico sales of other products increased principally because of both higher sales volumes and higher selling prices for commercial feed.

Gross profit (loss). Gross profit decreased $181.6 million, or 77.3%, in the third quarter of fiscal 2008 compared to the third quarter of fiscal 2007. The following table provides gross profit (loss) information:

									Percentage of Net Sales
Components	Three Months Ended June 28, 2008		Change From Three Months Ended June 30, 2007						Three Months Ended June 28, 2008			Three Months Ended June 30, 2007
Components	Three Months Ended June 28, 2008		Amount			Percentage			Three Months Ended June 28, 2008			Three Months Ended June 30, 2007
(In millions, except percentages)

Net sales	$	2,207.5	$	103.0			4.9	%		100.0	%		100.0	%
Cost of sales		2,154.3		284.6			15.2	%		97.6	%		88.8	%	(a)

Gross profit	$	53.2	$	(181.6	)		(77.3	) %		2.4	%		11.2	%	(b)

(a)	Cost of sales incurred in the third quarter of fiscal 2008 increased when compared to the same period last year primarily because of increased feed ingredients and energy costs. We also experienced in the third quarter of fiscal 2008, and continue to experience, increased production and freight costs related to operational inefficiencies, labor shortages at several facilities, and higher fuel costs. We believe the labor shortages are attributable in part to heightened publicity of governmental immigration enforcement efforts, ongoing Company compliance efforts, and continued changes in the Company’s employment practices in light of recently published governmental best practices and new labor hiring regulations. Cost of sales in our Mexico chicken operations increased mainly because of higher feed ingredient costs.

(b)	Gross profit as a percent of net sales generated in the third quarter of fiscal 2008 decreased 8.8 percentage points from the same period last year primarily because of increased feed ingredient, energy, production and freight costs partially offset by improved pricing.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

Operating income (loss). Operating income for the third quarter of fiscal 2008 decreased $179.4 million, or 131.0%, compared to the third quarter of fiscal 2007. The following tables provide operating income (loss) information:

	Three Months Ended			Change from Three Months Ended June 30, 2007
Source	June 28, 2008			Amount			Percentage
	(In millions, except percentages)
Chicken:
United States	$	(65.4	)	$	(182.2	)		(156.0	) %
Mexico		6.9			(7.5	)		(52.1	) %
Total chicken		(58.5	)		(189.7	)		(144.6	) %

Other products:
United States		18.4			13.5			275.5	%
Mexico		1.0			0.2			25.0	%
Total other products		19.4			13.7			240.4	%

Asset impairment		—			—			—	%
Restructuring charges		(3.4	)		(3.4	)		—	%

Total operating loss	$	(42.5	)	$	(179.4	)		(131.0	) %

										Percentage of Net Sales
	Three Months Ended June 28, 2008									Three Months Ended June 28, 2008			Three Months Ended June 30, 2007
				Change From Quarter Ended June 30, 2007
Components				Amount			Percentage
(In millions, except percentages)

Gross profit	$	53.2		$	(181.6	)		(77.3	) %		2.4	%		11.2	%
SG&A expenses		92.3			(5.6	)		(5.8	) %		4.2	%		4.7	%	(a)
Restructuring charges		3.4			3.4			—			0.2	%		—	%	(b)

Operating loss	$	(42.5	)	$	(179.4	)		(131.0	) %		(2.0	) %		6.5	%	(c)

(a)

Selling, general and administrative expenses incurred in the third quarter of fiscal 2008 decreased from the same period last year primarily because of decreased insurance costs partially offset by increased costs for intangibles amortization, outside services and brokered sales activity.

(b)

In the third quarter of fiscal 2008, the Company recognized restructuring charges related to continuing lease obligations for (a) distribution centers in Nashville, Tennessee and Jackson, Mississippi and (b) an administrative office in Duluth, Georgia.

(c)

Operating loss as a percentage of net sales generated in the third quarter of fiscal 2008 increased 8.5 percentage points when compared to the same period last year primarily because of increased feed ingredient, energy, production and freight costs partially offset by improved pricing.

Interest expense. Interest expense decreased 11.3% to $35.5 million in the third quarter of fiscal 2008 from $40.0 million in the third quarter of fiscal 2007 primarily because of the early extinguishment of debt totaling $299.6 million in September 2007 and lower interest rates on our variable-rate credit facilities partially offset by increased debt under our credit facilities that were not extinguished. As a percentage of sales, interest expense in the third quarter of fiscal 2008 decreased to 1.6% from 1.9% in the third quarter of fiscal 2007.

Miscellaneous, net. Consolidated miscellaneous income decreased from $2.9 million in the third quarter of fiscal 2007 to $0.6 million in the third quarter of fiscal 2008 primarily because of reduced amounts of both dividend income and investment income partially offset by favorable currency exchange results due to an increase in the average exchange rate between the Mexican peso and the US dollar during those two periods.

Income tax expense (benefit). Income tax benefit in the third quarter of fiscal 2008 was $28.5 million compared to income tax expense of $36.7 million in the third quarter of fiscal 2007. The shift from income tax expense to income tax benefit resulted primarily from a pretax loss incurred in the third quarter of fiscal 2008 compared to pretax income generated in the same period in fiscal 2007.

Loss from operation of discontinued business. The Company incurred a loss from the operation of its discontinued turkey business of $7.1 million ($4.4 million, net of tax) during the third quarter of fiscal 2008 compared to a loss of $1.0 million ($0.6 million, net of tax) during the third quarter of fiscal 2007. Net sales generated by the discontinued turkey business in the third quarter of fiscal 2008 and the third quarter of fiscal 2007 were $14.8 million and $13.9 million, respectively.

First Nine Months of Fiscal 2008 Compared to First Nine Months of Fiscal 2007

The changes in our results of operations for the nine months ended June 28, 2008, as compared to the same period in fiscal 2007 are impacted greatly as a result of the acquisition of Gold Kist on December 27, 2006. The acquisition resulted in significant increases in net sales and related costs, including interest expense.

INDEX

PILGRIM’S PRIDE CORPORATION

June 28, 2008

Net sales. Net sales for the first nine months of fiscal 2008 increased $972.0 million, or 18.1%, over the first nine months of fiscal 2007. The following table provides net sales information:

			Change from Nine Months Ended June 30, 2007
Source	Nine Months Ended June 28, 2008		Amount		Percentage
	(In millions, except percentages)
Chicken:
United States	$	5,280.2	$	756.5		16.7	%	(a)
Mexico		402.5		36.9		10.1	%	(b)
Total chicken		5,682.7		793.4		16.2	%

Other products:
United States		648.5		166.4		34.5	%	(c)
Mexico		24.4		12.2		100.0	%	(d)
Total other products		672.9		178.6		36.1	%

Total net sales	$	6,355.6	$	972.0		18.1	%

(a)

US chicken sales for the first nine months of fiscal 2008 increased from the same period last year primarily as the result of a 13.1% increase in volume resulting mainly from the acquisition of Gold Kist on December 27, 2006, increases in the average selling prices of chicken and, for legacy Pilgrim’s Pride products, an improved product mix containing a greater percentage of higher-margin products.

(b)

Mexico chicken sales in the first nine months of fiscal 2008 increased from the first nine months of fiscal 2007 primarily because of a 7.6% increase in revenue per pound sold and a 2.3% increase in pounds sold.

(c)

US sales of other products increased mainly as the result of the acquisition of Gold Kist on December 27, 2006, improved pricing on commercial eggs and protein conversion products and higher sales volumes of protein conversion products. Protein conversion is the process of converting poultry byproducts into raw materials for grease, animal feed, biodiesel and feed-stock for the chemical industry.

(d)

Mexico sales of other products increased principally because of both higher sales volumes and higher selling prices for commercial feed.

Gross profit. Gross profit decreased $258.2 million, or 67.8%, in the first nine months of fiscal 2008 compared to the first nine months of fiscal 2007. The following table provides gross profit information:

Percentage of Net Sales

Components

Nine Months

Ended

June 28, 2008

Change From Nine Months Ended

June 30, 2007

Nine Months Ended

June 28, 2008

Nine Months Ended

June 30, 2007

Amount

Percentage

(In millions, except percentages)