pilgrim's pride 155858_CGI_BK_WEB

PILGRIM’S PRIDE CORPORATION 2007 ANNUAL REPORT

Building a world-class food company

Corporate and Shareholder Information

ANNUAL MEETINGThe Annual Meeting of Shareholders of Pilgrim’s Pride Corporation will be held January 30, 2008, at 11:00 a.m., CST at the company’s headquarters building, 4845 U.S. Hwy. 271 North, Pittsburg, Texas.

FORM 10-K AND CEO/CFO CERTIFICATIONSUpon written request, we will provide without charge a copy of our Form 10-K for the fiscal year ended September 29, 2007. Requests should be directed to:

Shareholder Relations Officer4845 U.S. Hwy. 271 NorthP.O. Box 93Pittsburg, Texas 75686

Our Form 10-K also is available on our Web site at 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 SYMBOLSNew York Stock Exchange: NYSECommon Stock Ticker Symbol: PPC

SHAREHOLDERS OF RECORDApproximately 35,000 holders of record (including individual participants in security position listings) as of November 19, 2007.

Independent Auditors

Ernst & Young LLP2121 San Jacinto StreetDallas, Texas 75201

TRANSFER AGENT AND REGISTRARQuestions regarding stock holdings, certificate replacements/transfer, dividends, and address changes should be directed to:

Computershare Investor Services, LLC2 North LaSalle StreetChicago, Illinois 60602

by telephone: (312) 360-5463by email: www.computershare.com/contactusweb page: www.computershare.com

DUPLICATE MAILINGSIf 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.

Corporate Office

4845 U.S. Hwy. 271 NorthP.O. Box 93Pittsburg, Texas 75686(903) 434-1000(903) 856-7505 (fax)

National Sales Office

2777 Stemmons FreewaySuite 850Dallas, Texas 75207-2268(214) 920-2200(800) 824-1159(214) 920-2396 (fax)

Web Site

www.pilgrimspride.com

Mayfield

Marshville

Douglas

Broadway

EnterpriseLive Oak

Aibonito

Moorefield

Tepeji del Rio

C

C

Siler CityCSanfordC

C

C

C

C

De QueenCEl DoradoC

NatchitochesC

LufkinC

ClintonCBatesvilleC

C

CarrolltonC

GainesvilleCCantonC

EllijayCDaltonC

AthensCGuntersvilleC

RussellvilleC

Los CuesC

C

AthensC

FranconiaP

P

SumterCP

ElbertonP

ChattanoogaCP

C BoazP

DallasCP

FarmervilleCPBossier CityP

NacogdochesCPWacoP

New OxfordT

Oskaloosa

Phoenix

Jackson

Plant City

Pompano Beach

Cincinnati

Nashville

El Paso

HoustonSan Antonio

Salt Lake City

Aibonito

D

D

D

D

CP Mt. PleasantD

ArlingtonD

D

D

DD

D

D

D

MonterreyTorreón

Ciudad Victoria

Poza Rica

Reynosa

Coatzacoalcos

D

D

D

D

TampicoDAguascalientesDSan Luis PotosíCD

GuadalajaraD

D

C Tepeji del RioD

TlalnepantlaD

QuerétaroD

MoreliaD VeracruzD

Puerto VallartaD

D

D

Pittsburg

Chicken Processing - FreshAibonito, Puerto RicoAthens, AlabamaAthens, Georgia (2)Batesville, ArkansasBoaz, AlabamaBroadway, VirginiaCanton, GeorgiaCarrollton, GeorgiaChattanooga, TennesseeClinton, ArkansasDallas, TexasDalton, GeorgiaDe Queen, ArkansasDouglas, GeorgiaEl Dorado, ArkansasEllijay, GeorgiaEnterprise, AlabamaFarmerville, LouisianaGainesville, GeorgiaGuntersville, AlabamaLive Oak, FloridaLos Cues, MexicoLufkin, TexasMarshville, North CarolinaMayfield, KentuckyMoorefield, West VirginiaMt. Pleasant, Texas (2)Nacogdoches, TexasNatchitoches, LouisianaRussellville, AlabamaSan Luis Potosí, MexicoSanford, North CarolinaSiler City, North CarolinaSumter, South CarolinaTepeji del Rio, Mexico

Prepared Foods Processing Boaz, AlabamaBossier City, LouisianaChattanooga, TennesseeDallas, TexasElberton, GeorgiaFarmerville, LouisianaFranconia, PennsylvaniaMoorefield, West VirginiaMt. Pleasant, TexasNacogdoches, TexasSumter, South CarolinaWaco, Texas

Turkey Processing - FreshNew Oxford, Pennsylvania

Feed MillsAmbrose, GeorgiaArcadia, LouisianaAthens, GeorgiaAtkins, ArkansasBatesville, ArkansasBonlee, North CarolinaCalhoun, GeorgiaCanton, GeorgiaChattanooga, TennesseeColón, MexicoCommerce, GeorgiaEl Dorado, ArkansasEnterprise, AlabamaFalkville, AlabamaGainesville, GeorgiaGuntersville, AlabamaHarrisonburg, VirginiaHope, ArkansasLas Piedras, Puerto RicoLive Oak, FloridaMany, LouisianaMayfield, KentuckyMoorefield, West VirginiaMt. Pleasant, TexasNacogdoches, TexasNashville, ArkansasPittsburg, TexasQuerétaro, MexicoSaltillo, MexicoSan Luis Potosí, MexicoStaley, North CarolinaSumter, South CarolinaTeneha, TexasTuscumbia, AlabamaWaco, GeorgiaWingate, North Carolina

HatcheriesAibonito, Puerto RicoAlbertville, AlabamaAthens, GeorgiaAtkins, ArkansasBatesville, ArkansasBowdon, GeorgiaBroadway, VirginiaCalhoun, GeorgiaCanton, GeorgiaCenter, TexasChoudrant, LouisianaCohutta, GeorgiaCommerce, GeorgiaConcord, North Carolina

Crossville, AlabamaCullman, AlabamaDe Queen, ArkansasDouglas, GeorgiaEl Dorado, ArkansasEnterprise, AlabamaFarmerville, LouisianaFt. Payne, AlabamaGainesville, GeorgiaJasper, AlabamaLive Oak, FloridaMayfield, Kentucky (2)Moorefield, West VirginiaMoulton, AlabamaNacogdoches, TexasNashville, ArkansasNatchitoches, LouisianaPittsburg, Texas (3)Querétaro, Mexico (5)Ranburne, AlabamaRussellville, AlabamaSaltillo, MexicoSan Luis Potosí, MexicoSiler City, North CarolinaStaley, North CarolinaSumter, South CarolinaTalking Rock, GeorgiaTalmo, Georgia

Distribution CentersAguascalientes, MexicoAibonito, Puerto RicoArlington, TexasCincinnati, OhioCiudad Victoria, MexicoCoatzacoalcos, MexicoEl Paso, TexasGuadalajara, MexicoHouston, TexasJackson, MississippiMonterrey, MexicoMorelia, MexicoMt. Pleasant, TexasNashville, TennesseeOskaloosa, IowaPhoenix, ArizonaPlant City, FloridaPompano Beach, FloridaPoza Rica, MexicoPuerto Vallarta, MexicoQuerétaro, MexicoReynosa, Mexico

Salt Lake City, UtahSan Antonio, TexasSan Luis Potosí, Mexico (2)Tampico, MexicoTepeji del Rio, MexicoTlalnepantla, Mexico (2)Torreón, MexicoVeracruz, Mexico

Administration and SalesAibonito, Puerto RicoAtlanta, GeorgiaBentonville, ArkansasDallas, TexasMexico City, MexicoPittsburg, TexasQuerétaro, MexicoRockwall, TexasTimberville, Virginia

Pilgrim’s Pride Facility Locations

Turkey Processing - FreshT

Prepared FoodsP

Distribution CenterD

Chicken Processing - FreshC

World Headquarters

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Dear Fellow Shareholders:

F�scal 2007 proved to be a year of s�gn�f�cant change for P�lgr�m’s Pr�de Corporat�on as we completed the largest acqu�s�t�on �n our 61-year h�story and returned to prof�tab�l�ty on the strength of h�gher market pr�c�ng, strong export demand, cost sav�ngs and growth �n our consumer reta�l bus�ness.

Our $1.2 b�ll�on purchase of Gold K�st Inc. �n December 2006 created the world’s largest ch�cken company. Wh�le the �ntegrat�on of Gold K�st has commanded a great deal of t�me, attent�on and resources over the past year, we bel�eve the acqu�s�t�on has pos�t�oned us for stronger growth �n the years ahead by broaden�ng our geograph�c reach, expand�ng our customer base and strengthen�ng our product l�ne.

By all accounts, the process of comb�n�ng P�lgr�m’s Pr�de and Gold K�st �nto one organ�zat�on w�th a common culture and focus on the customer has been an overwhelm�ng success. Thanks to the hard work and comm�tment of our 55,000 employees �n the Un�ted States, Puerto R�co and Mex�co, we tr�pled our or�g�nal synergy target and del�vered $150 m�ll�on �n annual�zed cost sav�ngs three months ahead of schedule. Wh�le we st�ll have a lot of work head of us, our employees deserve a lot of cred�t for ach�ev�ng so much so qu�ckly.

Those cost sav�ngs w�ll be �mportant �n the year ahead, as h�gher feed-�ngred�ent and fuel costs pose a s�gn�f�cant challenge to our bus�ness �n 2008. Our costs for corn, soybean meal and other feed �ngred�ents rose more than $600 m�ll�on �n f�scal 2007, and current project�ons for 2008 call for further �ncreases. Grow�ng demand for corn-based ethanol �s fuel�ng much of these.

Fortunately, we were able to overcome much of those cost �ncreases �n 2007 through h�gher market pr�c�ng brought about by product�on cutbacks by P�lgr�m’s Pr�de and several other poultry compan�es. Those cutbacks helped �ncrease market pr�c�ng last w�nter and �nto the spr�ng, a t�me when demand �s seasonally low and pr�ces are typ�cally weak. That strong pr�c�ng held �nto the summer months, help�ng P�lgr�m’s Pr�de return to prof�tab�l�ty �n the second half of the year and, for the full 2007 f�scal year, earn $47.0 m�ll�on, or $0.71 a share, on record sales of $7.6 b�ll�on.

There were several notable ach�evements �n f�scal 2007:

Our consumer reta�l segment cont�nued to post good growth as a result of �ncreased penetrat�on of supermarket meat and del� cases and our grow�ng role as a category management partner. For example, we have seen strong demand for a number of our w�ng products, �nclud�ng our consumer-preferred W�ng D�ngs and W�ng Z�ngs products, and we’re ga�n�ng bus�ness w�th customers as a result.

P�lgr�m’s Pr�de’s foodserv�ce bus�ness turned �n another good year as a result of growth �n our Top 10 accounts and cont�nued progress �n school foodserv�ce accounts, health care, m�l�tary and other markets.

We were successful �n mak�ng �mprovements to the acqu�red Gold K�st product m�x, upgrad�ng some of the commod�ty-type meat �nto h�gher-marg�n, value-added products. Th�s �s a key part of our growth strategy and an area �n wh�ch we have enjoyed good success over the years.

We real�gned the report�ng structure w�th�n the operat�ons group so that we can del�ver �mproved serv�ce to our customers and operate more eff�c�ently.

��

In add�t�on, our export bus�ness cont�nues to grow, account�ng for approx�mately 10% of our U.S. ch�cken sales. Ch�na emerged as an aggress�ve buyer of U.S. ch�cken and a number of smaller countr�es, �nclud�ng Cuba, �ncreased the�r purchases. P�lgr�m’s Pr�de has a large and grow�ng presence �n many of these markets. And �n 2007, our Mex�co operat�ons returned to prof�tab�l�ty as a result of �mproved pr�c�ng.

We also faced our share of challenges over the past year. Desp�te favorable �ndustry fundamentals and our return to prof�tab�l�ty �n 2007, our net earn�ngs for the year came �n below our own expectat�ons. Th�s was mostly t�ed to operat�onal �neff�c�enc�es, labor shortages and h�gher fuel costs wh�ch resulted �n h�gher product�on and fre�ght costs. Automat�on w�ll be a key focus of our cap�tal �nvestment program �n f�scal 2008. We bel�eve th�s �nvestment, wh�ch �ncludes labor-reduc�ng technology, w�ll enable us to move more products through our plants eff�c�ently and help allev�ate some of the challenges we faced �n 2007 from a t�ght labor market and h�gher �nput costs.

One th�ng �s clear: we s�mply must f�nd ways to operate more eff�c�ently, as nearly all of our costs are r�s�ng. At P�lgr�m’s Pr�de, we are always hunt�ng for ways to run our bus�ness more cost-effect�vely. In add�t�on to our company-w�de focus on process �mprovement teams s�nce 1992, we have cross-organ�zat�onal and synergy teams scour�ng every s�te for new ways to take costs out of our bus�ness. These teams have dr�lled down �nto every aspect of our operat�ons, from sales and log�st�cs to process�ng and render�ng.

There �s no quest�on that we are fac�ng a tough – and volat�le – operat�ng env�ronment. Look�ng ahead, we bel�eve that manag�ng our bus�ness �n th�s env�ronment of expected volat�l�ty �s the greatest challenge fac�ng us today, but one that we th�nk �s certa�nly ach�evable. It w�ll requ�re several act�ons.

F�rst, we must be very caut�ous �n expand�ng the ch�cken supply. At P�lgr�m’s Pr�de, we have to be prudent �n our dec�s�ons to ensure that we are able to manage our �nput costs. Second, we must take advantage of every opportun�ty to effect�vely manage our �nput costs aga�nst our longer-term contracts. Th�rd, we must keep open the l�nes of commun�cat�on w�th our customers so they understand the challenges we face �n such a volat�le env�ronment and the �mportance of work�ng together to address these �ssues. And f�nally, we must stay focused on dr�v�ng out costs and f�nd�ng ways to serve our customers better so that we can pos�t�on our company for susta�ned, prof�table growth �n the future and create new value for our shareholders.

We apprec�ate your cont�nued support and comm�tment as we work toward ach�ev�ng our v�s�on of be�ng a “world-class food company…better than the best” and �n fulf�ll�ng our m�ss�on of prov�d�ng “outstand�ng customer sat�sfact�on…every day!”

S�ncerely,

Lonn�e “Bo” P�lgr�m Lonn�e Ken P�lgr�mSen�or Cha�rman Cha�rman

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, 2007OR

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

For the transition period from _______________ to _______________Comm�ss�on F�le number 1-9273

PILGRIM’S PRIDE CORPORATION(Exact name of reg�strant as spec�f�ed �n �ts charter)

Delaware 75-1285071(State or other jur�sd�ct�on of (I.R.S. Employer Ident�f�cat�on No.)

�ncorporat�on or organ�zat�on)

4845 US Hwy 271 NorthP�ttsburg, Texas 75686-0093

(Address of pr�nc�pal execut�ve off�ces) (Z�p code)

Reg�strant’s telephone number, �nclud�ng area code: (903) 434-1000

Secur�t�es reg�stered pursuant to Sect�on 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 ExchangeSecur�t�es reg�stered pursuant to Sect�on 12(g) of the Act: None

2

PILGRIM’S PRIDE CORPORATION September 29, 2007

Ind�cate by check mark �f the reg�strant �s a well-known seasoned �ssuer, as def�ned �n Rule 405 of the Secur�t�es Act. Yes No

Ind�cate by check mark �f the reg�strant �s not requ�red to f�le reports pursuant to Sect�on 13 or Sect�on 15(d) of the Exchange Act. Yes No

Ind�cate by check mark whether the Reg�strant (1) has f�led all reports requ�red to be f�led by Sect�on 13 or 15(d) of the Secur�t�es Exchange Act of 1934 dur�ng the preced�ng 12 months (or for such shorter per�od that the Reg�strant was requ�red to f�le such reports), and (2) has been subject to such f�l�ng requ�rements for the past 90 days. Yes No

Ind�cate by check mark �f d�sclosure of del�nquent f�lers pursuant to Item 405 of Regulat�on S-K �s not conta�ned here�n, and w�ll not be conta�ned, to the best of Reg�strant’s knowledge, �n def�n�t�ve proxy or �nformat�on statements �ncorporated by reference �n Part III of th�s Form 10-K or any amendment to th�s Form 10-K.

Ind�cate by check mark whether the reg�strant �s a large accelerated f�ler, an accelerated f�ler, or a non-accelerated f�ler. See def�n�t�on of “accelerated f�ler” and “large accelerated f�ler” �n Rule 12B-2 of the Exchange Act.

Large Accelerated F�ler Accelerated F�ler Non-accelerated F�ler

Ind�cate by check mark whether the reg�strant �s a shell company (as def�ned �n Rule 12b-2 of the Exchange Act). Yes No

The aggregate market value of the Reg�strant’s Common Stock, $0.01 par value, held by non-aff�l�ates of the Reg�strant as of March 31, 2007, was $1,340,874,524. For purposes of the forego�ng calculat�on only, all d�rectors, execut�ve off�cers and 5% benef�c�al owners have been deemed aff�l�ates.

Number of shares of the Reg�strant’s Common Stock outstand�ng as of November 13, 2007, was 66,555,733.

DOCUMENTS INCORPORATED BY REFERENCE

Port�ons of the Reg�strant’s proxy statement for the annual meet�ng of stockholders to be held January 30, 2008 are �ncorporated by reference �nto Part III.

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PILGRIM’S PRIDE CORPORATIONFORM 10-K

TABLE OF CONTENTS

PART I PageItem 1. Bus�ness 4Item 1A. R�sk Factors 21Item 1B. Unresolved Staff Comments 30Item 2. Propert�es 30Item 3. Legal Proceed�ngs 32Item 4. Subm�ss�on of Matters to a Vote of Secur�ty Holders 34

PART IIItem 5. Market for Reg�strant’s Common Equ�ty, Related Stockholder Matters and Issuer

Purchases of Equ�ty Secur�t�es 35Item 6. Selected F�nanc�al Data 40Item 7. Management’s D�scuss�on and Analys�s of F�nanc�al Cond�t�on and Results

of Operat�ons 43Item 7A. Quant�tat�ve and Qual�tat�ve D�sclosures about Market R�sk 62Item 8. F�nanc�al Statements and Supplementary Data (see Index to F�nanc�al Statements and

Schedules below) 63Item 9. Changes �n and D�sagreements w�th Accountants on Account�ng and F�nanc�al

D�sclosure 63Item 9A. Controls and Procedures 63Item 9B. Other Informat�on 68

PART IIIItem 10. D�rectors and Execut�ve Off�cers and Corporate Governance 68Item 11. Execut�ve Compensat�on 68Item 12. Secur�ty Ownersh�p of Certa�n Benef�c�al Owners and Management and Related

Stockholder Matters 68Item 13. Certa�n Relat�onsh�ps and Related Transact�ons, and D�rector Independence 68Item 14. Pr�nc�pal Account�ng Fees and Serv�ces 69

PART IVItem 15. Exh�b�ts and F�nanc�al Statement Schedules 69S�gnatures 76

INDEX TO FINANCIAL STATEMENTS AND SCHEDULESReport of Independent Reg�stered Publ�c Account�ng F�rm 79Consol�dated Balance Sheets as of September 29, 2007 and September 30, 2006 80Consol�dated Statements of Operat�ons for each of the three years ended

September 29, 2007 81Consol�dated Statements of Stockholders’ Equ�ty for each of the three years ended

September 29, 2007 82Consol�dated Statements of Cash Flows for each of the three years ended

September 29, 2007 83Notes to Consol�dated F�nanc�al Statements 84Schedule II - Valuat�on and Qual�fy�ng Accounts for each of the three years ended

September 29, 2007 110

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PART I

Item 1. Business

(a) General Development of Business

Overview

The Company, wh�ch was �ncorporated �n Texas �n 1968 and re�ncorporated �n Delaware �n 1986, �s the successor to a partnersh�p founded �n 1946 as a reta�l feed store. Over the years, the Company grew through both �nternal growth and var�ous acqu�s�t�ons of farm�ng operat�ons and poultry processors �nclud�ng the s�gn�f�cant acqu�s�t�ons �n f�scal 2004 and 2007 d�scussed below. We are the world’s largest ch�cken company and have one of the best known brand names �n the ch�cken �ndustry. In the U.S., we produce both prepared and fresh ch�cken and fresh turkey; wh�le �n Mex�co and Puerto R�co, we exclus�vely produce fresh ch�cken. Through vert�cal �ntegrat�on, we control the breed�ng, hatch�ng and grow�ng of ch�ckens. We also control the process�ng, preparat�on, packag�ng and sale of our product l�nes, wh�ch we bel�eve has made us one of the h�ghest-qual�ty, lowest-cost producers of ch�cken �n North Amer�ca. We have cons�stently appl�ed a long-term bus�ness strategy of focus�ng our growth efforts on the h�gher-value, h�gher-marg�n prepared foods products and have become a recogn�zed �ndustry leader �n th�s market segment. Accord�ngly, our sales efforts have trad�t�onally been targeted to the foodserv�ce �ndustry, pr�nc�pally cha�n restaurants and food processors, and have more recently been targeted to reta�lers seek�ng value-added products. We have cont�nually made �nvestments to ensure our prepared foods capab�l�t�es rema�n state-of-the-art and have complemented these �nvestments w�th a substant�al and successful research and development effort. In f�scal 2007, we sold 7.7 b�ll�on pounds of dressed ch�cken and 151.7 m�ll�on pounds of dressed turkey and generated net sales of $7.6 b�ll�on. In f�scal 2007, our U.S. operat�ons, �nclud�ng Puerto R�co, accounted for 93.3% of our net sales, w�th the rema�n�ng 6.7% ar�s�ng from our Mex�co operat�ons.

Recent Business Acquisition Activities

On December 27, 2006, we acqu�red a major�ty of the outstand�ng common stock of Gold K�st Inc. (“Gold K�st”) through a tender offer. We subsequently acqu�red all rema�n�ng Gold K�st shares and, on January 9, 2007, Gold K�st became our wholly owned subs�d�ary. We somet�mes refer to th�s acqu�s�t�on as the “f�scal 2007 acqu�s�t�on.” For f�nanc�al report�ng purposes, we have not �ncluded the operat�ng results and cash flows of Gold K�st �n our consol�dated f�nanc�al statements for the per�od from December 27, 2006 through December 30, 2006. The operat�ng results and cash flows of Gold K�st from December 27, 2006 through December 30, 2006 were not mater�al. Gold K�st operated a fully-�ntegrated ch�cken product�on bus�ness that �ncluded l�ve product�on, process�ng, market�ng and d�str�but�on. Th�s acqu�s�t�on has pos�t�oned us as the world’s lead�ng ch�cken producer, and that pos�t�on has prov�ded us w�th enhanced ab�l�t�es to compete more eff�c�ently and prov�de even better customer serv�ce, expand our geograph�c reach and customer base, further pursue value-added and prepared foods opportun�t�es, and offer long-term growth opportun�t�es for our stockholders, employees and growers. We are also better pos�t�oned to compete �n the �ndustry both �nternat�onally and �n the U.S. as consol�dat�ons occur.

5


On November 23, 2003, we completed the purchase of all the outstand�ng stock of the corporat�ons represented as the ConAgra Foods, Inc. ch�cken d�v�s�on (“ConAgra ch�cken d�v�s�on”). We somet�mes refer to th�s acqu�s�t�on as the “f�scal 2004 acqu�s�t�on.” The acqu�red bus�ness has been �ncluded �n our results of operat�ons s�nce the date of the acqu�s�t�on. The acqu�s�t�on prov�ded us w�th add�t�onal l�nes of spec�alty prepared ch�cken products, well-known brands, well-establ�shed d�str�butor relat�onsh�ps and Southeastern U.S. process�ng fac�l�t�es. The acqu�s�t�on also �ncluded the largest d�str�butor of ch�cken products �n Puerto R�co.

Strategy

Our object�ves are (1) to �ncrease sales, prof�t marg�ns and earn�ngs and (2) to outpace the growth of, and ma�nta�n our leadersh�p pos�t�on �n, the ch�cken �ndustry. To ach�eve these goals, we plan to cont�nue pursu�ng the follow�ng strateg�es:

- Capitalize on significant scale with leading industry position and brand recognition. We are the largest producer of ch�cken products �n the U.S. We est�mate that our U.S. market share, based on the total annual ch�cken product�on �n the U.S., �s approx�mately 25%, wh�ch �s approx�mately 20% h�gher than the second largest compet�tor �n the ch�cken �ndustry. The complementary f�t of markets, d�str�butor relat�onsh�ps and geograph�c locat�ons are a few of the many benef�ts we real�zed from our f�scal 2004 and 2007 acqu�s�t�ons prev�ously d�scussed. We bel�eve the acqu�red bus�nesses’ establ�shed relat�onsh�ps w�th broad-l�ne nat�onal d�str�butors and reta�lers have enabled us to expand our customer base and prov�de nat�onw�de d�str�but�on capab�l�t�es for all of our product l�nes. As a result, we bel�eve we are one of only two U.S. ch�cken producers that can supply the grow�ng demand for a broad range of pr�ce compet�t�ve standard and spec�al�zed products w�th well-known brand names on a nat�onw�de bas�s from a s�ngle source suppl�er.

- Capitalize on attractive U.S. prepared foods market. We focus our U.S. growth �n�t�at�ves on sales of prepared foods to the foodserv�ce and value-added reta�l markets because they cont�nue to be two of the fastest grow�ng and most prof�table segments �n the poultry �ndustry. Products sold to these market segments requ�re further process�ng, wh�ch enables us to charge a prem�um for our products, reduc�ng the �mpact of feed �ngred�ent costs on our prof�tab�l�ty and �mprov�ng and stab�l�z�ng our prof�t marg�ns. Feed �ngred�ent costs typ�cally decrease from approx�mately 33%-49% of total product�on cost for fresh ch�cken products to approx�mately 17%-24% for prepared ch�cken products. Due to �ncreased demand from our customers and our f�scal 2004 and 2007 acqu�s�t�ons, our sales of prepared ch�cken products grew from $921.1 m�ll�on �n f�scal 2003 to $2,492.4 m�ll�on �n f�scal 2007, a compounded annual growth rate of 28.3%. Prepared foods sales represented 39.5% of our total U.S. ch�cken revenues �n f�scal 2007, wh�ch we bel�eve prov�des us w�th a s�gn�f�cant compet�t�ve advantage and reduces our exposure to feed pr�ce fluctuat�ons. The add�t�on of well-known brands, �nclud�ng P�erce® and Easy-Entre e®, from our f�scal 2004 acqu�s�t�on s�gn�f�cantly expanded our already s�zeable prepared foods ch�cken offer�ngs. S�m�larly, our acqu�s�t�on of h�ghly custom�zed cooked ch�cken products, �nclud�ng breaded cutlets, s�zzle str�ps and W�ng-D�ngs®, for restaurants and spec�alty foodserv�ce customers from th�s acqu�s�t�on complemented our ex�st�ng l�nes of pre-cooked breast f�llets, tenderlo�ns, burgers, nuggets, salads and other prepared products for �nst�tut�onal foodserv�ce, fast-food and reta�l customers.

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- Emphasize customer-driven research and technology. We have a long-stand�ng reputat�on for customer-dr�ven research and development �n des�gn�ng new products and �mplement�ng advanced process�ng technology. Th�s enables us to better meet our customers’ chang�ng needs for product �nnovat�on, cons�stent qual�ty and cost eff�c�ency. In part�cular, customer-dr�ven research and development �s �ntegral to our growth strategy for the prepared foods market �n wh�ch customers cont�nue to place greater �mportance on value-added serv�ces. Our research and development personnel often work d�rectly w�th customers �n develop�ng products for them, wh�ch we bel�eve helps promote long-term relat�onsh�ps.

- Enhance U.S. fresh chicken profitability through value-added, branded products. Our U.S. fresh ch�cken sales accounted for $3,255.7 m�ll�on, or 51.4%, of our U.S. ch�cken sales for f�scal 2007. In add�t�on to ma�nta�n�ng the sales of trad�t�onal fresh ch�cken products, our strategy �s to sh�ft the m�x of our U.S. fresh ch�cken products by cont�nu�ng to �ncrease sales of h�gher marg�n, faster grow�ng products, such as f�xed we�ght packaged products and mar�nated ch�cken and ch�cken parts, and to cont�nually sh�ft port�ons of th�s product m�x �nto the h�gher value and marg�n prepared ch�cken products. Much of our fresh ch�cken products are sold under the P�lgr�m’s Pr�de® brand name, wh�ch �s a well-known brand �n the ch�cken �ndustry.

- Improve operating efficiencies and increase capacity on a cost-effective basis. As product�on and sales grow, we cont�nue to focus on �mprov�ng operat�ng eff�c�enc�es by �nvest�ng �n state-of-the-art technology and processes, tra�n�ng and our total qual�ty management program. Spec�f�c �n�t�at�ves �nclude:

- standard�z�ng lowest-cost product�on processes across our var�ous fac�l�t�es;

- central�z�ng purchas�ng and other shared serv�ces; and

- standard�z�ng and upgrad�ng technology where appropr�ate.

In add�t�on, we have a proven h�story of �ncreas�ng capac�ty wh�le �mprov�ng operat�ng eff�c�enc�es at acqu�red propert�es �n both the U.S. and Mex�co. As a result, accord�ng to �ndustry data, s�nce 1993 we have cons�stently been one of the lower-cost producers of ch�cken.

- Continue to seek strategic acquisitions. We have pursued opportun�t�es to expand through acqu�s�t�ons �n the past. We expect to cont�nue to pursue acqu�s�t�on opportun�t�es �n the future that would complement our ex�st�ng bus�nesses, broaden our product�on capab�l�t�es and/or �mprove our operat�ng eff�c�enc�es.

- Capitalize on export opportunities. We �ntend to cont�nue to focus on �nternat�onal opportun�t�es to complement our U.S. ch�cken operat�ons and cap�tal�ze on attract�ve export markets. Accord�ng to the USDA, the export of U.S. ch�cken products �ncreased 9.7% from 2002 through 2006. We bel�eve U.S. ch�cken exports w�ll cont�nue to grow as worldw�de demand �ncreases for h�gh-grade, low-cost meat prote�n sources. Accord�ng to USDA data, the export market for ch�cken �s expected to grow at a compounded annual growth rate of 1.8% from 2006 to 2011. H�stor�cally, we have targeted �nternat�onal markets to generate add�t�onal demand for our dark ch�cken meat, wh�ch �s a

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natural by-product of our U.S. operat�ons g�ven our concentrat�on on prepared foods products and the U.S. customers’ general preference for wh�te ch�cken meat. As part of th�s �n�t�at�ve, we have created a s�gn�f�cant �nternat�onal d�str�but�on network �nto several markets, �nclud�ng Mex�co, wh�ch we now ut�l�ze not only for dark ch�cken meat d�str�but�on, but also for var�ous h�gher marg�n prepared foods and other poultry products. We employ both a d�rect �nternat�onal sales force and export brokers. Our key �nternat�onal markets �nclude Eastern Europe, �nclud�ng Russ�a; the Far East, �nclud�ng Ch�na; and Mex�co. We bel�eve that we have substant�al opportun�t�es to expand our sales to these markets by cap�tal�z�ng on d�rect �nternat�onal d�str�but�on channels supplemented by our ex�st�ng export broker relat�onsh�ps. Our export sales accounted for approx�mately 10.1% and 21.1% of our U.S. ch�cken sales and pounds, respect�vely, for f�scal 2007.

(b) Financial Information About Segments

We operate �n three reportable bus�ness segments as (1) a producer and seller of ch�cken products, (2) a producer and seller of turkey products and (3) a seller of other products. See a d�scuss�on of our bus�ness segments �n Item 7. “Management’s D�scuss�on and Analys�s of F�nanc�al Cond�t�on and Results of Operat�ons.”

(c) Narrative Description of Business

Products and Markets

Our ch�cken products cons�st pr�mar�ly of:

(1) Prepared ch�cken products, wh�ch are products such as port�on-controlled breast f�llets, tenderlo�ns and str�ps, del�catessen products, salads, formed nuggets and patt�es and bone-�n ch�cken parts. These products are sold e�ther refr�gerated or frozen and may be fully cooked, part�ally cooked or raw. In add�t�on, these products are breaded or non-breaded and e�ther pre-mar�nated or non-mar�nated.

(2) Fresh ch�cken, wh�ch �s refr�gerated (non-frozen) whole or cut-up ch�cken sold to the foodserv�ce �ndustry e�ther pre-mar�nated or non-mar�nated. Fresh ch�cken also �ncludes prepackaged case-ready ch�cken, wh�ch �ncludes var�ous comb�nat�ons of freshly refr�gerated, whole ch�ckens and ch�cken parts �n trays, bags or other consumer packs labeled and pr�ced ready for the reta�l grocer’s fresh meat counter.

(3) Export and other ch�cken products, wh�ch are pr�mar�ly parts and whole ch�cken, e�ther refr�gerated or frozen for U.S. export or domest�c use, and ch�cken prepared foods products for U.S. export.

Our turkey products cons�st pr�mar�ly of fresh and frozen whole turkeys.

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Our ch�cken and turkey products are sold pr�mar�ly to:

(1) Foodserv�ce customers, wh�ch are customers such as cha�n restaurants, food processors, foodserv�ce d�str�butors and certa�n other �nst�tut�ons. We sell products to our foodserv�ce customers rang�ng from port�on-controlled refr�gerated poultry parts to fully-cooked and frozen, breaded or non-breaded poultry parts or formed products.

(2) Reta�l customers, wh�ch are customers such as grocery store cha�ns, wholesale clubs and other reta�l d�str�butors. We sell to our reta�l customers branded, pre-packaged, cut-up and whole poultry, and fresh refr�gerated or frozen whole poultry and poultry parts �n trays, bags or other consumer packs.

(3) Export and other product customers, who purchase ch�cken products for export to Eastern Europe, �nclud�ng Russ�a; the Far East, �nclud�ng Ch�na; Mex�co; and other world markets. Our export and other ch�cken products, w�th the except�on of our exported prepared foods products, cons�st of whole ch�ckens and ch�cken parts sold pr�mar�ly �n bulk, non-branded form, e�ther refr�gerated to d�str�butors �n the U.S. or frozen for d�str�but�on to export markets.

Our other products cons�st of:

(1) Other types of meat along w�th var�ous other staples purchased and sold by our d�str�but�on centers as a conven�ence to our ch�cken customers who purchase through the d�str�but�on centers.

(2) The product�on and sale of table eggs, commerc�al feeds and related �tems, l�ve hogs and prote�ns.

The follow�ng table sets forth, for the per�ods beg�nn�ng w�th f�scal 2003, net sales attr�butable to each of our pr�mary product l�nes and markets served w�th those products. Cons�stent w�th our long-term strategy, we emphas�zed our U.S. growth �n�t�at�ves on sales of prepared foods products, pr�mar�ly to the foodserv�ce market. Th�s product and market segment has exper�enced, and we bel�eve w�ll cont�nue to exper�ence, greater growth than fresh ch�cken products. We based the table on our �nternal sales reports and the�r class�f�cat�on of product types and customers.

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Fiscal Year Ended

Sept. 29, 2007(a) Sept. 30, 2006 Oct. 1, 2005 Oct. 2, 2004(a) Sept. 27, 2003(52 weeks) (52 weeks) (52 weeks) (53 weeks) (52 weeks)

U.S. Chicken Sales: (In thousands)Prepared Foods:

Foodserv�ce $ 1,897,643 $ 1,567,297 $ 1,622,901 $ 1,647,904 $ 731,331Reta�l 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 Ch�cken:Foodserv�ce 2,280,057 1,388,451 1,509,189 1,328,883 474,251Reta�l 975,659 496,560 612,081 653,798 257,911

Total Fresh Ch�cken 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 26,714Ch�cken 559,429 257,823 303,150 212,611 85,087Total Export(b) 642,746 322,161 362,623 247,346 111,801

Other Ch�cken By-Products 20,779 15,448 21,083 (b) (b)Total Export and Other 663,525 337,609 383,706 247,346 111,801Total U.S. Ch�cken 6,328,354 4,098,403 4,411,269 4,091,706 1,738,312

Mexico Chicken Sales: 488,466 418,745 403,353 362,442 349,305Total Ch�cken Sales 6,816,820 4,517,148 4,814,622 4,454,148 2,087,617

U.S. Turkey Sales:Foodserv�ce 14,025 30,269 73,908 120,676 138,405Reta�l 104,239 96,968 125,741 154,289 154,552

118,264 127,237 199,649 274,965 292,957Export 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:Un�ted States 638,738 570,510 626,056 600,091 207,284Mex�co 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 Ch�cken Prepared Foods $ 2,492,430 $ 1,940,121 $ 1,965,766 $ 1,896,414 $ 921,063

(a) The f�scal 2007 acqu�s�t�on on December 27, 2006 and f�scal 2004 acqu�s�t�on on November 23, 2003 have been accounted for as purchases. For f�nanc�al report�ng purposes, we have not �ncluded the operat�ng results and cash flows of the f�scal 2007 acqu�s�t�on �n our consol�dated f�nanc�al statements for the per�od from December 27, 2006 through December 30, 2006. The operat�ng results and cash flows of the f�scal 2007 acqu�s�t�on from December 27, 2006 through December 30, 2006 were not mater�al. The results of operat�ons for the f�scal 2004 acqu�s�t�on have been �ncluded �n our consol�dated results of operat�ons s�nce the acqu�s�t�on date.

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(b) The Export and Other category h�stor�cally �ncluded the sales of certa�n ch�cken by-products sold �n �nternat�onal markets, as well as the export of ch�cken and turkey products. Pr�or to f�scal 2005, by-product sales were not spec�f�cally �dent�f�able from the Export and Other category. Accord�ngly, a deta�l breakout �s not ava�lable pr�or to such t�me; however, the Company bel�eves that the relat�ve spl�t between these categor�es as shown �n f�scal 2005 would not be d�ss�m�lar �n the pr�or f�scal per�ods. Export �tems �nclude certa�n poultry parts that have greater value �n some overseas markets than �n the U.S.

The follow�ng table sets forth, beg�nn�ng w�th f�scal 2003, the percentage of net U.S. ch�cken and turkey sales attr�butable to each of our pr�mary product l�nes and the markets serv�ced w�th those products. We based the table and related d�scuss�on on our �nternal sales reports and the�r class�f�cat�on of product types and customers.

Fiscal Year EndedSept. 29, 2007(a) Sept. 30, 2006 Oct. 1, 2005 Oct. 2, 2004(a) Sept. 27, 2003

U.S. Chicken Sales:Prepared Foods:

Foodserv�ce 30.1 % 38.2 % 36.8 % 40.3 % 42.1 %Reta�l 8.1 % 7.5 % 6.4 % 5.2 % 9.4 %

Total Prepared Foods 38.2 % 45.7 % 43.2 % 45.5 % 51.5 %

Fresh Ch�cken:Foodserv�ce 36.0 % 33.9 % 34.2 % 32.5 % 27.3 %Reta�l 15.4 % 12.1 % 13.9 % 16.0 % 14.8 %

Total Fresh Ch�cken 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 %Ch�cken 8.8 % 6.3 % 6.9 % 5.2 % 4.9 %Total Export(b) 10.1 % 7.9 % 8.2 % 6.0 % 6.4 %

Other Ch�cken 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. Ch�cken 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %

Total Ch�cken Prepared Foods asa percentage of U.S. Ch�cken 39.5 % 47.3 % 44.5 % 46.3 % 53.0 %

U.S. Turkey Sales:Foodserv�ce 11.4 % 23.1 % 36.0 % 42.1 % 45.3 %Reta�l 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 f�scal 2007 acqu�s�t�on on December 27, 2006 and f�scal 2004 acqu�s�t�on on November 23, 2003 have been accounted for as purchases. For f�nanc�al report�ng purposes, we have not �ncluded the operat�ng results and cash flows of the f�scal 2007 acqu�s�t�on �n our consol�dated f�nanc�al statements for the per�od from December 27, 2006 through December 30, 2006. The operat�ng results and cash flows of the f�scal 2007 acqu�s�t�on from December 27, 2006 through December 30, 2006 were not mater�al. The results of operat�ons for the f�scal 2004 acqu�s�t�on have been �ncluded �n our consol�dated results of operat�ons s�nce the acqu�s�t�on date.

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(b) The Export and Other category h�stor�cally �ncluded the sales of certa�n ch�cken by-products sold �n �nternat�onal markets as well as the export of ch�cken and turkey products. Pr�or to f�scal 2005, by-product sales were not spec�f�cally �dent�f�able from the Export and Other category. Accord�ngly, a deta�l breakout �s not ava�lable pr�or to such t�me; however, the Company bel�eves that the relat�ve spl�t between these categor�es as shown �n f�scal 2005 would not be d�ss�m�lar �n the pr�or f�scal per�ods. Export �tems �nclude certa�n poultry parts that have greater value �n some overseas markets than �n the U.S.

UNITED STATES

Product Types

Chicken Products

Prepared Foods Overview. Dur�ng f�scal 2007, $2,409.1 m�ll�on of our U.S. ch�cken sales were �n prepared foods products to foodserv�ce customers and reta�l d�str�butors, as compared to $894.3 m�ll�on �n f�scal 2003. These numbers reflect the strateg�c focus for our growth and our f�scal 2004 and 2007 acqu�s�t�ons. The market for prepared ch�cken products has exper�enced, and we bel�eve w�ll cont�nue to exper�ence, greater growth, h�gher average sales pr�ces and h�gher marg�ns than fresh ch�cken products. Also, the product�on and sale �n the U.S. of prepared foods products reduce the �mpact of the costs of feed �ngred�ents on our prof�tab�l�ty. Feed �ngred�ent costs are the s�ngle largest component of our total U.S. cost of sales, represent�ng approx�mately 35.8% of our U.S. cost of sales for f�scal 2007. The product�on of feed �ngred�ents �s pos�t�vely or negat�vely affected pr�mar�ly by weather patterns throughout the world, the global level of supply �nventor�es, demand for feed �ngred�ents and the agr�cultural pol�c�es of the U.S. and fore�gn governments. As further process�ng �s performed, feed �ngred�ent costs become a decreas�ng percentage of a product’s total product�on cost, thereby reduc�ng the�r �mpact on our prof�tab�l�ty. Products sold �n th�s form enable us to charge a prem�um, reduce the �mpact of feed �ngred�ent costs on our prof�tab�l�ty and �mprove and stab�l�ze our prof�t marg�ns.

We establ�sh pr�ces for our prepared ch�cken products based pr�mar�ly upon perce�ved value to the customer, product�on costs and pr�ces of compet�ng products. The major�ty of these products are sold pursuant to agreements w�th vary�ng terms that e�ther set a f�xed pr�ce for the products or set a pr�ce accord�ng to formulas based on an underly�ng commod�ty market, subject �n many cases to m�n�mum and max�mum pr�ces.

Fresh Chicken Overview. Our fresh ch�cken bus�ness �s an �mportant component of our sales and accounted for $3,255.7 m�ll�on, or 51.4%, of our total U.S. ch�cken sales for f�scal 2007. In add�t�on to ma�nta�n�ng sales of mature, trad�t�onal fresh ch�cken products, our strategy �s to sh�ft the m�x of our U.S. fresh ch�cken products by cont�nu�ng to �ncrease sales of h�gher marg�n, faster grow�ng products, such as mar�nated ch�cken and ch�cken parts, and to cont�nually sh�ft port�ons of th�s product m�x �nto the h�gher value and marg�n prepared foods category.

Most fresh ch�cken products are sold to establ�shed customers, based upon certa�n weekly or monthly market pr�ces reported by the USDA and other publ�c pr�ce report�ng serv�ces, plus a markup, wh�ch �s dependent upon the customer’s locat�on, volume, product spec�f�cat�ons and other factors. We bel�eve our pract�ces w�th respect to sales of fresh ch�cken are generally cons�stent w�th those of our

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compet�tors. The major�ty of these products are sold pursuant to agreements w�th vary�ng terms that e�ther set a f�xed pr�ce for the products or set a pr�ce accord�ng to formulas based on an underly�ng commod�ty market, subject �n many cases to m�n�mum and max�mum pr�ces.

Export and Other Chicken Products Overview. Our export and other products cons�st of whole ch�ckens and ch�cken parts sold pr�mar�ly �n bulk, non-branded form, e�ther refr�gerated to d�str�butors �n the U.S. or frozen for d�str�but�on to export markets, and branded and non-branded prepared foods products for d�str�but�on to export markets. In f�scal 2007, approx�mately $663.5 m�ll�on, or 10.4%, of our total U.S. ch�cken sales were attr�butable to U.S. ch�cken export and other products. These exports and other products, other than the prepared foods products, have h�stor�cally been character�zed by lower pr�ces and greater pr�ce volat�l�ty than our more value-added product l�nes.

Turkey Products

Turkey Overview. Our turkey bus�ness accounted for $122.4 m�ll�on of sales �n f�scal 2007. As �s typ�cal for the �ndustry, a s�gn�f�cant port�on of the sales of fresh and frozen whole turkeys �s seasonal �n nature, w�th the he�ght of sales occurr�ng dur�ng the Thanksg�v�ng and Chr�stmas hol�days.

Most turkey products are sold to establ�shed customers pursuant to agreements w�th vary�ng terms that e�ther set a f�xed pr�ce or are subject to a market dr�ven formula w�th some agreements based upon market pr�ces reported by the USDA and other publ�c pr�ce report�ng serv�ces, plus a markup, subject �n many cases to m�n�mum and max�mum pr�ces. Th�s �s dependent upon the customer’s locat�on, volume, product spec�f�cat�ons and other factors. We bel�eve our pract�ces w�th respect to sales of fresh turkey are generally cons�stent w�th those of our compet�tors w�th s�m�lar programs.

Markets for Chicken Products

Foodservice. The foodserv�ce market pr�nc�pally cons�sts of cha�n restaurants, food processors, broad-l�ne d�str�butors and certa�n other �nst�tut�ons located throughout the cont�nental U.S. We supply ch�cken products rang�ng from port�on-controlled refr�gerated ch�cken parts to fully cooked and frozen, breaded or non-breaded ch�cken parts or formed products.

We bel�eve the Company �s well-pos�t�oned to be the pr�mary or secondary suppl�er to many nat�onal and �nternat�onal cha�n restaurants who requ�re mult�ple suppl�ers of ch�cken products. Add�t�onally, we bel�eve we are well su�ted to be the sole suppl�er for many reg�onal cha�n restaurants. Reg�onal cha�n restaurants often offer better marg�n opportun�t�es and a grow�ng base of bus�ness.

We bel�eve we have s�gn�f�cant compet�t�ve strengths �n terms of full-l�ne product capab�l�t�es, h�gh-volume product�on capac�t�es, research and development expert�se and extens�ve d�str�but�on and market�ng exper�ence relat�ve to smaller and non-vert�cally �ntegrated producers. Wh�le the overall ch�cken market has grown cons�stently, we bel�eve the major�ty of th�s growth �n recent years has been �n the foodserv�ce market. Accord�ng to the Nat�onal Ch�cken Counc�l, from 2002 through 2006, sales of ch�cken products to the foodserv�ce market grew at a compounded annual growth rate of approx�mately 7.9%, versus 4.9% growth for the ch�cken �ndustry overall. Foodserv�ce growth �s ant�c�pated to cont�nue as food-away-from-home expend�tures cont�nue to outpace overall �ndustry

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rates. Accord�ng to Technom�c Informat�on Serv�ces, food-away-from-home expend�tures grew at a compounded annual growth rate of approx�mately 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 f�scal 2004 and 2007 acqu�s�t�ons, our sales to the foodserv�ce market from f�scal 2003 through f�scal 2007 grew at a compounded annual growth rate of 36.4% and represented 66.1% of the net sales of our U.S. ch�cken operat�ons �n f�scal 2007.

Foodservice – Prepared Foods. Our prepared ch�cken products sales to the foodserv�ce market were $1,897.6 m�ll�on �n f�scal 2007 compared to $731.3 m�ll�on �n f�scal 2003, a compounded annual growth rate of approx�mately 26.9%. In add�t�on to the s�gn�f�cant �ncrease �n sales created by the f�scal 2004 and 2007 acqu�s�t�ons, we attr�bute th�s growth �n sales of prepared ch�cken products to the foodserv�ce market to a number of factors:

First, there has been s�gn�f�cant growth �n the number of foodserv�ce operators offer�ng ch�cken on the�r menus and �n the number of ch�cken �tems offered.

Second, foodserv�ce operators are �ncreas�ngly purchas�ng prepared ch�cken products, wh�ch allow them to reduce labor costs wh�le prov�d�ng greater product cons�stency, qual�ty and var�ety across all restaurant locat�ons.

Third, there �s a strong need among larger foodserv�ce compan�es for a s�ngle-source suppl�er �n the prepared ch�cken products market. A v�able suppl�er must be able to ensure supply, demonstrate �nnovat�on and new product development and prov�de compet�t�ve pr�c�ng. We have been successful �n our object�ve of becom�ng a suppl�er of cho�ce by be�ng the pr�mary or secondary prepared ch�cken products suppl�er to many large foodserv�ce compan�es because:

- We are vert�cally �ntegrated, g�v�ng us control over our supply of ch�cken and ch�cken parts;

- Our further process�ng fac�l�t�es, w�th a w�de range of capab�l�t�es, are part�cularly well su�ted to the h�gh-volume product�on as well as low-volume custom product�on runs necessary to meet both the capac�ty and qual�ty requ�rements of the foodserv�ce market; and

- We have establ�shed a reputat�on for dependable qual�ty, h�ghly respons�ve serv�ce and excellent techn�cal support.

Fourth, as a result of the exper�ence and reputat�on developed w�th larger customers, we have �ncreas�ngly become the pr�nc�pal suppl�er to m�d-s�zed foodserv�ce organ�zat�ons.

Fifth, our �n-house product development group follows a customer-dr�ven research and development focus des�gned to develop new products to meet customers’ chang�ng needs. Our research and development personnel often work d�rectly w�th �nst�tut�onal customers �n develop�ng products for these customers.

Sixth, we are a leader �n ut�l�z�ng advanced process�ng technology, wh�ch enables us to better meet our customers’ needs for product �nnovat�on, cons�stent qual�ty and cost eff�c�ency.

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Foodservice – Fresh Chicken. We produce and market fresh, refr�gerated ch�cken for sale to U.S. qu�ck-serv�ce restaurant cha�ns, del�catessens and other customers. These ch�ckens have the g�blets removed, are usually of spec�f�c we�ght ranges and are usually pre-cut to customer spec�f�cat�ons. They are often mar�nated to enhance value and product d�fferent�at�on. By grow�ng and process�ng to customers’ spec�f�cat�ons, we are able to ass�st qu�ck-serv�ce restaurant cha�ns �n controll�ng costs and ma�nta�n�ng qual�ty and s�ze cons�stency of ch�cken p�eces sold to the consumer.

Retail. The reta�l market cons�sts pr�mar�ly of grocery store cha�ns, wholesale clubs and other reta�l d�str�butors. We concentrate our efforts �n th�s market on sales of branded, prepackaged cut-up and whole ch�cken and ch�cken parts to grocery store cha�ns and reta�l d�str�butors. For a number of years, we have �nvested �n both trade and reta�l market�ng des�gned to establ�sh h�gh levels of brand name awareness and consumer preferences.

We ut�l�ze numerous market�ng techn�ques, �nclud�ng advert�s�ng, to develop and strengthen trade and consumer awareness and �ncrease brand loyalty for consumer products marketed under the P�lgr�m’s Pr�de® brand. Our co-founder, Lonn�e “Bo” P�lgr�m, �s the featured spokesperson �n our telev�s�on, rad�o and pr�nt advert�s�ng, and a trademark cameo of a person wear�ng a P�lgr�m’s hat serves as the logo on all of our pr�mary branded products. As a result of th�s market�ng strategy, P�lgr�m’s Pr�de® �s a well-known brand name �n a number of markets. We bel�eve our efforts to ach�eve and ma�nta�n brand awareness and loyalty help to prov�de more secure d�str�but�on for our products. We also bel�eve our efforts at brand awareness generate greater pr�ce prem�ums than would otherw�se be the case �n certa�n markets. We also ma�nta�n an act�ve program to �dent�fy consumer preferences. The program pr�mar�ly cons�sts of d�scover�ng and val�dat�ng new product �deas, packag�ng des�gns and methods through soph�st�cated qual�tat�ve and quant�tat�ve consumer research techn�ques �n key geograph�c markets.

Retail – Prepared Foods. We sell reta�l-or�ented prepared ch�cken products pr�mar�ly to grocery store cha�ns located throughout the U.S. Our prepared ch�cken products sales to the reta�l market were $511.5 m�ll�on �n f�scal 2007 compared to $163.0 m�ll�on �n f�scal 2003, a compounded annual growth rate of approx�mately 33.1%. We bel�eve that our growth �n th�s market segment w�ll cont�nue as reta�lers concentrate on sat�sfy�ng consumer demand for more products that are qu�ck, easy and conven�ent to prepare at home.

Retail – Fresh Chicken. Our prepackaged reta�l products �nclude var�ous comb�nat�ons of freshly refr�gerated, whole ch�ckens and ch�cken parts �n trays, bags or other consumer packs labeled and pr�ced ready for the reta�l grocer’s fresh meat counter. Our reta�l fresh ch�cken products are sold �n the m�dwestern, southwestern, southeastern and western reg�ons of the U.S. Our fresh ch�cken sales to the reta�l market were $975.7 m�ll�on �n f�scal 2007 compared to $257.9 m�ll�on �n f�scal 2003, a compounded annual growth rate of approx�mately 39.5% result�ng pr�mar�ly from our f�scal 2004 and 2007 acqu�s�t�ons. We bel�eve the reta�l prepackaged fresh ch�cken bus�ness w�ll cont�nue to be a large and relat�vely stable market, prov�d�ng opportun�t�es for product d�fferent�at�on and reg�onal brand loyalty.

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Export and Other Chicken Products. Our export and other ch�cken products, w�th the except�on of our exported prepared foods products, cons�st of whole ch�ckens and ch�cken parts sold pr�mar�ly �n bulk, non-branded form e�ther refr�gerated to d�str�butors �n the U.S. or frozen for d�str�but�on to export markets. In the U.S., pr�ces of these products are negot�ated da�ly or weekly and are generally related to market pr�ces quoted by the USDA or other publ�c pr�ce report�ng serv�ces. We sell U.S.-produced ch�cken products for export to Eastern Europe, �nclud�ng Russ�a; the Far East, �nclud�ng Ch�na; Mex�co; and other world markets.

H�stor�cally, we have targeted �nternat�onal markets to generate add�t�onal demand for our dark ch�cken meat, wh�ch �s a natural by-product of our U.S. operat�ons g�ven our concentrat�on on prepared foods products and the U.S. customers’ general preference for wh�te ch�cken meat. We have also begun sell�ng prepared ch�cken products for export to the �nternat�onal d�v�s�ons of our U.S. cha�n restaurant customers. We bel�eve that U.S. ch�cken exports w�ll cont�nue to grow as worldw�de demand �ncreases for h�gh-grade, low-cost meat prote�n sources. We also bel�eve that worldw�de demand for h�gher marg�n prepared foods products w�ll �ncrease over the next several years. Accord�ngly, we bel�eve we are well pos�t�oned to cap�tal�ze on such growth. Also �ncluded �n th�s category are ch�cken by-products, wh�ch are converted �nto prote�n products and sold pr�mar�ly to manufacturers of pet foods.

Markets for Turkey Products

Most of our turkey sales are der�ved from products sold to the reta�l market. Th�s market cons�sts pr�mar�ly of grocery store cha�ns, wholesale clubs and other reta�l d�str�butors. We concentrate our efforts �n th�s market on sales of branded, prepackaged whole turkeys to grocery store cha�ns and reta�l d�str�butors �n the eastern and southwestern reg�ons of the U.S. We bel�eve th�s reg�onal market�ng focus enables us to develop consumer brand franch�ses and cap�tal�ze on prox�m�ty to the trade customer �n terms of lower transportat�on costs, more t�mely and respons�ve serv�ce and enhanced product freshness.

We ut�l�ze numerous market�ng techn�ques, �nclud�ng advert�s�ng, to develop and strengthen trade and consumer awareness and �ncrease brand loyalty for consumer products marketed generally under the P�lgr�m’s Pr�de® and P�lgr�m’s S�gnature™ brands. We bel�eve our efforts to ach�eve and ma�nta�n brand awareness and loyalty help to prov�de more secure d�str�but�on for our products. We also bel�eve our efforts at brand awareness generate greater pr�ce prem�ums than would otherw�se be the case �n certa�n markets �n the eastern reg�ons of the U.S. We also ma�nta�n an act�ve program to �dent�fy consumer preferences. The program pr�mar�ly cons�sts of test�ng new product �deas, packag�ng des�gns and methods through soph�st�cated qual�tat�ve and quant�tat�ve consumer research techn�ques �n key geograph�c markets.

Markets for Other Products

We have reg�onal d�str�but�on centers located �n Ar�zona, Flor�da, Iowa, M�ss�ss�pp�, Oh�o, Tennessee, Texas and Utah that are pr�mar�ly focused on d�str�but�ng our own ch�cken products; however, the d�str�but�on centers also d�str�bute certa�n poultry and non-poultry products purchased from th�rd part�es to �ndependent grocers and qu�ck serv�ce restaurants. Our non-ch�cken d�str�but�on bus�ness �s conducted as an accommodat�on to our customers and to ach�eve greater econom�es of scale

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�n d�str�but�on log�st�cs. Poultry sales from our reg�onal d�str�but�on centers are �ncluded �n the ch�cken and turkey sales amounts conta�ned �n the above tables; however, all non-poultry sales amounts are conta�ned �n the Other Products. We bel�eve the store-door del�very capab�l�t�es for our own poultry products prov�de a strateg�c serv�ce advantage �n sell�ng to qu�ck serv�ce, nat�onal cha�n restaurants.

We market fresh eggs under the P�lgr�m’s Pr�de® brand name, as well as under pr�vate labels, �n var�ous s�zes of cartons and flats to U.S. reta�l grocery and �nst�tut�onal foodserv�ce customers located pr�mar�ly �n Texas. We have a hous�ng capac�ty for approx�mately 2.1 m�ll�on commerc�al egg lay�ng hens wh�ch can produce approx�mately 42 m�ll�on dozen eggs annually. U.S. egg pr�ces are determ�ned weekly based upon reported market pr�ces. The U.S. egg �ndustry has been consol�dat�ng over the last few years, w�th the 25 largest producers account�ng for more than 74.3% of the total number of egg lay�ng hens �n serv�ce dur�ng 2007. We compete w�th other U.S. egg producers pr�mar�ly on the bas�s of product qual�ty, rel�ab�l�ty, pr�ce and customer serv�ce.

We market a h�gh-nutr�ent egg called EggsPlus™. Th�s egg conta�ns h�gh levels of Omega-3 and Omega-6 fatty ac�ds along w�th V�tam�n E, mak�ng the egg a heart-fr�endly product. Our market�ng of EggsPlus™ has rece�ved nat�onal recogn�t�on for our progress �n be�ng an �nnovator �n the “funct�onal foods” category.

In add�t�on, we produce and sell l�vestock feeds at our feed m�ll �n Mt. Pleasant, Texas and at our farm supply store �n P�ttsburg, Texas to da�ry farmers and l�vestock producers �n northeastern Texas. We engage �n s�m�lar sales act�v�t�es at our other U.S. feed m�lls.

We also have a small pork operat�on that we acqu�red through our 2007 acqu�s�t�on that ra�ses and sells l�ve hogs to processors.

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MEXICO

Background

The Mex�co market represented approx�mately 6.7% of our net sales �n f�scal 2007. We are the second-largest producer and seller of ch�cken �n Mex�co. We bel�eve that we are one of the lower-cost producers of ch�cken �n Mex�co.

Product Types

Wh�le the market for ch�cken products �n Mex�co �s less developed than �n the U.S., w�th sales attr�buted to fewer, more bas�c products, we have been successful �n d�fferent�at�ng our products through h�gh qual�ty cl�ent serv�ce and product �mprovements such as dry-a�r ch�lled ev�scerated products. The supermarket cha�ns cons�der us the leaders �n �nnovat�on for fresh products. The market for value added products �s �ncreas�ng. Our strategy �s to cap�tal�ze on th�s trend through our vast U.S. exper�ence �n both products and qual�ty and our well-known serv�ce.

Markets

We sell our ch�cken products pr�mar�ly to wholesalers, large restaurant cha�ns, fast food accounts, supermarket cha�ns and d�rect reta�l d�str�but�on �n selected markets. We have nat�onal presence and are currently present �n all but two of the 32 Mex�can States, wh�ch �n total represent 99% of the Mex�can populat�on.

Foreign Operations Risks

Our fore�gn operat�ons pose spec�al r�sks to our bus�ness and operat�ons. See Item 1A. “R�sk Factors” for a d�scuss�on of fore�gn operat�ons r�sks.

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GENERAL

Competitive Conditions

The ch�cken and turkey �ndustr�es are h�ghly compet�t�ve and our largest U.S. compet�tor has greater f�nanc�al and market�ng resources than we do. In the U.S., Mex�co and Puerto R�co, we compete pr�nc�pally w�th other vert�cally �ntegrated poultry compan�es. We are the largest producer of ch�cken �n the U.S. and Puerto R�co, and the second largest producer �n Mex�co. The second largest producer �n the U.S. �s Tyson Foods, Inc. The largest producer �n Mex�co �s Industr�as Bachoco SA de CV.

In general, the compet�t�ve factors �n the U.S. ch�cken and turkey �ndustr�es �nclude pr�ce, product qual�ty, product development, brand �dent�f�cat�on, breadth of product l�ne and customer serv�ce. Compet�t�ve factors vary by major market. In the foodserv�ce market, compet�t�on �s based on cons�stent qual�ty, product development, serv�ce and pr�ce. In the U.S. reta�l market, we bel�eve that product qual�ty, brand awareness, customer serv�ce and pr�ce are the pr�mary bases of compet�t�on. There �s some compet�t�on w�th non-vert�cally �ntegrated further processors �n the U.S. prepared food bus�ness. We bel�eve vert�cal �ntegrat�on generally prov�des s�gn�f�cant, long-term cost and qual�ty advantages over non-vert�cally �ntegrated further processors.

In Mex�co, where product d�fferent�at�on has trad�t�onally been l�m�ted, product qual�ty, serv�ce and pr�ce have been the most cr�t�cal compet�t�ve factors. The North Amer�can Free Trade Agreement el�m�nated tar�ffs for ch�cken and ch�cken products sold to Mex�co on January 1, 2003. However, �n July 2003, the U.S. and Mex�co entered �nto a safeguard agreement w�th regard to �mports �nto Mex�co of ch�cken leg quarters from the U.S. Under th�s agreement, a tar�ff rate for ch�cken leg quarters of 98.8% of the sales pr�ce was establ�shed. The tar�ff rate on �mport dut�es was reduced on January 1, 2007, to 19.8%, and on January 1, 2008 the tar�ff rate �s scheduled to be reduced to zero. As th�s tar�ff �s reduced, we expect greater amounts of ch�cken to be �mported �nto Mex�co from the U.S., wh�ch could negat�vely affect the prof�tab�l�ty of Mex�can ch�cken producers.

We are not a s�gn�f�cant compet�tor �n the d�str�but�on bus�ness as �t relates to products other than ch�cken. We d�str�bute these products solely as a conven�ence to our ch�cken customers. The broad-l�ne d�str�butors do not cons�der us to be a factor �n those markets. The compet�t�on related to our other products such as table eggs, feed and prote�n are much more reg�onal�zed and no one compet�tor �s dom�nant.

Key Customers

Our two largest customers accounted for approx�mately 18% of our net sales �n f�scal 2007, and our largest customer, Wal-Mart Stores Inc., accounted for 12% of our net sales.

Regulation and Environmental Matters

The ch�cken and turkey �ndustr�es are subject to government regulat�on, part�cularly �n the health and env�ronmental areas, �nclud�ng prov�s�ons relat�ng to the d�scharge of mater�als �nto the env�ronment, by the Centers for D�sease Control, the USDA, the Food and Drug Adm�n�strat�on (“FDA”) and the Env�ronmental Protect�on Agency (“EPA”) �n the U.S. and by s�m�lar governmental

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agenc�es �n Mex�co. Our ch�cken process�ng fac�l�t�es �n the U.S. are subject to on-s�te exam�nat�on, �nspect�on and regulat�on by the USDA. The FDA �nspects the product�on of our feed m�lls �n the U.S. Our Mex�can food process�ng fac�l�t�es and feed m�lls are subject to on-s�te exam�nat�on, �nspect�on and regulat�on by a Mex�can governmental agency, wh�ch performs funct�ons s�m�lar to those performed by the USDA and FDA. We bel�eve that we are �n substant�al compl�ance w�th all appl�cable laws and regulat�ons relat�ng to the operat�ons of our fac�l�t�es.

We ant�c�pate �ncreased regulat�on by the USDA concern�ng food safety, by the FDA concern�ng the use of med�cat�ons �n feed and by the EPA and var�ous other state agenc�es concern�ng d�scharges to the env�ronment. Although we do not ant�c�pate any regulat�ons hav�ng a mater�al adverse effect upon us, a mater�al adverse effect may occur.

Employees and Labor Relations

As of September 29, 2007, we employed approx�mately 49,800 persons �n the U.S. and 5,100 persons �n Mex�co. Approx�mately 16,350 employees at var�ous fac�l�t�es �n the U.S. are members of collect�ve barga�n�ng un�ts. In Mex�co, approx�mately 2,950 employees are covered by collect�ve barga�n�ng agreements. We have not exper�enced any work stoppage at any locat�on �n over f�ve years. We bel�eve our relat�ons w�th our employees are sat�sfactory. At any g�ven t�me, we w�ll be �n some stage of contract negot�at�on w�th var�ous collect�ve barga�n�ng un�ts.

Financial Information about Foreign Operations

The Company’s fore�gn operat�ons are �n Mex�co. Geograph�c f�nanc�al �nformat�on �s set forth �n Item 7. “Management’s D�scuss�on and Analys�s of F�nanc�al Cond�t�on and Results of Operat�on.”

Available Information; NYSE CEO Certification

The Company’s Internet webs�te �s http://www.p�lgr�mspr�de.com. The Company makes ava�lable, free of charge, through �ts Internet webs�te, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, D�rectors and Off�cers Forms 3, 4 and 5, and amendments to those reports, as soon as reasonably pract�cable after electron�cally f�l�ng such mater�als w�th, or furn�sh�ng them to, the Secur�t�es and Exchange Comm�ss�on. The publ�c may read and copy any mater�als that the Company f�les w�th the Secur�t�es and Exchange Comm�ss�on at �ts Publ�c Reference Room at 100 F Street, NE, Wash�ngton, DC 20549 and may obta�n �nformat�on about the operat�on of the Publ�c Informat�on Room by call�ng the Secur�t�es and Exchange Comm�ss�on at 1-800-SEC-0330.

In add�t�on, the Company makes ava�lable, through �ts Internet webs�te, the Company’s Bus�ness Code of Conduct and Eth�cs, Corporate Governance Gu�del�nes and the wr�tten charter of the Aud�t Comm�ttee, each of wh�ch �s ava�lable �n pr�nt to any stockholder who requests �t by contact�ng the Secretary of the Company at 4845 U.S. H�ghway 271 North, P�ttsburg, Texas 75686-0093.

As requ�red by the rules of the New York Stock Exchange, the Company subm�tted �ts unqual�f�ed Sect�on 303A.12(a) Co-Pr�nc�pal Execut�ve Off�cers Cert�f�cat�on for the preced�ng year to the New York Stock Exchange.

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We �ncluded the cert�f�cat�ons of the Co-Pr�nc�pal Execut�ve Off�cers and the Ch�ef F�nanc�al Off�cer of the Company requ�red by Sect�on 302 of the Sarbanes-Oxley Act of 2002 and related rules, relat�ng to the qual�ty of the Company’s publ�c d�sclosure, �n th�s report on Form 10-K as Exh�b�ts 31.1, 31.2 and 31.3.

Executive Officers

Set forth below �s certa�n �nformat�on relat�ng to our current execut�ve off�cers:

Name Age PositionsLonn�e “Bo” P�lgr�m 79 Sen�or Cha�rman of the BoardLonn�e Ken P�lgr�m 49 Cha�rman of the BoardCl�fford E. Butler 65 V�ce Cha�rman of the BoardO.B. Goolsby, Jr. 60 Pres�dent, Ch�ef Execut�ve Off�cer, and D�rectorR�chard A. Cogd�ll 47 Ch�ef F�nanc�al Off�cer

Secretary, Treasurer and D�rectorJ. Cl�nton R�vers 48 Ch�ef Operat�ng Off�cerRobert A. Wr�ght 53 Execut�ve V�ce Pres�dent of

Sales and Market�ng

Lonnie “Bo” Pilgrim has served as Sen�or Cha�rman of the Board s�nce July 2007. He served as Cha�rman of the Board s�nce the organ�zat�on of P�lgr�m’s Pr�de �n July 1968 unt�l July 2007. He also served as Ch�ef Execut�ve Off�cer from July 1968 to June 1998. Pr�or to the �ncorporat�on of P�lgr�m’s Pr�de, Mr. P�lgr�m was a partner �n �ts predecessor partnersh�p bus�ness founded �n 1946.

Lonnie Ken Pilgrim has served as Cha�rman of the Board s�nce July 2007. He served as Execut�ve V�ce Pres�dent, Ass�stant to Cha�rman from November 2004 unt�l July 2007, and he served as Sen�or V�ce Pres�dent, Transportat�on from August 1997 to November 2004. Pr�or to that, he served as V�ce Pres�dent. He has been a member of the Board of D�rectors s�nce March 1985, and he has been employed by P�lgr�m’s Pr�de s�nce 1977. He �s a son of Lonn�e “Bo” P�lgr�m.

Clifford E. Butler serves as V�ce Cha�rman of the Board. On October 10, 2007, Cl�fford E. Butler announced h�s ret�rement from h�s pos�t�on as V�ce Cha�rman of the Board effect�ve December 31, 2007, and that he w�ll not stand for re-elect�on as a d�rector. Mr. Butler jo�ned us as Controller and d�rector �n 1969, was named Sen�or V�ce Pres�dent of F�nance �n 1973, became Ch�ef F�nanc�al Off�cer and V�ce Cha�rman of the Board �n July 1983, became Execut�ve Pres�dent �n January 1997 and served �n such capac�ty through July 1998.

O.B. Goolsby, Jr. has served as Pres�dent and Ch�ef Execut�ve Off�cer s�nce September 2004. Mr. Goolsby served as Pres�dent and Ch�ef Operat�ng Off�cer from November 2002 to September 2004. Pr�or to be�ng named as Pres�dent and Ch�ef Operat�ng Off�cer �n November 2002, Mr. Goolsby served as Execut�ve V�ce Pres�dent, Prepared Foods Complexes from June 1998 to November 2002. He was prev�ously Sen�or V�ce Pres�dent, Prepared Foods Operat�ons from August 1992 to June 1998 and V�ce Pres�dent, Prepared Foods Operat�ons from September 1987 to August 1992 and was employed by the Company �n other capac�t�es from November 1969 to January 1981.

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Richard A. Cogdill has served as Ch�ef F�nanc�al Off�cer, Secretary and Treasurer s�nce January 1997. Mr. Cogd�ll became a D�rector �n September 1998. Prev�ously he served as Sen�or V�ce Pres�dent, Corporate Controller, from August 1992 through December 1996 and as V�ce Pres�dent, Corporate Controller from October 1991 through August 1992. Pr�or to October 1991, he was a Sen�or Manager w�th Ernst & Young LLP. Mr. Cogd�ll �s a Cert�f�ed Publ�c Accountant.

J. Clinton Rivers has served as Ch�ef Operat�ng Off�cer s�nce October 2004. He served as Execut�ve V�ce Pres�dent of Prepared Food Operat�ons from November 2002 to October 2004. Mr. R�vers was the Sen�or V�ce Pres�dent of Prepared Foods Operat�ons from 1999 to November 2002, and was the V�ce Pres�dent of Prepared Foods Operat�ons from 1992 to 1999. From 1989 to 1992, he served as Plant Manager of the Mount Pleasant, Texas Product�on Fac�l�ty. Mr. R�vers jo�ned P�lgr�m’s Pr�de �n 1986 as the Qual�ty Assurance Manager, and also held pos�t�ons at Perdue Farms and Golden West Foods.

Robert A. Wright has served as Execut�ve V�ce Pres�dent of Sales and Market�ng s�nce June 2004. He served as Execut�ve V�ce Pres�dent, Turkey D�v�s�on from October 2003 to June 2004. Pr�or to October 2003, Mr. Wr�ght served as Pres�dent of Butterball Turkey Company for f�ve years.

Item 1A. Risk Factors

Forward-Looking Statements

Statements of our �ntent�ons, bel�efs, expectat�ons or pred�ct�ons for the future, denoted by the words “ant�c�pate,” “bel�eve,” “est�mate,” “expect,” “plan,” “project,” “�mply,” “�ntend,” “foresee” and s�m�lar express�ons, are forward-look�ng statements that reflect our current v�ews about future events and are subject to r�sks, uncerta�nt�es and assumpt�ons. Such r�sks, uncerta�nt�es and assumpt�ons �nclude those descr�bed under “R�sk Factors” below and elsewhere �n th�s Annual Report on Form 10-K.

Actual results could d�ffer mater�ally from those projected �n these forward-look�ng statements as a result of these factors, among others, many of wh�ch are beyond our control.

In mak�ng these statements, we are not undertak�ng, and spec�f�cally decl�ne to undertake, any obl�gat�on to address or update each or any factor �n future f�l�ngs or commun�cat�ons regard�ng our bus�ness or results, and we are not undertak�ng to address how any of these factors may have caused changes �n �nformat�on conta�ned �n prev�ous f�l�ngs or commun�cat�ons. The r�sks descr�bed below are not the only r�sks we face, and add�t�onal r�sks and uncerta�nt�es may also �mpa�r our bus�ness operat�ons. The occurrence of any one or more of the follow�ng or other currently unknown factors could mater�ally adversely affect our bus�ness and operat�ng results.

Risk Factors

The follow�ng r�sk factors should be read carefully �n connect�on w�th evaluat�ng our bus�ness and the forward-look�ng �nformat�on conta�ned �n th�s Annual Report on Form 10-K. Any of the follow�ng r�sks could mater�ally adversely affect our bus�ness, operat�ons, �ndustry or f�nanc�al pos�t�on or our future f�nanc�al performance. Wh�le we bel�eve we have �dent�f�ed and d�scussed below the key r�sk factors affect�ng our bus�ness, there may be add�t�onal r�sks and uncerta�nt�es that are not presently known or that are not currently bel�eved to be s�gn�f�cant that may adversely affect our bus�ness, operat�ons, �ndustry, f�nanc�al pos�t�on and f�nanc�al performance �n the future.

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

Prof�tab�l�ty �n the ch�cken and turkey �ndustr�es �s mater�ally affected by the commod�ty pr�ces of feed �ngred�ents, ch�cken and turkey, wh�ch are determ�ned by supply and demand factors. As a result, the ch�cken and turkey �ndustr�es are subject to cycl�cal earn�ngs fluctuat�ons.

The product�on of feed �ngred�ents �s pos�t�vely or negat�vely affected pr�mar�ly by weather patterns throughout the world, the global level of supply �nventor�es and demand for feed �ngred�ents and the agr�cultural pol�c�es of the Un�ted States and fore�gn governments. In part�cular, weather patterns often change agr�cultural cond�t�ons �n an unpred�ctable manner. A s�gn�f�cant change �n weather patterns could affect suppl�es of feed �ngred�ents, as well as both the �ndustry’s and our ab�l�ty to obta�n feed �ngred�ents, grow ch�ckens and turkeys or del�ver products.

The cost of corn and soybean meal, our pr�mary feed �ngred�ents, �ncreased s�gn�f�cantly from August 2006 to the date of th�s report and there can be no assurance that the pr�ce of corn or soybean meal w�ll not cont�nue to r�se as a result of, among other th�ngs, �ncreas�ng demand for these products around the world and alternat�ve uses of these products, such as ethanol and b�od�esel product�on.

H�gh feed �ngred�ent pr�ces have had a mater�al adverse effect on our operat�ng results. We per�od�cally seek, to the extent ava�lable, to enter �nto advance purchase comm�tments or f�nanc�al hedg�ng contracts for the purchase of feed �ngred�ents �n an effort to manage our feed �ngred�ent costs. The use of such �nstruments may not be successful.

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

We take precaut�ons des�gned to ensure that our flocks are healthy and that our process�ng plants and other fac�l�t�es operate �n a san�tary and env�ronmentally-sound manner. However, events beyond our control, such as the outbreaks of d�sease, e�ther �n our own flocks or elsewhere, could s�gn�f�cantly affect demand for our products or our ab�l�ty to conduct our operat�ons. Furthermore, an outbreak of d�sease could result �n governmental restr�ct�ons on the �mport and export of our fresh ch�cken, turkey or other products to or from our suppl�ers, fac�l�t�es or customers, or requ�re us to destroy one or more of our flocks. Th�s could also result �n the cancellat�on of orders by our customers and create adverse publ�c�ty that may have a mater�al adverse effect on our ab�l�ty to market our products successfully and on our bus�ness, reputat�on and prospects.

Dur�ng the f�rst half of f�scal 2006, there was substant�al publ�c�ty regard�ng a h�ghly pathogen�c stra�n of av�an �nfluenza, known as H5N1, wh�ch has been affect�ng As�a s�nce 2002 and wh�ch has also been found �n Europe and Afr�ca. It �s w�dely bel�eved that H5N1 �s be�ng spread by m�gratory b�rds, such as ducks and geese. There have also been some cases where H5N1 �s bel�eved to have passed from b�rds to humans as humans came �nto contact w�th l�ve b�rds that were �nfected w�th the d�sease.

Although h�ghly pathogen�c H5N1 has not been �dent�f�ed �n North Amer�ca, there have been outbreaks of low pathogen�c stra�ns of av�an �nfluenza �n North Amer�ca, and �n Mex�co outbreaks of both h�gh and low-pathogen�c stra�ns of av�an �nfluenza are a fa�rly common occurrence. H�stor�cally,

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the outbreaks of low pathogen�c av�an �nfluenza have not generated the same level of concern, or rece�ved the same level of publ�c�ty or been accompan�ed by the same reduct�on �n demand for poultry products �n certa�n countr�es as that assoc�ated w�th the h�ghly pathogen�c H5N1 stra�n. Accord�ngly, even �f the h�ghly pathogen�c H5N1 stra�n does not spread to North or Central Amer�ca, there can be no assurance that �t w�ll not mater�ally adversely affect demand for North or Central Amer�can produced poultry �nternat�onally and/or domest�cally, and, �f �t were to spread to North or Central Amer�ca, there can be no assurance that �t would not s�gn�f�cantly affect our ab�l�ty to conduct our operat�ons and/or demand for our products, �n each case �n a manner hav�ng a mater�al adverse effect on our bus�ness, reputat�on and/or prospects.

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

Poultry products may be subject to contam�nat�on by d�sease-produc�ng organ�sms, or pathogens, such as Listeria monocytogenes, Salmonella and gener�c E.coli. These pathogens are generally found �n the env�ronment, and, as a result, there �s a r�sk that they, as a result of food process�ng, could be present �n our processed poultry products. These pathogens can also be �ntroduced as a result of �mproper handl�ng at the further process�ng, foodserv�ce or consumer level. These r�sks may be controlled, although not el�m�nated, by adherence to good manufactur�ng pract�ces and f�n�shed product test�ng. We have l�ttle, �f any, control over proper handl�ng once the product has been sh�pped. Illness and death may result �f the pathogens are not el�m�nated at the further process�ng, foodserv�ce or consumer level. Even an �nadvertent sh�pment of contam�nated products �s a v�olat�on of law and may lead to �ncreased r�sk of exposure to product l�ab�l�ty cla�ms, product recalls and �ncreased scrut�ny by federal and state regulatory agenc�es and may have a mater�al adverse effect on our bus�ness, reputat�on and prospects.

In October 2002, one product sample produced �n our Francon�a, Pennsylvan�a fac�l�ty that had not been sh�pped to customers tested pos�t�ve for L�ster�a. We later rece�ved �nformat�on from the USDA suggest�ng env�ronmental samples taken at the fac�l�ty had tested pos�t�ve for both the stra�n of L�ster�a �dent�f�ed �n the product and a stra�n hav�ng character�st�cs s�m�lar to those of the stra�n �dent�f�ed �n a Northeastern L�ster�a outbreak. As a result, we voluntar�ly recalled all cooked del� products produced at the plant from May 1, 2002 through October 11, 2002. We carr�ed �nsurance des�gned to cover the d�rect recall related expenses and certa�n aspects of the related bus�ness �nterrupt�on caused by the recall.

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

The packag�ng, market�ng and d�str�but�on of food products enta�l an �nherent r�sk of product l�ab�l�ty and product recall and the resultant adverse publ�c�ty. We may be subject to s�gn�f�cant l�ab�l�ty �f the consumpt�on of any of our products causes �njury, �llness or death. We could be requ�red to recall certa�n of our products �n the event of contam�nat�on or damage to the products. In add�t�on to the r�sks of product l�ab�l�ty or product recall due to def�c�enc�es caused by our product�on or process�ng operat�ons, we may encounter the same r�sks �f any th�rd party tampers w�th our products. We cannot assure you that we w�ll not be requ�red to perform product recalls, or that product l�ab�l�ty cla�ms w�ll

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not be asserted aga�nst us, �n the future. Any cla�ms that may be made may create adverse publ�c�ty that would have a mater�al adverse effect on our ab�l�ty to market our products successfully or on our bus�ness, reputat�on, prospects, f�nanc�al cond�t�on and results of operat�ons.

If our poultry products become contam�nated, we may be subject to product l�ab�l�ty cla�ms and product recalls. There can be no assurance that any l�t�gat�on or reputat�onal �njury assoc�ated w�th product recalls w�ll not have a mater�al adverse effect on our ab�l�ty to market our products successfully or on our bus�ness, reputat�on, prospects, f�nanc�al cond�t�on and results of operat�ons.

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

Our acqu�s�t�on of Gold K�st �ncreased our �ndebtedness s�gn�f�cantly. We currently have a substant�al amount of �ndebtedness, wh�ch could adversely affect our f�nanc�al cond�t�on and could have �mportant consequences to you. For example, �t could:

• Make �t more d�ff�cult for us to sat�sfy our obl�gat�ons under our debt secur�t�es;

• Increase our vulnerab�l�ty to general adverse econom�c cond�t�ons;

• L�m�t our ab�l�ty to obta�n necessary f�nanc�ng and to fund future work�ng cap�tal, cap�tal expend�tures and other general corporate requ�rements;

• Requ�re us to ded�cate a substant�al port�on of our cash flow from operat�ons to payments on our �ndebtedness, thereby reduc�ng the ava�lab�l�ty of our cash flow to fund work�ng cap�tal, cap�tal expend�tures and for other general corporate purposes;

• L�m�t our flex�b�l�ty �n plann�ng for, or react�ng to, changes �n our bus�ness and the �ndustry �n wh�ch we operate;

• Place us at a compet�t�ve d�sadvantage compared to our compet�tors that have less debt;

• L�m�t our ab�l�ty to pursue acqu�s�t�ons and sell assets; and

• L�m�t, along w�th the f�nanc�al and other restr�ct�ve covenants �n our �ndebtedness, our ab�l�ty to borrow add�t�onal funds. Fa�l�ng to comply w�th those covenants could result �n an event of default or requ�re redempt�on of �ndebtedness. E�ther of these events could have a mater�al adverse effect on us.

Our ab�l�ty to make payments on and to ref�nance our �ndebtedness w�ll depend on our ab�l�ty to generate cash �n the future, wh�ch �s dependent on var�ous factors. These factors �nclude the commod�ty pr�ces of feed �ngred�ents, ch�cken and turkey and general econom�c, f�nanc�al, compet�t�ve, leg�slat�ve, regulatory and other factors that are beyond our control.

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

Desp�te our s�gn�f�cant �ndebtedness, we are not proh�b�ted from �ncurr�ng s�gn�f�cant add�t�onal �ndebtedness �n the future. If add�t�onal debt �s added to our current substant�al debt levels, the related r�sks that we now face could �ntens�fy.

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

Our bus�ness operat�ons enta�l a number of r�sks, �nclud�ng r�sks relat�ng to product l�ab�l�ty cla�ms, product recalls, property damage and �njur�es to persons. We currently ma�nta�n �nsurance w�th respect to certa�n of these r�sks, �nclud�ng product l�ab�l�ty �nsurance, property �nsurance, workers compensat�on �nsurance and general l�ab�l�ty �nsurance, but �n many cases such �nsurance �s expens�ve, d�ff�cult to obta�n and no assurance can be g�ven that such �nsurance can be ma�nta�ned �n the future on acceptable terms, or �n suff�c�ent amounts to protect us aga�nst losses due to any such events, or at all. Moreover, even though our �nsurance coverage may be des�gned to protect us from losses attr�butable to certa�n events, �t may not adequately protect us from l�ab�l�ty and expenses we �ncur �n connect�on w�th such events. For example, the losses attr�butable to our October 2002 recall of cooked del� products produced at one of our fac�l�t�es s�gn�f�cantly exceeded ava�lable �nsurance coverage. Add�t�onally, �n the past, two of our �nsurers encountered f�nanc�al d�ff�cult�es and were unable to fulf�ll the�r obl�gat�ons under the �nsurance pol�c�es as ant�c�pated and, separately, two of our other �nsurers contested coverage w�th respect to cla�ms covered under pol�c�es purchased, forc�ng us to l�t�gate the �ssue of coverage before we were able to collect under these pol�c�es.

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

The ch�cken and turkey �ndustr�es are h�ghly compet�t�ve. In both the U.S. and Mex�co, we pr�mar�ly compete w�th other vert�cally �ntegrated poultry compan�es.

In general, the compet�t�ve factors �n the U.S. poultry �ndustry �nclude:

• Pr�ce;

• Product qual�ty;

• Product development;

• Brand �dent�f�cat�on;

• Breadth of product l�ne; and

• Customer serv�ce.

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Compet�t�ve factors vary by major market. In the foodserv�ce market, compet�t�on �s based on cons�stent qual�ty, product development, serv�ce and pr�ce. In the U.S. reta�l market, we bel�eve that compet�t�on �s based on product qual�ty, brand awareness, customer serv�ce and pr�ce. Further, there �s some compet�t�on w�th non-vert�cally �ntegrated further processors �n the prepared food bus�ness.

In Mex�co, where product d�fferent�at�on has trad�t�onally been l�m�ted, product qual�ty and pr�ce have been the most cr�t�cal compet�t�ve factors. The North Amer�can Free Trade Agreement el�m�nated tar�ffs for ch�cken and ch�cken products sold to Mex�co on January 1, 2003. However, �n July 2003, the U.S. and Mex�co entered �nto a safeguard agreement w�th regard to �mports �nto Mex�co of ch�cken leg quarters from the U.S. Under th�s agreement, a tar�ff rate for ch�cken leg quarters of 98.8% of the sales pr�ce was establ�shed. Th�s tar�ff was reduced on January 1, 2006 to 39.5%, and was further reduced to 19.8% on January 1, 2007. On January 1, 2008, the tar�ff �s scheduled to be reduced to zero. In connect�on w�th the reduct�on of the tar�ffs �n Mex�co, �ncreased compet�t�on from ch�cken �mported �nto Mex�co from the U.S. may have a mater�al adverse effect on the Mex�can ch�cken �ndustry �n general, and on our Mex�can operat�ons �n part�cular.

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

Our two largest customers accounted for approx�mately 18% of our net sales �n f�scal 2007, and our largest customer, Wal-Mart Stores Inc., accounted for 12% of our net sales. Our bus�ness could suffer s�gn�f�cant setbacks �n revenues and operat�ng �ncome �f we lost one or more of our largest customers, or �f our customers’ plans and/or markets should change s�gn�f�cantly.

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

In evaluat�ng the terms of our acqu�s�t�on of Gold K�st, we analyzed the respect�ve bus�nesses of the Company and Gold K�st and made certa�n assumpt�ons concern�ng the�r respect�ve future operat�ons. A pr�nc�pal assumpt�on was that the acqu�s�t�on w�ll produce operat�ng results better than those h�stor�cally exper�enced or expected to be exper�enced �n the future by us �n the absence of the acqu�s�t�on. There can be no assurance, however, that th�s assumpt�on �s correct or that the bus�nesses of the Company and Gold K�st w�ll be successfully �ntegrated �n a t�mely manner.

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

We consummated the Gold K�st acqu�s�t�on w�th the expectat�on that �t w�ll result �n benef�c�al synerg�es, such as cost sav�ngs and enhanced growth. Success �n real�z�ng these benef�ts and the t�m�ng of th�s real�zat�on depend upon the successful �ntegrat�on of the operat�ons of Gold K�st �nto the Company, and upon general and �ndustry-spec�f�c econom�c factors. The �ntegrat�on of two �ndependent compan�es �s a complex, costly and t�me-consum�ng process. The d�ff�cult�es of comb�n�ng the operat�ons of the compan�es �nclude, among others:

- Trans�t�on�ng and preserv�ng Gold K�st’s customer, contractor, suppl�er and other �mportant th�rd-party relat�onsh�ps;

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- Integrat�ng corporate and adm�n�strat�ve �nfrastructures;

- Coord�nat�ng sales and market�ng funct�ons;

- M�n�m�z�ng the d�vers�on of management’s attent�on from ongo�ng bus�ness concerns;

- Coord�nat�ng geograph�cally separate organ�zat�ons; and

- Reta�n�ng key employees.

Even �f we are able to effect�vely �ntegrate the operat�ons of Gold K�st �nto our ex�st�ng operat�ons and econom�c cond�t�ons rema�n stable, there can be no assurance that the ant�c�pated synerg�es w�ll be ach�eved.

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

Acqu�s�t�ons may be structured �n such a manner that would result �n the assumpt�on of unknown l�ab�l�t�es not d�sclosed by the seller or uncovered dur�ng pre-acqu�s�t�on due d�l�gence. For example, our acqu�s�t�on of Gold K�st was structured as a stock purchase. In that acqu�s�t�on we assumed all of the l�ab�l�t�es of Gold K�st, �nclud�ng l�ab�l�t�es that may be unknown. These obl�gat�ons and l�ab�l�t�es could harm our f�nanc�al cond�t�on and operat�ng results.

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

We �ntend to pursue select�ve acqu�s�t�ons of complementary bus�nesses �n the future. Inherent �n any future acqu�s�t�ons are certa�n r�sks such as �ncreas�ng leverage and debt serv�ce requ�rements and comb�n�ng company cultures and fac�l�t�es, wh�ch could have a mater�al adverse effect on our operat�ng results, part�cularly dur�ng the per�od �mmed�ately follow�ng such acqu�s�t�ons. Add�t�onal debt or equ�ty cap�tal may be requ�red to complete future acqu�s�t�ons, and there can be no assurance that we w�ll be able to ra�se the requ�red cap�tal. Furthermore, acqu�s�t�ons �nvolve a number of r�sks and challenges, �nclud�ng:

• D�vers�on of management’s attent�on;

• The need to �ntegrate acqu�red operat�ons;

• Potent�al loss of key employees and customers of the acqu�red compan�es;

• Lack of exper�ence �n operat�ng �n the geograph�cal market of the acqu�red bus�ness; and

• An �ncrease �n our expenses and work�ng cap�tal requ�rements.

Any of these and other factors could adversely affect our ab�l�ty to ach�eve ant�c�pated cash flows at acqu�red operat�ons or real�ze other ant�c�pated benef�ts of acqu�s�t�ons.

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Foreign Operations Risks. Our foreign operations pose special risks to our business and operations.

We have s�gn�f�cant operat�ons and assets located �n Mex�co and may part�c�pate �n or acqu�re operat�ons and assets �n other fore�gn countr�es �n the future. Fore�gn operat�ons are subject to a number of spec�al r�sks, �nclud�ng among others:

• Currency exchange rate fluctuat�ons;

• Trade barr�ers;

• Exchange controls;

• Expropr�at�on; and

• Changes �n laws and pol�c�es, �nclud�ng those govern�ng fore�gn-owned operat�ons.

Currency exchange rate fluctuat�ons have adversely affected us �n the past. Exchange rate fluctuat�ons or one or more other r�sks may have a mater�al adverse effect on our bus�ness or operat�ons �n the future.

Our operat�ons �n Mex�co are conducted through subs�d�ar�es organ�zed under the laws of Mex�co. We may rely �n part on �ntercompany loans and d�str�but�ons from our subs�d�ar�es to meet our obl�gat�ons. Cla�ms of cred�tors of our subs�d�ar�es, �nclud�ng trade cred�tors, w�ll generally have pr�or�ty as to the assets of our subs�d�ar�es over our cla�ms. Add�t�onally, the ab�l�ty of our Mex�can subs�d�ar�es to make payments and d�str�but�ons to us w�ll be subject to, among other th�ngs, Mex�can law. In the past, these laws have not had a mater�al adverse effect on the ab�l�ty of our Mex�can subs�d�ar�es to make these payments and d�str�but�ons. However, laws such as these may have a mater�al adverse effect on the ab�l�ty of our Mex�can subs�d�ar�es to make these payments and d�str�but�ons �n the future.

In October 2007, Mex�co’s leg�slat�ve bod�es enacted La Ley del Impuesto Empresar�al a Tasa Ún�ca (“IETU”), a new m�n�mum corporat�on tax, wh�ch w�ll be assessed on compan�es do�ng bus�ness �n Mex�co beg�nn�ng January 1, 2008. We are currently evaluat�ng the ant�c�pated �mpact that IETU w�ll have on our bus�ness and operat�ng results. Because of IETU, there can be no assurance that we w�ll be able to ut�l�ze the net operat�ng loss carryovers and other deferred tax benef�ts generated �n Mex�co. There can also be no assurance that IETU w�ll not have a mater�al adverse effect on our f�nanc�al results.

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

H�stor�cally, we have targeted �nternat�onal markets to generate add�t�onal demand for our ch�cken dark meat, spec�f�cally leg quarters, wh�ch are a natural by-product of our U.S. operat�ons, g�ven our concentrat�on on prepared foods products and the U.S. customers’ general preference for wh�te meat. As part of th�s �n�t�at�ve, we have created a s�gn�f�cant �nternat�onal d�str�but�on network �nto several markets, �nclud�ng Eastern Europe, �nclud�ng Russ�a; the Far East, �nclud�ng Ch�na; and Mex�co. Our success �n these markets could be, and �n recent per�ods has been, adversely affected by d�srupt�ons �n poultry export markets. These d�srupt�ons are often caused by restr�ct�ons on �mports of U.S.-produced

29


poultry products �mposed by fore�gn governments for a var�ety of reasons, �nclud�ng the protect�on of the�r domest�c poultry producers and allegat�ons of consumer health �ssues, and may also be caused by outbreaks of d�sease such as av�an �nfluenza, e�ther �n our own flocks or elsewhere �n the world, and result�ng changes �n consumer preferences. There can be no assurance that one or more of these or other d�srupt�ons �n our �nternat�onal markets and d�str�but�on channels w�ll not adversely affect our bus�ness.

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

Extreme weather or natural d�sasters, �nclud�ng droughts, floods, excess�ve cold or heat, hurr�canes or other storms, could �mpa�r the health or growth of our flocks or �nterfere w�th our operat�ons due to power outages, fuel shortages, damage to our product�on and process�ng fac�l�t�es or d�srupt�on of transportat�on channels, among other th�ngs. Any of these factors could have an adverse effect on our f�nanc�al results.

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

Our operat�ons are subject to federal, state and local governmental regulat�on, �nclud�ng �n the health, safety and env�ronmental areas. We ant�c�pate �ncreased regulat�on by var�ous agenc�es concern�ng food safety, the use of med�cat�on �n feed formulat�ons and the d�sposal of poultry by-products and wastewater d�scharges.

Also, changes �n laws or regulat�ons or the appl�cat�on thereof may lead to government enforcement act�ons and the result�ng l�t�gat�on by pr�vate l�t�gants. We are aware of an �ndustry-w�de �nvest�gat�on by the Wage and Hour D�v�s�on of the U.S. Department of Labor to ascerta�n compl�ance w�th var�ous wage and hour �ssues, �nclud�ng the compensat�on of employees for the t�me spent on such act�v�t�es such as donn�ng and doff�ng work equ�pment. We have been named a defendant �n a number of related su�ts brought by employees. Due, �n part, to the government �nvest�gat�on and the recent U.S. Supreme Court dec�s�on �n IBP, Inc. v. Alvarez, �t �s poss�ble that we may be subject to add�t�onal employee cla�ms.

Unknown matters, new laws and regulat�ons, or str�cter �nterpretat�ons of ex�st�ng laws or regulat�ons may mater�ally affect our bus�ness or operat�ons �n the future.

30


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

Imm�grat�on reform cont�nues to attract s�gn�f�cant attent�on �n the publ�c arena and the Un�ted States Congress. If new federal �mm�grat�on leg�slat�on �s enacted or �f states �n wh�ch we do bus�ness enact �mm�grat�on laws, such laws may conta�n prov�s�ons that could make �t more d�ff�cult or costly for us to h�re Un�ted States c�t�zens and/or legal �mm�grant workers. In such case, we may �ncur add�t�onal costs to run our bus�ness or may have to change the way we conduct our operat�ons, e�ther of wh�ch could have a mater�al adverse effect on our bus�ness, operat�ng results and f�nanc�al cond�t�on. Also, desp�te our past and cont�nu�ng efforts to h�re only Un�ted States c�t�zens and/or persons legally author�zed to work �n the Un�ted States, �ncreased enforcement efforts w�th respect to ex�st�ng �mm�grat�on laws by governmental author�t�es may d�srupt a port�on of our workforce or our operat�ons at one or more of our fac�l�t�es, thereby negat�vely �mpact�ng our bus�ness.

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

As descr�bed �n more deta�l �n Item 12. “Secur�ty Ownersh�p of Certa�n Benef�c�al Owners and Management and Related Stockholder Matters,” through two l�m�ted partnersh�ps and related trusts and vot�ng agreements, Lonn�e “Bo” P�lgr�m, Patr�c�a R. P�lgr�m, h�s w�fe, and Lonn�e Ken P�lgr�m, h�s son, control 62.225% of the vot�ng power of our outstand�ng common stock. Accord�ngly, they control the outcome of all act�ons requ�r�ng stockholder approval, �nclud�ng the elect�on of d�rectors and s�gn�f�cant corporate transact�ons, such as a merger or other sale of the Company or �ts assets. Th�s ensures the�r ab�l�ty to control the foreseeable future d�rect�on and management of the Company. In add�t�on, an event of default under certa�n agreements related to our �ndebtedness w�ll occur �f Lonn�e “Bo” P�lgr�m and certa�n members of h�s fam�ly cease to own at least a major�ty of the vot�ng power of the outstand�ng common stock.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Operating Facilities

We operate 34 poultry process�ng plants �n the U.S. Of th�s total, 33 process ch�cken and are located �n Alabama, Arkansas, Flor�da, Georg�a, Kentucky, Lou�s�ana, North Carol�na, South Carol�na, Tennessee, Texas, V�rg�n�a, and West V�rg�n�a. We have one turkey process�ng plant �n Pennsylvan�a, one ch�cken process�ng plant �n Puerto R�co and three ch�cken process�ng plants �n Mex�co.

The U.S. ch�cken process�ng plants have weekly capac�ty to process 42.5 m�ll�on bro�lers and operated at 92.8% of capac�ty �n f�scal 2007.

31


Our turkey plant has the weekly capac�ty to process 0.2 m�ll�on b�rds under current �nspect�on and l�ne conf�gurat�ons and operates at 94% of capac�ty. Our Mex�co fac�l�t�es have the capac�ty to process 3.2 m�ll�on bro�lers per week and operated at 89% of capac�ty �n f�scal 2007. Our Puerto R�co process�ng plant has the capac�ty to process 0.3 m�ll�on b�rds per week based on one e�ght-hour sh�ft per day. For segment report�ng purposes, we �nclude Puerto R�co w�th our U.S. operat�ons.

In the U.S., the process�ng plants are supported by 42 hatcher�es, 31 feed m�lls and 12 render�ng plants. The hatcher�es, feed m�lls and render�ng plants operated at 85%, 84% and 76% of capac�ty, respect�vely, �n f�scal 2007. In Puerto R�co, the process�ng plant �s supported by one hatchery and one feed m�ll wh�ch operated at 82% and 50% of capac�ty, respect�vely, �n f�scal 2007. In Mex�co, the process�ng plants are supported by s�x hatcher�es, four feed m�lls and two render�ng fac�l�t�es. The Mex�co hatcher�es, feed m�lls and render�ng fac�l�t�es operated at 97%, 80% and 70% of capac�ty, respect�vely, �n f�scal 2007.

We also operate twelve prepared foods plants. These plants are located �n Alabama, Georg�a, Lou�s�ana, Pennsylvan�a, South Carol�na, Tennessee, Texas and West V�rg�n�a. These plants have the capac�ty to produce approx�mately 1,545 m�ll�on pounds of further processed product per year and �n f�scal 2007 operated at approx�mately 87% of capac�ty based on the current product m�x and s�x-day product�on at most fac�l�t�es and 24/7 product�on at two fac�l�t�es.

Other Facilities and Information

We own a part�ally automated d�str�but�on freezer located outs�de of P�ttsburg, Texas, wh�ch �ncludes 125,000 square feet of storage area. We operate a commerc�al egg operat�on and farm store �n P�ttsburg, Texas, a commerc�al feed m�ll �n Mt. Pleasant, Texas and a pork grow-out operat�on �n Jefferson, Georg�a. We own off�ce bu�ld�ngs �n P�ttsburg, Texas and Atlanta, Georg�a, wh�ch house our execut�ve off�ces, our Log�st�cs and Customer Serv�ce off�ces and our general corporate funct�ons as well as an off�ce bu�ld�ng �n Mex�co C�ty, wh�ch houses our Mex�can market�ng off�ces, and an off�ce bu�ld�ng �n Broadway, V�rg�n�a, wh�ch houses add�t�onal sales and market�ng, research and development, and support act�v�t�es. We lease off�ces �n Dallas, Texas and Duluth, Georg�a, wh�ch house add�t�onal sales and market�ng and support act�v�t�es.

We have 13 reg�onal d�str�but�on centers located �n Ar�zona, Flor�da, Iowa, M�ss�ss�pp�, Oh�o, Tennessee, Texas, and Utah, f�ve of wh�ch we own and e�ght of wh�ch we lease.

Most of our domest�c property, plant and equ�pment �s pledged as collateral on our long-term debt and cred�t fac�l�t�es. See Item 7. “Management’s D�scuss�on and Analys�s of F�nanc�al Cond�t�on and Results of Operat�on.”

32


Item 3. Legal Proceedings

On July 1, 2002, three �nd�v�duals, on behalf of themselves and a putat�ve class of ch�cken growers, f�led the�r or�g�nal class act�on compla�nt aga�nst the Company �n the Un�ted States D�str�ct Court for the Eastern D�str�ct of Texas, Texarkana D�v�s�on, styled “Cody Wheeler, et al. vs. P�lgr�m’s Pr�de Corporat�on.” In the�r lawsu�t, pla�nt�ffs �n�t�ally alleged that the Company v�olated the Packers and Stockyards Act (7 U.S.C. Sect�on 192) (the “PSA”) and breached f�duc�ary dut�es allegedly owed to the pla�nt�ff growers. The pla�nt�ffs also brought �nd�v�dual act�ons under the Packers and Stockyards Act alleg�ng, among other th�ngs, breach of f�duc�ary dut�es and breach of contract. On September 30, 2005, pla�nt�ffs amended the�r lawsu�t to jo�n Tyson Foods, Inc. as a co-defendant. Two add�t�onal former ch�cken growers were also added as pla�nt�ffs to the lawsu�t. Th�s amendment, wh�ch occurred 38 months after the lawsu�t’s �n�t�al f�l�ng, v�rtually re-wrote most of the allegat�ons. Now the pla�nt�ffs contend that the Company and Tyson are �nvolved �n a consp�racy to v�olate federal ant�trust laws. The pla�nt�ffs’ �n�t�al allegat�ons, although st�ll conta�ned �n the amended lawsu�t, are no longer the sole focus of the case. On January 3, 2006, the Court entered an Order sever�ng the pla�nt�ffs’ Packers and Stockyards Act and ant�trust cla�ms. The Court ordered that the pla�nt�ffs may proceed w�th the�r Packers and Stockyards Act cla�ms as set forth �n Pla�nt�ffs’ Th�rd Amended Compla�nt. The Court also ordered that the pla�nt�ffs may proceed w�th the�r respect�ve ant�trust cla�ms asserted aga�nst the Company and Tyson �n a separate cause of act�on styled “Cody Wheeler, et al vs. P�lgr�m’s Pr�de Corporat�on, et al.” On March 6, 2006, the pla�nt�ffs f�led the�r mot�on for class cert�f�cat�on �n the or�g�nal lawsu�t. P�lgr�m’s Pr�de attacked the pla�nt�ffs’ class cert�f�cat�on br�ef on several grounds, and ult�mately the pla�nt�ffs voluntar�ly w�thdrew the�r Mot�on for Class Cert�f�cat�on on May 26, 2006. As a result, the Court canceled the class cert�f�cat�on hear�ng and on June 2, 2006 the Court entered an Order w�thdraw�ng Pla�nt�ffs’ Mot�on for Class Cert�f�cat�on and proh�b�t�ng the pla�nt�ffs from f�l�ng any add�t�onal class-act�on cla�ms aga�nst P�lgr�m’s Pr�de �n th�s lawsu�t. Add�t�onally, the two former growers who jo�ned the lawsu�t on September 30, 2005 w�thdrew from the case. On March 30, 2007, the Court �ssued an order grant�ng �n part and deny�ng �n part the Company’s pend�ng mot�on for summary judgment. In the order, the Court ruled that pla�nt�ffs do not have to demonstrate an adverse effect on compet�t�on �n order to preva�l under the PSA. Th�s rul�ng �s �ncons�stent w�th many other jur�sd�ct�ons’ �nterpretat�on of the PSA. The Court �ssued an order stay�ng the lawsu�t unt�l the �ssue �s dec�ded by the F�fth C�rcu�t. On June 29, 2007, the F�fth C�rcu�t accepted the appeal. The matter �s currently be�ng br�efed by the part�es. The Company �ntends to defend v�gorously aga�nst the pla�nt�ffs’ �nd�v�dual cla�ms. The Company does not expect th�s matter to have a mater�al �mpact on �ts f�nanc�al pos�t�on, operat�ons or l�qu�d�ty.

On January 3, 2006, an act�on styled “Cody Wheeler, et al. vs. P�lgr�m’s Pr�de Corporat�on, et al.,” ar�s�ng out of the or�g�nal Wheeler l�t�gat�on descr�bed above, was f�led �n the Un�ted States D�str�ct Court for the Eastern D�str�ct of Texas, Texarkana D�v�s�on. The lawsu�t was f�led by the three or�g�nal pla�nt�ffs and a former grower, both �n the�r �nd�v�dual capac�t�es and on behalf of a putat�ve class of ch�cken growers. In the lawsu�t, the four pla�nt�ffs allege that the Company and Tyson are �nvolved �n a consp�racy to v�olate federal ant�trust laws. On September 28, 2007, the court �ssued an order deny�ng pla�nt�ffs’ request to cert�fy a class act�on. Pla�nt�ffs f�led the Pet�t�on for Perm�ss�on to Appeal the D�str�ct Court’s Order on October 15, 2007 w�th the U.S. Court of Appeals for the F�fth C�rcu�t. The Company �ntends to defend v�gorously any attempts by the Pla�nt�ffs to reverse the D�str�ct Court’s Order deny�ng cert�f�cat�on to the matter as a class act�on and the mer�ts of the four pla�nt�ffs’ �nd�v�dual cla�ms. The Company does not expect th�s matter to have a mater�al �mpact on �ts f�nanc�al pos�t�on, operat�ons or l�qu�d�ty.

33


On December 31, 2003, we were served w�th a purported class act�on compla�nt styled “Angela Goodw�n, Glor�a W�ll�s, Johnny G�ll, Greg Ham�lton, Nathan Rob�nson, Edd�e Gusby, Pat Curry, Persons S�m�larly S�tuated v. ConAgra Poultry Company and P�lgr�m’s Pr�de, Incorporated” �n the Un�ted States D�str�ct Court, Western D�str�ct of Arkansas, El Dorado D�v�s�on, alleg�ng rac�al and age d�scr�m�nat�on at one of the fac�l�t�es we acqu�red from ConAgra. Two of the named pla�nt�ffs, Greg Ham�lton and Glor�a W�ll�s, were voluntar�ly d�sm�ssed from th�s act�on. The Company deposed all of the rema�n�ng pla�nt�ffs and f�led �nd�v�dual mot�ons for summary judgment aga�nst each of them. On March 28, 2006, the Court �ssued Orders concern�ng the mot�ons for summary judgment. It granted the Company’s mot�on aga�nst Pla�nt�ff Robert Nelson and d�sm�ssed all of h�s cla�ms �n the�r ent�rety based on the theory of jud�c�al estoppel. The Court heard oral argument on the Pla�nt�ffs’ Class Cert�f�cat�on Mot�on on August 11, 2006, and the Court took the matter under adv�sement. On May 15, 2007, the Court �ssued �ts order deny�ng Pla�nt�ffs’ Mot�on for Class Cert�f�cat�on �n �ts ent�rety. The pla�nt�ffs subsequently w�thdrew the�r pet�t�on to appeal to the E�ght C�rcu�t Court of Appeals. Thus, the Court’s order deny�ng pla�nt�ffs’ class cert�f�cat�on mot�on stands as a f�nal, b�nd�ng judgment. On July 18, 2007, the Court ordered the rema�n�ng s�x �nd�v�dual Pla�nt�ffs to f�le the�r own �nd�v�dual lawsu�ts w�thout any class act�on allegat�ons. In contravent�on of the Court’s �nstruct�ons, Pla�nt�ffs’ counsel added new and/or d�sm�ssed allegat�ons to each new Compla�nt. On October 1, 2007, P�lgr�m’s moved to str�ke those allegat�ons and f�led �ts Answers subject to same. The Court entered an Order str�k�ng the errant allegat�ons, and the Pla�nt�ffs are �n the process of redraft�ng the�r �nd�v�dual Compla�nts. The Company �ntends to re-f�le �ts already completed mot�ons for summary judgment after the �nd�v�dual Compla�nts are re-f�led. The Company �ntends to defend v�gorously aga�nst the Pla�nt�ffs’ �nd�v�dual cla�ms. The Company bel�eves �t has mer�tor�ous defenses to these �nd�v�dual cla�ms and �ntends to v�gorously defend these cla�ms. The ult�mate l�ab�l�ty w�th respect to these cla�ms cannot be determ�ned at th�s t�me; however, the Company does not expect th�s matter to have a mater�al �mpact on �ts f�nanc�al pos�t�on, operat�ons or l�qu�d�ty.

The Wage and Hour D�v�s�on of the U.S. Department of Labor conducted an �ndustry w�de �nvest�gat�on to ascerta�n compl�ance w�th var�ous wage and hour �ssues, �nclud�ng the compensat�on of employees for the t�me spent on such act�v�t�es such as donn�ng and doff�ng work equ�pment. Due, �n part, to the government �nvest�gat�on and the recent U.S. Supreme Court dec�s�on �n IBP, Inc. v. Alvarez, employees have brought cla�ms aga�nst the Company. The cla�ms f�led aga�nst the Company as of the date of th�s Annual Report �nclude: “Juan Garc�a, et al. v. P�lgr�m’s Pr�de Corporat�on, a/k/a Wampler Foods, Inc.”, f�led �n Pennsylvan�a state court on January 27, 2006 and subsequently removed to the U.S. D�str�ct Court for the Eastern D�str�ct of Pennsylvan�a; “Esperanza Moya, et al. v. P�lgr�m’s Pr�de Corporat�on and Max� Staff, LLC”, f�led March 23, 2006 �n the Eastern D�str�ct of Pennsylvan�a; “Barry Antee, et al. v. P�lgr�m’s Pr�de Corporat�on” f�led Apr�l 20, 2006 �n the Eastern D�str�ct of Texas; “Stephan�a Aaron, et al. v. P�lgr�m’s Pr�de Corporat�on” f�led August 22, 2006 �n the Western D�str�ct of Arkansas; “Salvador Agu�lar, et al. v. P�lgr�m’s Pr�de Corporat�on” f�led August 23, 2006 �n the Northern D�str�ct of Alabama; “Benford v. P�lgr�m’s Pr�de Corporat�on” f�led November 2, 2006 �n the Northern D�str�ct of Alabama; and “Porter v. P�lgr�m’s Pr�de Corporat�on” f�led December 7, 2006 �n the Eastern D�str�ct of Tennessee; “Fre�da Brown, et al v. P�lgr�m’s Pr�de Corporat�on” f�led March 14, 2007 �n the M�ddle D�str�ct of Georg�a, Athens D�v�s�on; “Roy Menser, et al v. P�lgr�m’s Pr�de Corporat�on” f�led February 28, 2007 �n the Western D�str�ct of Paducah, Kentucky; “V�ctor Manuel Hernandez v. P�lgr�m’s Pr�de Corporat�on” f�led January 30, 2007 �n the Northern D�str�ct of Georg�a, Rome D�v�s�on; “Angela Allen et al v. P�lgr�m’s Pr�de Corporat�on” f�led March 27, 2007 �n Un�ted States D�str�ct Court, M�ddle

34


D�str�ct of Georg�a, Athens D�v�s�on; Da�sy Hammond and Fel�c�a Pope v. P�lgr�m’s Pr�de Corporat�on, �n the Ga�nesv�lle D�v�s�on, Northern D�str�ct of Georg�a, f�led on June 6, 2007; Gary Pr�ce v. P�lgr�m’s Pr�de Corporat�on, �n the U.S. D�str�ct Court for the Northern D�str�ct of Georg�a, Atlanta D�v�s�on, f�led on May 21, 2007; and Kr�st�n Roebuck et al v. P�lgr�m’s Pr�de Corporat�on, �n the U.S. D�str�ct Court, Athens, Georg�a, M�ddle D�str�ct, f�led on May 23, 2007. The pla�nt�ffs generally purport to br�ng a collect�ve act�on for unpa�d wages, unpa�d overt�me wages, l�qu�dated damages, costs, attorneys’ fees, and declaratory and/or �njunct�ve rel�ef and generally allege that they are not pa�d for the t�me �t takes to e�ther clear secur�ty, walk to the�r respect�ve workstat�ons, don and doff protect�ve cloth�ng, and/or san�t�ze cloth�ng and equ�pment. The pres�d�ng judge �n the consol�dated act�on �n El Dorado �ssued an �n�t�al Case Management order on July 9, 2007. Pla�nt�ffs’ counsel f�led a Consol�dated Amended Compla�nt and the part�es f�led a Jo�nt Rule 26(f) Report. A complete schedul�ng order has not been �ssued, and d�scovery has not yet commenced. Pla�nt�ffs have f�led a consol�dated mot�on for cond�t�onal cert�f�cat�on �n the consol�dated case. On October 12, 2007, P�lgr�m’s f�led �ts response �n oppos�t�on to that mot�on. As of the date of th�s Annual Report, the follow�ng su�ts have been f�led aga�nst Gold K�st, now merged �nto P�lgr�m’s Pr�de Corporat�on, wh�ch make one or more of the allegat�ons referenced above: Merrell v. Gold K�st, Inc., �n the U.S. D�str�ct Court for the Northern D�str�ct of Georg�a, Ga�nesv�lle D�v�s�on, f�led on December 21, 2006; Harr�s v. Gold K�st, Inc., �n the U.S. D�str�ct Court for the Northern D�str�ct of Georg�a, Newnan D�v�s�on, f�led on December 21, 2006; Blanke v. Gold K�st, Inc., �n the U.S. D�str�ct Court for the Southern D�str�ct of Georg�a, Waycross D�v�s�on, f�led on December 21, 2006; Clarke v. Gold K�st, Inc., �n the U.S. D�str�ct Court for the M�ddle D�str�ct of Georg�a, Athens D�v�s�on, f�led on December 21, 2006; Atch�son v. Gold K�st, Inc., �n the U.S. D�str�ct Court for the Northern D�str�ct of Alabama, M�ddle D�v�s�on, f�led on October 3, 2006; Carl�sle v. Gold K�st, Inc., �n the U.S. D�str�ct Court for the Northern D�str�ct of Alabama, M�ddle D�v�s�on, f�led on October 2, 2006; Benbow v. Gold K�st, Inc., �n the U.S. D�str�ct Court for the D�str�ct of South Carol�na, Columb�a D�v�s�on, f�led on October 2, 2006; Bonds v. Gold K�st, Inc., �n the U.S. D�str�ct Court for the Northern D�str�ct of Alabama, Northwestern D�v�s�on, f�led on October 2, 2006. On Apr�l 23, 2007, P�lgr�m’s f�led a Mot�on to Transfer and Consol�date w�th the Jud�c�al Panel on Mult�d�str�ct L�t�gat�on (“JPML”) request�ng that all of the pend�ng Gold K�st cases be consol�dated �nto one case. P�lgr�m’s w�thdrew �ts Mot�on subject to the Pla�nt�ffs’ counsel’s agreement to consol�date the seven separate act�ons �nto the pend�ng Benbow case by d�sm�ss�ng those lawsu�ts and ref�l�ng/consol�dat�ng them �nto the Benbow act�on. Mot�ons to D�sm�ss have been f�led �n all of the pend�ng seven cases, and all of these cases have been formally d�sm�ssed. Pursuant to the Court’s Apr�l 16, 2007 Order, the part�es reached agreement on the terms of class not�ce and the Court granted cond�t�onal class cert�f�cat�on. D�scovery has recently been �n�t�ated. The Company �ntends to assert a v�gorous defense to the l�t�gat�on. The amount of ult�mate l�ab�l�ty w�th respect to any of these cases cannot be determ�ned at th�s t�me.

We are subject to var�ous other legal proceed�ngs and cla�ms, wh�ch ar�se �n the ord�nary course of our bus�ness. In the op�n�on of management, the amount of ult�mate l�ab�l�ty w�th respect to these act�ons w�ll not mater�ally affect our f�nanc�al pos�t�on or results of operat�ons. See Note J “Comm�tments and Cont�ngenc�es” of Item 8 “F�nanc�al Statements and Supplementary Data”, wh�ch �s �ncorporated here�n by reference.

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

None.

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PART II

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

Quarterly Stock Prices and Dividends

H�gh and low pr�ces of and d�v�dends relat�ng to the Company’s common stock (t�cker symbol “PPC”) for the per�ods �nd�cated were:

F�scal 2007 Pr�ces F�scal 2006 Pr�ces D�v�dendsF�scal Quarter H�gh Low H�gh Low 2007 2006

F�rst $ 29.54 $ 23.64 $ 37.75 $ 30.11 $ .0225 $ 1.0225Second $ 33.19 $ 28.59 $ 27.00 $ 20.95 $ .0225 $ .0225Th�rd $ 38.17 $ 32.77 $ 28.09 $ 20.85 $ .0225 $ .0225Fourth $ 40.59 $ 32.29 $ 29.00 $ 23.11 $ .0225 $ .0225

Holders

The Company’s common stock �s traded on the New York Stock Exchange. The Company est�mates there were approx�mately 35,000 holders (�nclud�ng �nd�v�dual part�c�pants �n secur�ty pos�t�on l�st�ngs) of the Company’s common stock as of November 9, 2007.

Dividends

Start�ng �n the f�rst quarter of f�scal 2006, the Company’s Board of D�rectors has declared quarterly cash d�v�dends of $0.0225 per share of common stock. Add�t�onally, �n the f�rst quarter of f�scal 2006, the Company’s Board of D�rectors declared a spec�al $1.00 d�v�dend per share of common stock. Pr�or to f�scal 2006 and w�th the except�on of two quarters �n 1993, the Company’s Board of D�rectors declared cash d�v�dends of $0.015 per share of common stock (on a spl�t adjusted bas�s) every f�scal quarter s�nce the Company’s �n�t�al publ�c offer�ng �n 1986. Payment of future d�v�dends w�ll depend upon the Company’s f�nanc�al cond�t�on, results of operat�ons and other factors deemed relevant by the Company’s Board of D�rectors, as well as any l�m�tat�ons �mposed by lenders under the Company’s cred�t fac�l�t�es. The Company’s revolv�ng cred�t fac�l�ty and revolv�ng/term borrow�ng fac�l�ty currently l�m�t d�v�dends to a max�mum of $26 m�ll�on per year. See Note E of the notes to Consol�dated F�nanc�al Statements �ncluded �n Item 15 for add�t�onal d�scuss�ons of the Company’s cred�t fac�l�t�es.

Issuer Purchases of Equity Security in Fiscal 2007

The Company d�d not repurchase any of �ts equ�ty secur�t�es �n f�scal 2007.

36


Total Return on Registrant’s Common Equity

The follow�ng graphs compare the performance of the Company w�th that of the Russell 2000 compos�te �ndex and a peer group of compan�es w�th the �nvestment we�ghted on market cap�tal�zat�on. The total cumulat�ve return on �nvestment (change �n the year-end stock pr�ce plus re�nvested d�v�dends) for each of the per�ods for the Company, the Russell 2000 compos�te �ndex and the peer group �s based on the stock pr�ce or compos�te �ndex at the beg�nn�ng of the appl�cable per�od. Compan�es �n the peer group �ndex �nclude Cagle’s, Inc., Sanderson Farms Inc., Hormel Foods Corp., Sm�thf�eld Foods Inc. and Tyson Foods Inc.

The f�rst graph covers the per�od from November 21, 2003 through September 29, 2007 and shows the performance of the Company’s s�ngle class of common stock. On November 21, 2003, each share of the Company’s then outstand�ng Class A common stock and Class B common stock was reclass�f�ed �nto one share of new common stock, wh�ch �s now the only author�zed class of the Company’s common stock.

The second graph covers the f�ve f�scal year per�od end�ng September 29, 2007 and shows the performance of the Company’s Class A and Class B shares after g�v�ng effect to the reclass�f�cat�on �nto the Company’s s�ngle class of common stock on November 21, 2003 based on a one to one exchange rat�o. The th�rd graph covers the per�od from September 29, 2002 through November 20, 2003, the last date on wh�ch the Company’s Class A and Class B shares traded on the New York Stock Exchange pr�or to reclass�f�cat�on �nto a s�ngle new class of shares of common stock.

The stock pr�ce performance represented by these graphs �s not necessar�ly �nd�cat�ve of future stock performance.

37


11/21/03 10/2/04 10/1/05 9/30/06 9/29/07

P�lgr�m’s Pr�de Corporat�on 100.00 190.89 254.14 197.18 251.08Russell 2000 100.00 113.10 129.73 142.61 160.21Peer Group 100.00 112.59 131.40 127.35 140.41

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9/28/02 9/27/03 11/20/03 10/2/04 10/1/05 9/30/06 9/29/07

P�lgr�m’s Pr�de Corporat�on Class A(1) 100.00 180.96 195.33 383.25 510.23 395.88 504.10P�lgr�m’s Pr�de Corporat�on Class B(1) 100.00 140.92 150.72 298.92 397.96 308.77 393.18Russell 2000 100.00 136.01 146.80 166.94 191.49 210.50 236.47Peer Group 100.00 119.32 132.39 147.39 172.02 166.72 183.81

(1) On November 21, 2003, each share of the Company’s then outstand�ng Class A common stock and Class B common stock was reclass�f�ed �nto one share of new common stock, wh�ch �s now the only author�zed class of the Company’s common stock.

39


9/28/02 9/27/03 11/20/03

P�lgr�m’s Pr�de Corporat�on Class A(1) 100.00 180.96 195.33P�lgr�m’s Pr�de Corporat�on Class B(1) 100.00 140.92 150.72Russell 2000 100.00 136.01 146.80Peer Group 100.00 119.32 132.39

(1) On November 21, 2003, each share of the Company’s then outstand�ng Class A common stock and Class B common stock was reclass�f�ed �nto one share of new common stock, wh�ch �s now the only author�zed class of the Company’s common stock.

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Item 6. Selected Financial Data

(In thousands, except ratios and per share data) Eleven Years Ended September 29, 20072007(a) 2006 2005 2004(b)(c)

(53 weeks)Income Statement Data:Net sales $ 7,598,599 $ 5,235,565 $ 5,666,275 $ 5,363,723Gross prof�t(e) 591,538 297,600 745,199 529,039Operat�ng �ncome(e) 232,537 3,002 435,812 265,314Interest expense, net 125,757 40,553 43,932 52,129Loss on early ext�ngu�shment of debt 26,463 -- -- --Income (loss) before �ncome taxes(e) 91,607 (36,317) 403,523 208,535Income tax expense (benef�t)(f) 44,590 (2,085) 138,544 80,195Net �ncome (loss)(e) 47,017 (34,232) 264,979 128,340Rat�o of earn�ngs to f�xed charges(g) 1.57x (f) 7.19x 4.08x

Per Common Share Data:(h)Net �ncome (loss) $ 0.71 $ (0.51) $ 3.98 $ 2.05Cash d�v�dends 0.09 1.09 0.06 0.06Book value 17.61 16.79 18.38 13.87

Balance Sheet Summary:Work�ng cap�tal $ 379,132 $ 528,836 $ 404,601 $ 383,726Total assets 3,774,236 2,426,868 2,511,903 2,245,989Notes payable and current matur�t�es

of long-term debt 2,872 10,322 8,603 8,428Long-term debt, less current matur�t�es 1,318,558 554,876 518,863 535,866Total stockholders’ equ�ty 1,172,221 1,117,327 1,223,598 922,956

Cash Flow Summary:Operat�ng cash flow $ 463,964 $ 30,382 $ 493,073 $ 272,404Deprec�at�on & amort�zat�on(�) 204,903 135,133 134,944 113,788Purchases of �nvestment secur�t�es 125,045 318,266 305,458 --Proceeds from sale or matur�ty

of �nvestment secur�t�es 208,676 490,764 -- --Cap�tal expend�tures 172,323 143,882 116,588 79,642Bus�ness acqu�s�t�ons, net of equ�ty

cons�derat�on(a)(b)(d) 1,102,069 -- -- 272,097F�nanc�ng act�v�t�es, net prov�ded by (used �n) 630,229 (38,750) 18,860 96,665

Other Data:EBITDA(j) $ 411,073 $ 136,763 $ 580,078 $ 372,501

Key Indicators (as a percentage of net sales):Gross prof�t(e) 7.8 % 5.7 % 13.2 % 9.9 %Sell�ng, general and adm�n�strat�ve expenses 4.7 % 5.6 % 5.5 % 4.8 %Operat�ng �ncome (e) 3.1 % 0.8 % 7.7 % 4.9 %Interest expense, net 1.6 % 1.0 % 0.9 % 1.0 %Net �ncome (loss)(e) 0.6 % (0.7 )% 4.7 % 2.4 %

41


Eleven Years Ended September 29, 20072003 2002 2001(d) 2000 1999 1998 1997

(53 weeks)

$ 2,619,345 $ 2,533,718 $ 2,214,712 $ 1,499,439 $ 1,357,403 $ 1,331,545 $ 1,277,649200,483 165,165 213,950 165,828 185,708 136,103 114,46763,613 29,904 94,542 80,488 109,504 77,256 63,89437,981 32,003 29,342 17,779 17,666 20,148 22,075

-- -- 1,433 -- -- -- --63,235 1,910 61,861 62,786 90,904 56,522 43,8247,199 (12,425) 20,724 10,442 25,651 6,512 2,788

56,036 14,335 41,137 52,344 65,253 50,010 41,0362.24x (g) 2.13x 3.04x 4.33x 2.96x 2.57x

$ 1.36 $ 0.35 $ 1.00 $ 1.27 $ 1.58 $ 1.21 $ 0.990.06 0.06 0.06 0.06 0.045 0.04 0.04

10.46 9.59 9.27 8.33 7.11 5.58 4.41

$ 211,119 $ 179,037 $ 203,350 $ 124,531 $ 154,242 $ 147,040 $ 133,5421,257,484 1,227,890 1,215,695 705,420 655,762 601,439 579,124

2,680 3,483 5,099 4,657 4,353 5,889 11,596415,965 450,161 467,242 165,037 183,753 199,784 224,743446,696 394,324 380,932 342,559 294,259 230,871 182,516

$ 98,892 $ 98,113 $ 87,833 $ 130,803 $ 81,452 $ 85,016 $ 49,61574,187 70,973 55,390 36,027 34,536 32,591 29,796

-- -- -- -- -- -- ---- -- -- -- -- -- --

53,574 80,388 112,632 92,128 69,649 53,518 50,2314,499 -- 239,539 -- -- -- --

(39,767) (21,793) 246,649 (24,769) (19,634) (32,498) 348

$ 173,926 $ 103,469 $ 146,166 $ 115,356 $ 142,043 $ 108,268 $ 94,782

7.7 % 6.5 % 9.7 % 11.1 % 13.7 % 10.2 % 9.0 %

5.2 % 5.3 % 5.4 % 5.7 % 5.6 % 4.4 % 4.0 %2.4 % 1.2 % 4.3 % 5.4 % 8.1 % 5.8 % 5.0 %1.5 % 1.3 % 1.3 % 1.2 % 1.3 % 1.5 % 1.7 %2.1 % 0.6 % 1.9 % 3.5 % 4.8 % 3.8 % 3.2 %

(a) The Company acqu�red Gold K�st Inc. on December 27, 2006 for $1.139 b�ll�on. For f�nanc�al report�ng purposes, we have not �ncluded the operat�ng results and cash flows of Gold K�st �n our consol�dated f�nanc�al statements for the per�od from December 27, 2006 through December 30, 2006. The operat�ng results and cash flows of Gold K�st from December 27, 2006 through December 30, 2006 were not mater�al.

(b) The Company acqu�red the ConAgra ch�cken d�v�s�on on November 23, 2003 for $635.2 m�ll�on �nclud�ng the non-cash value of common stock �ssued of $357.5 m�ll�on. The acqu�s�t�on has been accounted for as a purchase and the results of operat�ons for th�s acqu�s�t�on have been �ncluded �n our consol�dated results of operat�ons s�nce the acqu�s�t�on date.

42


(c) On Apr�l 26, 2004, the Company announced a plan to restructure �ts turkey d�v�s�on, �nclud�ng the sale of some fac�l�t�es �n V�rg�n�a. The fac�l�t�es were sold �n the fourth quarter of f�scal 2004. In connect�on w�th the restructur�ng, the Company recorded �n cost of sales-restructur�ng charges of approx�mately $64.2 m�ll�on and $7.9 m�ll�on of other restructur�ng charges.

(d) The Company acqu�red WLR Foods on January 27, 2001 for $239.5 m�ll�on and the assumpt�on of $45.5 m�ll�on of �ndebtedness. The acqu�s�t�on has been accounted for as a purchase and the results of operat�ons for th�s acqu�s�t�on have been �ncluded �n our consol�dated results of operat�ons s�nce the acqu�s�t�on date.

(e) Gross prof�t, operat�ng �ncome and net �ncome �nclude the follow�ng non-recurr�ng recover�es, restructur�ng charges and other unusual �tems for each of the years presented (�n m�ll�ons):

2005 2004 2003Effect on Gross Prof�t and Operat�ng Income:

Cost of sales-restructur�ng $ -- $ (64.2) $ --Non-recurr�ng recover�es recall �nsurance $ -- $ 23.8 $ --Non-recurr�ng recover�es for av�an �nfluenza $ -- $ -- $ 26.6Non-recurr�ng recover�es for v�tam�n and meth�on�ne l�t�gat�on $ -- $ 0.1 $ 19.9

Add�t�onal effect on Operat�ng Income:Other restructur�ng charges $ -- $ (7.9) $ --

Other �ncome for l�t�gat�on settlement 11.7 -- --Other �ncome for v�tam�n and meth�on�ne l�t�gat�on $ -- $ 0.9 $ 36.0

In add�t�on, the Company est�mates �ts losses related to the October 2002 recall (exclud�ng �nsurance recover�es) and the 2002 av�an �nfluenza outbreak negat�vely affected gross prof�t and operat�ng �ncome �n each of the years presented as follows (�n m�ll�ons):

2004 2003 2002Recall effects (est�mated) $ (20.0) $ (65.0) $ --Losses from av�an �nfluenza (est�mated) $ -- $ (7.3) $ (25.6)

(f) F�scal 2006 �ncluded �ncome tax expense of $25.8 m�ll�on assoc�ated w�th the restructur�ng of the Mex�co operat�ons and subsequent repatr�at�on of fore�gn earn�ngs under the Amer�can Jobs Creat�on Act of 2004. F�scal 2003 �ncluded a non-cash tax benef�t of $16.9 m�ll�on assoc�ated w�th the reversal of a valuat�on allowance on net operat�ng losses �n the Company’s Mex�co operat�ons. F�scal 2002 �ncluded a tax benef�t of $11.9 m�ll�on from changes �n Mex�can tax laws.

(g) For purposes of comput�ng the rat�o of earn�ngs to f�xed charges, earn�ngs cons�st of �ncome before �ncome taxes plus f�xed charges (exclud�ng cap�tal�zed �nterest). F�xed charges cons�st of �nterest (�nclud�ng cap�tal�zed �nterest) on all �ndebtedness, amort�zat�on of cap�tal�zed f�nanc�ng costs and that port�on of rental expense that we bel�eve to be representat�ve of �nterest. Earn�ngs were �nadequate to cover f�xed charges by $40.6 m�ll�on and $4.1 m�ll�on �n f�scal 2006 and 2002 respect�vely.

(h) H�stor�cal per share amounts represent both bas�c and d�luted and have been restated to g�ve effect to a stock d�v�dend �ssued on July 30, 1999. The stock reclass�f�cat�on on November 21, 2003 that resulted �n the new common stock traded as PPC d�d not affect the number of shares outstand�ng.

(�) Includes amort�zat�on of cap�tal�zed f�nanc�ng costs of approx�mately $6.6 m�ll�on, $2.6 m�ll�on, $2.3 m�ll�on, $2.0 m�ll�on, $1.5 m�ll�on, $1.4 m�ll�on, $1.9 m�ll�on, $1.2 m�ll�on, $1.1 m�ll�on, $1.0 m�ll�on and $0.9 m�ll�on �n f�scal years 2007, 2006, 2005, 2004, 2003, 2002, 2001, 2000, 1999, 1998 and 1997, respect�vely.

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(j) “EBITDA” �s def�ned as the sum of net �ncome (loss) plus �nterest, taxes, deprec�at�on and amort�zat�on. EBITDA �s presented because �t �s used by us and we bel�eve �t �s frequently used by secur�t�es analysts, �nvestors and other �nterested part�es, �n add�t�on to and not �n l�eu of Generally Accepted Account�ng Pr�nc�ples (GAAP) results, to compare the performance of compan�es. EBITDA �s not a measurement of f�nanc�al performance under GAAP and should not be cons�dered as an alternat�ve to cash flow from operat�ng act�v�t�es or as a measure of l�qu�d�ty or an alternat�ve to net �ncome as �nd�cators of our operat�ng performance or any other measures of performance der�ved �n accordance w�th GAAP.

A reconc�l�at�on of net �ncome to EBITDA �s as follows (�n thousands):

2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997

Net �ncome (loss) $ 47,017 ($34,232) $264,979 $128,340 $ 56,036 $ 14,335 $ 41,137 $ 52,344 $ 65,253 $ 50,010 $41,036

Add:

Interest expense, net 121,117 40,553 43,932 52,129 37,981 32,003 29,342 17,779 17,666 20,148 22,075Income tax expense

(benef�t) 44,590 (2,085) 138,544 80,195 7,199 (12,425) 20,724 10,442 25,651 6,512 2,788Deprec�at�on and

amort�zat�on(�) 204,903 135,133 134,944 113,788 74,187 70,973 55,390 36,027 34,536 32,591 29,796

M�nus:Amort�zat�on of

cap�tal�zed f�nanc�ng costs(�) 6,554 2,606 2,321 1,951 1,477 1,417 1,860 1,236 1,063 993 913

EBITDA 411,073 136,763 580,078 372,501 173,926 103,469 144,733 115,356 142,043 108,268 94,782

Add:

Loss on early ext�ngu�shment of debt 26,463 1,433

Adjusted EBITDA $437,536 $146,166

Note: We have �ncluded EBITDA adjusted to exclude losses on early ext�ngu�shment of debt �n f�scal 2007, as we bel�eve �nvestors may be �nterested �n our EBITDA exclud�ng th�s �tem as th�s �s how our management analyzes EBITDA from cont�nu�ng operat�ons.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Description of the Company

The Company �s the world’s largest ch�cken company and has one of the best known brand names �n the ch�cken �ndustry. In the U.S., we produce both prepared and fresh ch�cken and fresh turkey. In Mex�co and Puerto R�co, we exclus�vely produce fresh ch�cken. Through vert�cal �ntegrat�on we control the breed�ng, hatch�ng and grow�ng of ch�ckens. Our products are sold to foodserv�ce, reta�l and frozen entrée customers pr�mar�ly through foodserv�ce d�str�butors, reta�lers and restaurants throughout the U.S. and Puerto R�co and �n the northern and central reg�ons of Mex�co. We operate �n three bus�ness segments and two geograph�cal areas.

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Recent Business Acquisition

On December 27, 2006, we acqu�red 88.9% of all outstand�ng common shares of Atlanta-based Gold K�st Inc. (“Gold K�st”). Gold K�st was the th�rd-largest ch�cken company �n the U.S., account�ng for approx�mately 9% of all ch�cken produced domest�cally �n recent years. On January 9, 2007, we acqu�red the rema�n�ng Gold K�st common shares, mak�ng Gold K�st a wholly owned subs�d�ary of P�lgr�m’s Pr�de Corporat�on. For f�nanc�al report�ng purposes, we have not �ncluded the operat�ng results and cash flows of Gold K�st �n our consol�dated f�nanc�al statements for the per�od from December 27, 2006 through December 30, 2006. The operat�ng results and cash flows of Gold K�st from December 27, 2006 through December 30, 2006 were not mater�al.

We are �n the process of fully �ntegrat�ng the operat�ons of Gold K�st �nto the Company. We �ntend to do th�s as rap�dly as poss�ble w�thout �nterrupt�ng the bus�ness. We expect the acqu�s�t�on and �ts �ntegrat�on w�ll result �n s�gn�f�cant cost-sav�ng opportun�t�es and enhanced growth. We are currently �mplement�ng an opt�m�zat�on plan for all product�on and d�str�but�on fac�l�t�es and determ�n�ng and �mplement�ng a “best pract�ce” approach across all operat�ons.

Executive Summary

Overview. Focus and concern abroad over av�an �nfluenza s�gn�f�cantly reduced �nternat�onal demand for ch�cken products dur�ng f�scal 2006 when compared to f�scal 2005, lead�ng at t�mes to h�gher �nventory levels and contr�but�ng to lower overall market pr�c�ng. At the same t�me, �ndustry product�on levels cont�nued to �ncrease, creat�ng an oversupply s�tuat�on and further weaken�ng pr�ces. Dur�ng f�scal 2006, the average market pr�c�ng for ch�cken leg quarters and breast meat decl�ned approx�mately 19.7% and 15.8%, respect�vely, from f�scal 2005. Add�t�onally, our U.S. ch�cken sales volume for f�scal 2006 was 2.3% less than f�scal 2005 because of av�an �nfluenza concerns �n the �nternat�onal markets.

The cost of corn, our pr�mary feed �ngred�ent, �ncreased s�gn�f�cantly from August 2006 to the date of th�s report.

In response to th�s challeng�ng operat�ng env�ronment, we executed a mult�-po�nt plan des�gned to �mprove our compet�t�ve pos�t�on:

• F�rst, we delayed one-half of our planned expans�on �n the Fresh Food Serv�ce D�v�s�on of our Mayf�eld, Kentucky plant from July 2006 unt�l September 2006, and the other half of th�s expans�on from July 2006 unt�l June 2007.

• Second, beg�nn�ng on July 1, 2006, we reduced our weekly slaughter rate by approx�mately 3%, wh�ch �s equ�valent to approx�mately 830,000 head per week. Beg�nn�ng on January 1, 2007, we further reduced weekly slaughter to ach�eve a 5% year-over-year decl�ne, wh�ch �s equ�valent to approx�mately 1.3 m�ll�on head per week.

45


• Th�rd, we reduced our cap�tal �nvestments for f�scal 2006 to $144 m�ll�on. Our or�g�nal cap�tal �nvestment project�on for the year had been �n the range of $180-$200 m�ll�on. We focused only on those projects we deemed cr�t�cally necessary to our bus�ness or those �n wh�ch our �mmed�ate �nvestment was judged by us to be �n our best long-term �nterests.

• Fourth, we sharpened our focus on reduc�ng costs and operat�ng more eff�c�ently.

Industry-w�de product�on cutbacks �mplemented early �n 2007 along w�th strong demand for our products created an �mproved pr�c�ng env�ronment for our products �n the last half of f�scal 2007 when compared to the same pr�or year per�od. Th�s allowed the Company to return to prof�tab�l�ty �n sp�te of further �ncreases �n the cost of feed �ngred�ents dur�ng f�scal 2007. Dur�ng f�scal 2007, the average market pr�c�ng for ch�cken �ncreased from the pr�or f�scal year. Add�t�onally, our U.S. ch�cken sales volume �n f�scal 2007 was 41.1% h�gher than f�scal 2006 due pr�mar�ly to the Gold K�st acqu�s�t�on.

We also exper�enced �ncreased product�on and fre�ght cost related to operat�onal �neff�c�enc�es, labor shortages at several fac�l�t�es and h�gher fuel costs. We bel�eve the labor shortages are attr�butable �n part to he�ghtened publ�c�ty of governmental �mm�grat�on enforcement efforts, ongo�ng Company compl�ance efforts and cont�nued changes �n the Company’s employment pract�ces �n l�ght of recently publ�shed governmental best pract�ces and the pend�ng new labor h�r�ng regulat�ons.

Results. Net �ncome for f�scal 2007 of $47.0 m�ll�on �s up $81.2 m�ll�on from net loss of $34.2 m�ll�on for f�scal 2006. Th�s �ncrease �s pr�mar�ly due to a 7.8% �ncrease �n our sell�ng pr�ces and an �mprovement �n our product m�x on top of a 34.7% �ncrease �n volume because of the Gold K�st acqu�s�t�on, offset by the �ncreased cost of sales, net �nterest charges and other costs descr�bed below.

Offsett�ng the pr�ce and volume �mprovements were the follow�ng:

• In add�t�on to the effects of the Gold K�st acqu�s�t�on, cost of sales �ncreased from f�scal 2006 to f�scal 2007 due �n part to h�gher feed �ngred�ent and fuel costs between the two per�ods, operat�onal �neff�c�enc�es and labor shortages. Feed �ngred�ents costs rose 38.2% and 31.3% �n the U.S. and Mex�co ch�cken d�v�s�ons, respect�vely, due pr�mar�ly to corn and soybean meal pr�ces.

• Net �nterest expense �ncreased $80.6 m�ll�on �n f�scal 2007, when compared to f�scal 2006, due pr�mar�ly to the f�nanc�ng of the Gold K�st acqu�s�t�on.

• We recogn�zed $14.5 m�ll�on and $12.0 m�ll�on of losses on the early ext�ngu�shments of debt dur�ng the second and fourth quarters of f�scal 2007, respect�vely.

Business Environment

Prof�tab�l�ty �n the poultry �ndustry �s mater�ally affected by the commod�ty pr�ces of feed �ngred�ents, ch�cken and turkey, wh�ch are determ�ned by supply and demand factors. As a result, the ch�cken and turkey �ndustr�es are subject to cycl�cal earn�ngs fluctuat�ons, wh�ch can be m�t�gated somewhat by:

- Bus�ness strategy;

- Product m�x;

46


- Sales and market�ng plans; and

- Operat�ng eff�c�enc�es.

In an effort to reduce pr�ce volat�l�ty and to generate h�gher, more cons�stent prof�t marg�ns, we have concentrated on the product�on and market�ng of prepared foods products. Prepared foods products generally have h�gher prof�t marg�ns than our other products. Also, the product�on and sale �n the U.S. of prepared foods products reduces the �mpact of the costs of feed �ngred�ents on our prof�tab�l�ty. Feed �ngred�ent purchases are the s�ngle largest component of our cost of sales, represent�ng approx�mately 35.8% of our consol�dated cost of sales �n f�scal 2007. The product�on of feed �ngred�ents �s pos�t�vely or negat�vely affected pr�mar�ly by weather patterns throughout the world, the global level of supply �nventor�es and demand for feed �ngred�ents, and the agr�cultural pol�c�es of the U.S. and fore�gn governments. The cost of corn and soybean meal, our pr�mary feed �ngred�ents, �ncreased s�gn�f�cantly from August 2006 unt�l the date of th�s report, and there can be no assurance that the pr�ce of corn or soybean meal w�ll not cont�nue to r�se as a result of, among other th�ngs, �ncreas�ng demand for these products around the world and alternat�ve uses of these products, such as ethanol and b�od�esel product�on. As further process�ng �s performed, feed �ngred�ent costs become a decreas�ng percentage of a product’s total product�on cost, thereby reduc�ng the�r �mpact on our prof�tab�l�ty. Products sold �n th�s form enable us to charge a prem�um, reduce the �mpact of feed �ngred�ent costs on our prof�tab�l�ty and �mprove and stab�l�ze our prof�t marg�ns.

As a s�gn�f�cant port�on of the U.S. poultry product�on �s exported, the commod�ty pr�ces of ch�cken and turkey can be, and �n recent per�ods have been, adversely affected by d�srupt�ons �n poultry export markets. These d�srupt�ons are often caused by restr�ct�ons on �mports of U.S.-produced poultry products �mposed by fore�gn governments for a var�ety of reasons, �nclud�ng the protect�on of the�r domest�c poultry producers and allegat�ons of consumer health �ssues. For example, Russ�a, Ch�na and Japan have restr�cted the �mportat�on of U.S.-produced poultry for both of these reasons �n recent per�ods. In add�t�on, as descr�bed above, �n f�scal 2006, focus and concern abroad over av�an �nfluenza s�gn�f�cantly reduced �nternat�onal demand for ch�cken products. In July 2003, the U.S. and Mex�co entered �nto a safeguard agreement w�th regard to �mports �nto Mex�co of ch�cken leg quarters from the U.S. Under th�s agreement, a tar�ff rate for ch�cken leg quarters of 98.8% of the sales pr�ce was establ�shed. Th�s tar�ff rate was reduced on January 1, 2007 to 19.8% and �s scheduled to be reduced so that the f�nal tar�ff rate at January 1, 2008 w�ll be zero. The tar�ff was �mposed due to concerns that the duty-free �mportat�on of such products as prov�ded by the North Amer�can Free Trade Agreement would �njure Mex�co’s poultry �ndustry. As such tar�ffs are reduced, we expect greater amounts of ch�cken to be �mported �nto Mex�co from the U.S., wh�ch could negat�vely affect the prof�tab�l�ty of Mex�can ch�cken producers, �nclud�ng our Mex�co operat�ons. Because these d�srupt�ons �n poultry export markets are often pol�t�cal, no assurances can be g�ven as to when the ex�st�ng d�srupt�ons w�ll be allev�ated or that new ones w�ll not ar�se.

In October 2007, Mex�co’s leg�slat�ve bod�es enacted La Ley del Impuesto Empresar�al a Tasa Ún�ca (“IETU”), a new m�n�mum corporat�on tax, wh�ch w�ll be assessed on compan�es do�ng bus�ness �n Mex�co beg�nn�ng January 1, 2008. We are currently evaluat�ng the ant�c�pated �mpact that IETU w�ll have on our bus�ness and operat�ng results and there can be no assurance that IETU w�ll not have a mater�al adverse effect on our f�nanc�al results.

47


Business Segments

We operate �n three reportable bus�ness segments as (1) a producer and seller of ch�cken products, (2) a producer and seller of turkey products and (3) a seller of other products. Our ch�cken segment �ncludes sales of ch�cken products we produce and purchase for resale �n the U.S., �nclud�ng Puerto R�co, and Mex�co. Our ch�cken segment conducts separate operat�ons �n the U.S., Puerto R�co and Mex�co and �s reported as two separate geograph�cal areas. Substant�ally all of the assets and operat�ons of the f�scal 2007 acqu�s�t�on are �ncluded �n our U.S. ch�cken segment s�nce the date of acqu�s�t�on.

Our turkey segment �ncludes sales of turkey products we produce and purchase for resale �n our turkey and d�str�but�on operat�ons �n the U.S.

Our other products segment �ncludes d�str�but�on of non-poultry products that are purchased from th�rd part�es and sold to �ndependent grocers and qu�ck serv�ce restaurants. Also �ncluded �n th�s category are sales of table eggs, feed, prote�n products, l�ve hogs and other �tems, some of wh�ch are produced or ra�sed by the Company.

Inter-area sales and �nter-segment sales, wh�ch are not mater�al, are accounted for at pr�ces comparable to normal trade customer sales. Corporate expenses are allocated to Mex�co based upon var�ous apport�onment methods for spec�f�c expend�tures �ncurred related thereto w�th the rema�n�ng amounts allocated to the U.S. port�ons of the segments based on number of employees.

Assets assoc�ated w�th our corporate funct�ons, �nclud�ng cash and cash equ�valents and �nvestments �n ava�lable for sale secur�t�es, are �ncluded �n our ch�cken segment.

Sell�ng, general and adm�n�strat�ve expenses related to our d�str�but�on centers are allocated based on the proport�on of net sales to the part�cular segment to wh�ch the product sales relate.

Deprec�at�on and amort�zat�on, total assets and cap�tal expend�tures of our d�str�but�on centers are �ncluded �n our ch�cken segment based on the pr�mary focus of the centers.

48


The follow�ng table presents certa�n �nformat�on regard�ng our segments:

Fiscal Year EndedSeptember 29, 2007(a) September 30, 2006 October 1, 2005

(In thousands)Net Sales to Customers:Ch�cken:

Un�ted States $ 6,328,354 $ 4,098,403 $ 4,411,269Mex�co 488,466 418,745 403,353

Sub-total 6,816,820 4,517,148 4,814,622Turkey 122,364 130,901 204,838Other Products:

Un�ted States 638,738 570,510 626,056Mex�co 20,677 17,006 20,759

Sub-total 659,415 587,516 646,815Total $ 7,598,599 $ 5,235,565 $ 5,666,275

Operating Income (Loss): Ch�cken:

Un�ted States $ 192,447 $ 28,619 $ 405,662Mex�co 13,116 (17,960) 39,809

Sub-total 205,563 10,659 445,471Turkey (4,655) (15,511) (22,539)Other Products:


Sub-total 31,629 7,854 12,880Total $ 232,537 $ 3,002 $ 435,812

Depreciation and Amortization:(b) Ch�cken:

Un�ted States $ 183,808 $ 109,346 $ 114,131Mex�co 11,015 11,305 12,085

Sub-total 194,823 120,651 126,216Turkey 1,587 6,593 3,343Other Products:

Un�ted States 8,278 7,743 5,196Mex�co 215 146 189

Sub-total 8,493 7,889 5,385Total $ 204,903 $ 135,133 $ 134,944

Total Assets: Ch�cken:




Sub-total 107,877 90,310 87,591Total $ 3,774,236 $ 2,426,868 $ 2,511,903

Capital Expenditures (excluding acquisition): Ch�cken:


Sub-total 166,082 139,642 107,394Turkey 502 257 3,604Other Products:


Sub-total 5,739 3,983 5,590Total $ 172,323 $ 143,882 $ 116,588

49


(a) The Company acqu�red Gold K�st on December 27, 2006 for $1.139 b�ll�on. For f�nanc�al report�ng purposes, we have not �ncluded the operat�ng results and cash flows of Gold K�st �n our consol�dated f�nanc�al statements for the per�od from December 27, 2006 through December 30, 2006. The operat�ng results and cash flows of Gold K�st from December 27, 2006 through December 30, 2006 were not mater�al.

(b) Includes amort�zat�on of cap�tal�zed f�nanc�ng costs of approx�mately $6.6 m�ll�on, $2.6 m�ll�on, and $2.3 m�ll�on �n f�scal 2007, 2006 and 2005, respect�vely, and amort�zat�on of �ntang�ble assets of approx�mately $6.3 m�ll�on �n f�scal 2007.

The follow�ng table presents certa�n �tems as a percentage of net sales for the per�ods �nd�cated:

F�scal Year Ended

September 29,2007

September 30,2006

October 1,2005

Net sales 100.0 % 100.0 % 100.0 %Cost and Expenses

Cost of sales 92.2 94.3 86.8Gross prof�t 7.8 5.7 13.2

Sell�ng, general and adm�n�strat�ve expense 4.7 5.6 5.5

Operat�ng �ncome 3.1 0.1 7.7Interest expense, net 1.6 0.8 0.7

Income (loss) before �ncome taxes 1.2 (0.7) 7.1Net �ncome (loss) 0.6 (0.7) 4.7

50


Results of Operations

Fiscal 2007 Compared to Fiscal 2006

Net Sales. Net sales for f�scal 2007 �ncreased $2,363.0 m�ll�on, or 45.1%, over f�scal 2006. The follow�ng table prov�des add�t�onal �nformat�on regard�ng net sales (dollars �n m�ll�ons):

F�scal Year EndedSeptember 29, Change from Percentage

Source 2007 F�scal 2006 Change

Ch�cken:Un�ted States $ 6,328.3 $ 2,229.9 54.4 % (a)Mex�co 488.5 69.8 16.7 % (b)

6,816.8 2,299.7 50.9 %

Turkey 122.4 (8.5) (6.5) % (c)

Other products:Un�ted States 638.7 68.1 11.9 % (d)Mex�co 20.7 3.7 21.8 % (e)

659.4 71.8 12.2 %Net Sales $ 7,598.6 $ 2,363.0 45.1 %

(a) U.S. ch�cken sales �ncreased pr�mar�ly as the result of a 41.1% �ncrease �n volume due to the acqu�s�t�on of Gold K�st on December 27, 2006, �ncreases �n the average sell�ng pr�ces of ch�cken and, for legacy P�lgr�m’s Pr�de products, an �mproved product m�x conta�n�ng more h�gher-marg�n, value-added products.

(b) Mex�co ch�cken sales �ncreased compared to f�scal year 2006, due pr�mar�ly to �ncreases �n product�on and a 21.2% �ncrease �n pr�c�ng per pound sold.

(c) Turkey sales decl�ned due pr�mar�ly to an 8.1% decrease �n pr�c�ng of turkey products.

(d) U.S. sales of other products �ncreased pr�mar�ly due to the acqu�s�t�on of Gold K�st on December 27, 2006 and �mproved pr�c�ng from render�ng operat�ons.

(e) Mex�co other products sales �ncreased due to �ncreased sales volumes of and �ncreased sales pr�ces for commerc�al feed.

51


Gross Profit. Gross prof�t for f�scal 2007 �ncreased $293.9 m�ll�on, or 98.8%, over f�scal 2006. The follow�ng table prov�des gross prof�t �nformat�on (dollars �n m�ll�ons):

Components

F�scal Year Ended September 29,

2007Change from F�scal 2006

Percentage Change

Percentage of Net Sales F�scal 2007


Net sales $ 7,598.6 $ 2,363.0 45.1 % 100.0 % 100.0 %Cost of sales 7,007.1 2,069.1 41.9 % 92.2 % 94.3 % (a)

Gross prof�t $ 591.5 $ 293.9 98.8 % 7.8 % 5.7 % (b)

(a) Cost of sales �n the U.S. ch�cken operat�ons �ncreased $1,995.7 m�ll�on due pr�mar�ly to the acqu�s�t�on of Gold K�st and �ncreased quant�t�es and costs of energy and feed �ngred�ents. We also exper�enced �n f�scal 2007, and cont�nue to exper�ence, �ncreased product�on and fre�ght costs related to operat�onal �neff�c�enc�es, labor shortages at several fac�l�t�es and h�gher fuel costs. We bel�eve the labor shortages are attr�butable �n part to he�ghtened publ�c�ty of governmental �mm�grat�on enforcement efforts, ongo�ng Company compl�ance efforts and cont�nued changes �n the Company’s employment pract�ces �n l�ght of recently publ�shed governmental best pract�ces and the pend�ng new labor h�r�ng regulat�ons. Cost of sales �n our Mex�co ch�cken operat�ons �ncreased pr�mar�ly due to �ncreased feed �ngred�ent cost.

(b) Gross prof�t as a percent of net sales �mproved 2.1 percentage po�nts due to sales pr�ces �n the �ndustry �ncreas�ng �n response to the �ncreased cost of feed �ngred�ents.

52


Operating Income. Operat�ng �ncome for f�scal 2007 compared to f�scal 2006 �ncreased $229.5 m�ll�on, as descr�bed �n the follow�ng table (dollars �n m�ll�ons):

Source



Percentage Change

Ch�cken:Un�ted States $ 192.5 $ 163.9 573.1 %Mex�co 13.1 31.0 173.2 %

205.6 194.9 NM %

Turkey (4.7) 10.8 70.0 %

Other Products:Un�ted States 28.6 22.4 361.3 %Mex�co 3.0 1.4 87.5 %

31.6 23.8 305.1 %Operat�ng Income $ 232.5 $ 229.5 NM %

NM = Not mean�ngful

Components



Percentage Change



Gross prof�t $ 591.5 $ 293.9 98.8 % 7.8 % 5.7 %Sell�ng, general and

adm�n�strat�ve expense 359.0 64.4 21.9 % 4.7 % 5.6 % (a)

Operat�ng �ncome $ 232.5 $ 229.5 NM % 3.1 % 0.1 % (b)

NM = Not mean�ngful

(a) Sell�ng, general and adm�n�strat�ve expense �ncreased due pr�mar�ly to the acqu�s�t�on of Gold K�st.

(b) The �ncrease �n operat�ng �ncome when compared to f�scal 2006 �s due pr�mar�ly to the acqu�s�t�on of Gold K�st, �ncreases �n the average sell�ng pr�ces of ch�cken, �mproved product m�x and a reduct�on of sell�ng, general and adm�n�strat�ve expenses as a percentage of net sales, offset by �ncreased product�on and fre�ght costs and the other factors descr�bed above.

Interest Expense. Consol�dated �nterest expense �ncreased 148.6% to $125.8 m�ll�on �n f�scal 2007, when compared to $50.6 m�ll�on for f�scal 2006, due pr�mar�ly to �ncreased borrow�ng for the acqu�s�t�on of Gold K�st.

Interest Income. Interest �ncome decreased 54.0% to $4.6 m�ll�on �n f�scal 2007, compared to $10.0 m�ll�on �n f�scal 2006, due to lower �nvestment balances.

53


Loss on Early Extinguishment of Debt. Dur�ng f�scal 2007, the Company recogn�zed loss on early ext�ngu�shment of debt of $26.4 m�ll�on, wh�ch �ncluded prem�ums of $16.9 m�ll�on along w�th unamort�zed loan costs of $9.5 m�ll�on. These losses related to the redempt�on of $77.5 m�ll�on of our 9 1/4/% Sen�or Subord�nated Notes due 2013 and all of our 9 5/8% Sen�or Notes due 2011.

Income Tax Expense. Consol�dated �ncome tax expense �n f�scal 2007 was $44.6 m�ll�on, compared to tax benef�t of $2.1 m�ll�on �n f�scal 2006. The �ncrease �n consol�dated �ncome tax expense �s the result of the pretax earn�ngs �n f�scal 2007 versus pre-tax loss �n the U.S. and Mex�co �n 2006 and an �ncrease �n tax cont�ngency reserves. In add�t�on, f�scal 2006 �ncluded �ncome tax expense of $25.8 m�ll�on for the restructur�ng of the Mex�co operat�ons and subsequent repatr�at�on of earn�ngs from Mex�co under the Amer�can Jobs Creat�on Act of 2004, and a $10.6 m�ll�on benef�t from a change �n an est�mate, both of wh�ch are descr�bed �n Note A to the Consol�dated F�nanc�al Statements.

Fiscal 2006 Compared to Fiscal 2005

Net Sales. Net sales for f�scal 2006 decreased $430.7 m�ll�on, or 7.6%, when compared to f�scal 2005. The follow�ng table prov�des add�t�onal �nformat�on regard�ng net sales (dollars �n m�ll�ons):

Source



Percentage Change

Ch�cken:Un�ted States $ 4,098.4 $ (312.8) (7.1) % (a)Mex�co 418.7 15.3 3.8 % (b)

4,517.1 (297.5) (6.2) %

Turkey 130.9 (73.9) (36.1) % (c)

Other Products:Un�ted States 570.6 (55.5) (8.9) % (d)Mex�co 17.0 (3.8) (18.3) % (e)

587.6 (59.3) (9.2) %Net Sales $ 5,235.6 $ (430.7) (7.6) %

(a) U.S. ch�cken sales decl�ned pr�mar�ly due to 15.8% lower breast meat pr�ces and 19.7% lower leg quarter pr�ces and 2.3% reduct�on �n volume.

(b) Mex�co ch�cken sales �ncreased compared to f�scal year 2005, due pr�mar�ly to �ncreases �n product�on, part�ally offset by a 9.1% decrease �n pr�c�ng per pound sold.

(c) Turkey sales decl�ned due to our dec�s�on �n the f�rst quarter of f�scal 2006 to cease product�on of certa�n products at our Francon�a, Pennsylvan�a turkey cook�ng operat�ons.

(d) U.S. sales of other products decreased pr�mar�ly due to the d�vesture of certa�n d�str�but�on centers whose sales �ncluded a large volume of non-poultry products.

(e) Mex�co other products sales decreased due to reduced sales volumes of commerc�al feed.

54


Gross Profit. Gross prof�t for f�scal 2006 decreased $447.6 m�ll�on, or 60.1%, over f�scal 2005. The follow�ng table prov�des gross prof�t �nformat�on (dollars �n m�ll�ons):

Components



Percentage Change



Net sales $ 5,235.6 $ (430.7) (7.6) % 100.0 % 100.0 %Cost of sales 4,938.0 16.9 0.3 % 94.3 % 86.8 % (a)

Gross prof�t $ 297.6 $ (447.6) (60.1) % 5.7 % 13.2 %

(a) Cost of sales �n the U.S. ch�cken operat�ons �ncreased $71.8 m�ll�on due pr�mar�ly to �ncreased energy and packag�ng costs. Cost of sales �n our turkey operat�ons decreased s�gn�f�cantly because of the restructur�ng of th�s d�v�s�on �n f�scal 2004 and f�rst quarter of f�scal 2006. Cost of sales �n our Mex�co ch�cken operat�ons �ncreased $71.6 m�ll�on pr�mar�ly due to a 9.7% �ncrease �n product�on volumes.

Operating Income. Operat�ng �ncome for f�scal 2006 compared to f�scal 2005 decreased $432.8 m�ll�on, or 99.3%, as descr�bed �n the follow�ng table (dollars �n m�ll�ons):

Source



Percentage Change

Ch�cken:Un�ted States $ 28.6 $ (377.1) (93.0) %Mex�co (17.9) (57.7) (145.0) %

10.7 (434.8) (97.6) %

Turkey (15.5) 7.0 31.1 %

Other Products:Un�ted States 6.2 (2.0) (24.4) %Mex�co 1.6 (3.0) (65.2) %

7.8 (5.0) (39.1) %Operat�ng Income $ 3.0 $ (432.8) (99.3) %

Components



Percentage Change



Gross prof�t $ 297.6 $ (447.6) (60.1) % 5.7 % 13.2 %Sell�ng,

general and adm�n�strat�ve expense 294.6 (14.8) (4.8) % 5.6 % 5.5 % (a)

Operat�ng �ncome $ 3.0 $ (432.8) (99.3) % 0.1 % 7.7 % (b)

55


(a) Sell�ng, general and adm�n�strat�ve expense decreased due pr�mar�ly to a decrease �n costs assoc�ated w�th our prof�t-based ret�rement and compensat�on plans.

(b) The decrease �n operat�ng �ncome when compared to f�scal 2005 �s due pr�mar�ly to lower market pr�c�ng for ch�cken products, as well as �ncreased costs for energy and packag�ng.

Interest Expense. Consol�dated �nterest expense �ncreased 2.0% to $50.6 m�ll�on �n f�scal 2006, when compared to $49.6 m�ll�on for f�scal 2005, due pr�mar�ly to h�gher average outstand�ng debt balances exper�enced �n the f�scal year.

Interest Income. Interest �ncome �ncreased 75.4% to $10.0 m�ll�on �n f�scal 2006, compared to $5.7 m�ll�on �n f�scal 2005, due to h�gher average �nvestment balances and sl�ghtly h�gher rates.

Income Tax Expense. Consol�dated �ncome tax benef�t �n f�scal 2006 was $2.1 m�ll�on, compared to tax expense of $138.5 m�ll�on �n f�scal 2005. The decrease �n consol�dated �ncome tax expense �s the result of the pretax loss �n f�scal 2006 versus s�gn�f�cant earn�ngs �n the U.S. and Mex�co �n f�scal 2005. In add�t�on, f�scal 2006 �ncluded �ncome tax expense of $25.8 m�ll�on for the restructur�ng of the Mex�co operat�ons and subsequent repatr�at�on of earn�ngs from Mex�co under the Amer�can Jobs Creat�on Act of 2004, and a $10.6 m�ll�on benef�t from a change �n an est�mate, both of wh�ch are descr�bed �n Note A to the Consol�dated F�nanc�al Statements.

Liquidity and Capital Resources

The follow�ng table presents our ava�lable sources of l�qu�d�ty as of September 29, 2007 (dollars �n m�ll�ons):

Source of L�qu�d�ty Fac�l�ty Amount

Amount Outstand�ng Ava�lable

Cash and cash equ�valents $ -- $ -- $ 66.2Investments �n ava�lable-for-sale secur�t�es -- -- 8.2Debt fac�l�t�es:

Revolv�ng cred�t fac�l�t�es 350.0 26.3 238.8 (a)Revolv�ng/term fac�l�ty 550.0 -- 550.0

Rece�vables purchase agreement 300.0 300.0 --

(a) At September 29, 2007, the Company had $84.9 m�ll�on �n letters of cred�t outstand�ng relat�ng to normal bus�ness transact�ons.

In September 2006, the Company entered �nto an amended and restated revolver/term cred�t agreement w�th a matur�ty date of September 21, 2016. At September 29, 2007, th�s revolver/term cred�t agreement prov�des for an aggregate comm�tment of $1.172 b�ll�on cons�st�ng of (�) a $550 m�ll�on revolv�ng/term loan comm�tment and (��) $622.4 m�ll�on �n var�ous term loans. At September 29, 2007, the Company had noth�ng outstand�ng under the revolver and $622.4 m�ll�on outstand�ng �n var�ous term loans. The total cred�t fac�l�ty �s presently secured by certa�n f�xed assets w�th a current ava�lab�l�ty of $550.0 m�ll�on. From t�me to t�me, �f certa�n cond�t�ons are sat�sf�ed, the Company

56


has the r�ght to �ncrease the revolv�ng/term loan comm�tment and term loan comm�tment to a total max�mum amount of $1.0 b�ll�on and $750 m�ll�on, respect�vely. Borrow�ngs under the revolv�ng/term loan comm�tment are ava�lable on a revolv�ng bas�s unt�l September 21, 2011 at wh�ch t�me the outstand�ng borrow�ngs w�ll be converted to a term loan matur�ng on September 21, 2016. The f�xed rate term loans bear �nterest at rates rang�ng from 6.84% to 7.06%. The voluntary converted loans bear �nterest at rates rang�ng from LIBOR plus 1.0%-2.0%, depend�ng upon the Company’s total debt to cap�tal�zat�on rat�o. The float�ng rate term loans bear �nterest at LIBOR plus 1.50%-1.75% based on the rat�o of the Company’s debt to EBITDA, as def�ned �n the agreement. The revolv�ng/term loans prov�de for �nterest rates rang�ng from LIBOR plus 1.0%-2.0%, depend�ng upon the Company’s total debt to cap�tal�zat�on rat�o. Revolv�ng/term loans converted to term loans on September 21, 2011 w�ll be payable �n equal quarterly pr�nc�pal payments of 10% per annum of the or�g�nal pr�nc�pal amount beg�nn�ng the calendar quarter follow�ng the convers�on date w�th the rema�n�ng balance due on the matur�ty date. Of the term loans outstand�ng, $208.7 m�ll�on must be repa�d �n equal quarterly pr�nc�pal payments of 1% per annum of the or�g�nal pr�nc�pal amount w�th the rema�n�ng balance due on the matur�ty date. All borrow�ngs are subject to the ava�lab�l�ty of el�g�ble collateral and no mater�al adverse change prov�s�ons. Comm�tment fees charged on the unused balance of th�s fac�l�ty range from 0.20% to 0.40%, depend�ng upon the Company’s total debt to cap�tal�zat�on rat�o. One-half of the outstand�ng obl�gat�ons under the domest�c revolv�ng cred�t fac�l�ty are guaranteed by P�lgr�m Interests, Ltd., an ent�ty related to our Sen�or Cha�rman, Lonn�e “Bo” P�lgr�m.

On December 15, 2006, the Company borrowed $100 m�ll�on at 6.84% under our revolver/term cred�t agreement and used substant�ally all of the funds to repay, �n full, term loans payable to an �nsurance company under a note purchase agreement matur�ng �n 2012 and 2013.

In January 2007, the Company borrowed (1) $780 m�ll�on under our revolver/term cred�t agreement and (2) $450 m�ll�on under our br�dge loan agreement to fund the Gold K�st acqu�s�t�on. On January 24, 2007, the Company closed on the sale of $400 m�ll�on of 7 5/8% Sen�or Notes due 2015 (the “Sen�or Notes”) and $250 m�ll�on of 8 3/8% Sen�or Subord�nated Notes due 2017 (the “Subord�nated Notes”), sold at par. Interest �s payable on May 1 and November 1 of each year, beg�nn�ng November 1, 2007. We may redeem all or part of the Sen�or Notes on or after May 1, 2011. We may redeem all or part of the Subord�nated Notes on or after May 1, 2012. Before May 1, 2010, we also may redeem up to 35% of the aggregate pr�nc�pal amount of each of the Sen�or Notes and the Subord�nated Notes w�th the proceeds of certa�n equ�ty offer�ngs. Each of these opt�onal redempt�ons �s at a prem�um as descr�bed �n the �ndentures under wh�ch the notes were �ssued. The proceeds from the sale of the notes, after underwr�t�ng d�scounts, were used to (1) ret�re the loans outstand�ng under our br�dge loan agreement, (2) repurchase $77.5 m�ll�on of the Company’s 9 1/4% Sen�or Subord�nated Notes due 2013 at a prem�um of $7.4 m�ll�on plus accrued �nterest of $1.3 m�ll�on and (3) reduce outstand�ng revolv�ng loans under our revolver/term cred�t agreement. Loss on early ext�ngu�shment of debt �ncludes the $7.4 m�ll�on prem�um along w�th unamort�zed loan costs of $7.1 m�ll�on related to the ret�rement of these Notes.

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On September 21, 2007, the Company redeemed all of �ts 9 5/8% Sen�or Notes due 2011 at a total cost of $307.5 m�ll�on. To fund a port�on of the aggregate redempt�on pr�ce, the Company sold $300 m�ll�on of trade rece�vables under �ts Rece�vables Purchase Agreement. Loss on early ext�ngu�shment of debt �ncludes the $9.5 m�ll�on prem�um along w�th unamort�zed loan costs of $2.5 m�ll�on related to the ret�rement of these Notes.

As of September 29, 2007, we had a $300.0 m�ll�on comm�tment under a domest�c revolv�ng cred�t fac�l�ty that prov�des for �nterest rates rang�ng from LIBOR plus 0.75-1.75%, depend�ng upon our total debt to cap�tal�zat�on rat�o. From t�me to t�me, �f certa�n cond�t�ons are sat�sf�ed, the Company has the r�ght to �ncrease the revolv�ng comm�tment to a total max�mum amount of $450 m�ll�on. At September 29, 2007, $215.1 m�ll�on was ava�lable for borrow�ng under the domest�c revolv�ng cred�t fac�l�ty. Borrow�ngs aga�nst th�s fac�l�ty are subject to the ava�lab�l�ty of el�g�ble collateral and no mater�al adverse change prov�s�ons. The obl�gat�ons under th�s fac�l�ty are secured by domest�c ch�cken �nventor�es. Comm�tment fees charged on the unused balance of th�s fac�l�ty range from 0.175% to 0.35%, depend�ng upon the Company’s total debt to cap�tal�zat�on rat�o. One-half of the outstand�ng obl�gat�ons under the domest�c revolv�ng cred�t fac�l�ty are guaranteed by P�lgr�m Interests, Ltd., an ent�ty related to our Sen�or Cha�rman, Lonn�e “Bo” P�lgr�m.

On September 25, 2006, a subs�d�ary of the Company, Avícola P�lgr�m’s Pr�de de Méx�co, S. de R.L. de C.V. (the “Borrower”), entered �nto a secured revolv�ng cred�t agreement of up to $75 m�ll�on w�th a f�nal matur�ty date of September 25, 2011. In March 2007, the Borrower elected to reduce the comm�tment under th�s agreement to approx�mately $50 m�ll�on. Outstand�ng amounts bear �nterest at rates rang�ng from the h�gher of the Pr�me Rate or Federal Funds Effect�ve Rate plus 0.5%; LIBOR plus 1.25%-2.75%; or TIIE plus 1.05%-2.55% depend�ng on the loan des�gnat�on. Obl�gat�ons under th�s agreement are secured by a secur�ty �nterest �n and l�en upon all cap�tal stock and other equ�ty �nterests of the Company’s Mex�can subs�d�ar�es. All the obl�gat�ons of the Borrower are secured by uncond�t�onal guaranty by the Company. At September 29, 2007, $26.3 m�ll�on was outstand�ng and approx�mately $23.7 m�ll�on was ava�lable for borrow�ngs. All borrow�ngs are subject to no mater�al adverse effect prov�s�ons.

We also ma�nta�n operat�ng leases for var�ous types of equ�pment, some of wh�ch conta�n res�dual value guarantees for the market value of assets at the end of the term of the lease. The terms of the lease matur�t�es range from one to seven years. We est�mate the max�mum potent�al amount of the res�dual value guarantees �s approx�mately $21.1 m�ll�on; however, the actual amount would be offset by any recoverable amount based on the fa�r market value of the underly�ng leased assets. No l�ab�l�ty has been recorded related to th�s cont�ngency as the l�kel�hood of payments under these guarantees �s not cons�dered to be probable and the fa�r value of the guarantees �s �mmater�al. We h�stor�cally have not exper�enced s�gn�f�cant payments under s�m�lar res�dual guarantees.

At September 29, 2007, our work�ng cap�tal decreased to $379.1 m�ll�on and our current rat�o decreased to 1.42 to 1, compared w�th work�ng cap�tal of $528.8 m�ll�on and a current rat�o of 1.92 to 1 at September 30, 2006, pr�mar�ly due to lower cash balances and rece�vables and h�gher accounts payable and accrued l�ab�l�t�es, part�ally offset by �ncreased �nventor�es.

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Trade accounts and other rece�vables were $130.2 m�ll�on at September 29, 2007, compared to $263.1 m�ll�on at September 30, 2006. The $132.9 m�ll�on, or 50.5%, decrease �n trade accounts and other rece�vables was pr�mar�ly due to the September 2007 sale of $300.0 m�ll�on trade rece�vables under the Rece�vables Purchase Agreement, part�ally offset by rece�vables obta�ned from the Gold K�st acqu�s�t�on.

Inventor�es were $961.9 m�ll�on at September 29, 2007, compared to $585.9 m�ll�on at September 30, 2006. The $376.0 m�ll�on, or 64.2%, �ncrease �n �nventor�es was pr�mar�ly due to the Gold K�st acqu�s�t�on and �ncreased product costs �n f�n�shed ch�cken products and l�ve �nventor�es as a result of h�gher feed �ngred�ent costs.

Accounts payable �ncreased $108.6 m�ll�on, or 37.0%, to $402.3 m�ll�on at September 29, 2007, compared to $293.7 m�ll�on at September 30, 2006. The �ncrease was pr�mar�ly due to the Gold K�st acqu�s�t�on and h�gher feed �ngred�ent costs.

Accrued l�ab�l�t�es �ncreased $227.2 m�ll�on, or 83.3%, to $500.0 m�ll�on compared to $272.8 m�ll�on at September 30, 2006. Th�s �ncrease �s due pr�mar�ly to the Gold K�st acqu�s�t�on.

Cash flows prov�ded by operat�ng act�v�t�es were $464.0 m�ll�on and $30.4 m�ll�on for f�scal 2007 and 2006, respect�vely. The �ncrease �n cash flows prov�ded by operat�ng act�v�t�es for f�scal 2007 when compared to f�scal 2006 was pr�mar�ly due to �ncreased net �ncome and lower rece�vables.

Cash flows prov�ded by (used �n) �nvest�ng act�v�t�es were ($1.184) b�ll�on and $32.3 m�ll�on for f�scal 2007 and 2006, respect�vely. Cash of $1.102 b�ll�on was used to acqu�re Gold K�st. Cap�tal expend�tures (exclud�ng bus�ness acqu�s�t�ons) of $172.3 m�ll�on and $143.8 m�ll�on for f�scal years 2007 and 2006, respect�vely, were pr�mar�ly �ncurred to acqu�re and expand certa�n fac�l�t�es, �mprove eff�c�enc�es, reduce costs and for the rout�ne replacement of equ�pment. Cash was used to purchase �nvestment secur�t�es of $125.0 m�ll�on �n f�scal 2007 and $318.3 m�ll�on �n f�scal 2006. Cash proceeds �n f�scal 2007 from the sale or matur�ty of �nvestment secur�t�es was $208.7 m�ll�on. We ant�c�pate spend�ng approx�mately $290 m�ll�on to $300 m�ll�on �n f�scal 2008 to �mprove eff�c�enc�es and for the rout�ne replacement of equ�pment at our current operat�ons. We expect to f�nance such expend�tures w�th ava�lable cash and operat�ng cash flows and ex�st�ng revolv�ng/term and revolv�ng cred�t fac�l�t�es.

Cash flows used �n f�nanc�ng act�v�t�es were $630.2 m�ll�on and $38.8 m�ll�on for the f�scal years 2007 and 2006, respect�vely. The �ncrease �n cash prov�ded by f�nanc�ng act�v�t�es for f�scal 2007, when compared to f�scal 2006, was attr�butable to proceeds rece�ved from long-term debt, �nclud�ng proceeds of $1.23 b�ll�on borrowed to fund the Gold K�st acqu�s�t�on.

We are a party to many rout�ne contracts �n wh�ch we prov�de general �ndemn�t�es �n the normal course of bus�ness to th�rd part�es for var�ous r�sks. Among other cons�derat�ons, we have not recorded a l�ab�l�ty for any of these �ndemn�t�es as, based upon the l�kel�hood of payment, the fa�r value of such �ndemn�t�es �s �mmater�al.

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Our loan agreements generally obl�gate us to re�mburse the appl�cable lender for �ncremental �ncreased costs due to a change �n law that �mposes (�) any reserve or spec�al depos�t requ�rement aga�nst assets of, depos�ts w�th or cred�t extended by such lender related to the loan, (��) any tax, duty or other charge w�th respect to the loan (except standard �ncome tax) or (��) cap�tal adequacy requ�rements. In add�t�on, some of our loan agreements conta�n a w�thhold�ng tax prov�s�on that requ�res us to pay add�t�onal amounts to the appl�cable lender or other f�nanc�ng party, generally �f w�thhold�ng taxes are �mposed on such lender or other f�nanc�ng party as a result of a change �n the appl�cable tax law. These �ncreased cost and w�thhold�ng tax prov�s�ons cont�nue for the ent�re term of the appl�cable transact�on, and there �s no l�m�tat�on on the max�mum add�t�onal amounts we could be obl�gated to pay under such prov�s�ons. Any fa�lure to pay amounts due under such prov�s�ons generally would tr�gger an event of default, and, �n a secured f�nanc�ng transact�on, would ent�tle the lender to foreclose upon the collateral to real�ze the amount due.

Off-Balance Sheet Arrangements

On June 29, 1999, the Camp County Industr�al Development Corporat�on �ssued $25.0 m�ll�on of var�able-rate env�ronmental fac�l�t�es revenue bonds supported by letters of cred�t obta�ned by us. We may draw from these proceeds over the construct�on per�od for new sewage and sol�d waste d�sposal fac�l�t�es at a poultry by-products plant to be bu�lt �n Camp County, Texas. We are not requ�red to borrow the full amount of the proceeds from these revenue bonds. All amounts borrowed from these funds w�ll be due �n 2029. The revenue bonds are supported by letters of cred�t obta�ned by us under our revolv�ng cred�t fac�l�t�es wh�ch are secured by our domest�c ch�cken �nventor�es. The bonds w�ll be recorded as debt of the Company �f and when they are spent to fund construct�on.

In connect�on w�th the Rece�vables Purchase Agreement dated June 26, 1998, as amended, the Company sells, on a revolv�ng bas�s, certa�n of �ts trade rece�vables (the “Pooled Rece�vables”) to a spec�al purpose corporat�on wholly owned by the Company, wh�ch �n turn sells a percentage ownersh�p �nterest to th�rd part�es. As of September 29, 2007, $300.0 m�ll�on �n Pooled Rece�vables had been sold. Dur�ng f�scal 2006 and 2005 there were no Pooled Rece�vables sold. The gross proceeds result�ng from the sale are �ncluded �n cash flows from operat�ng act�v�t�es �n the Consol�dated Statements of Cash Flows. Losses on these sales were �mmater�al.

Contractual Obligations

Contractual obl�gat�ons at September 29, 2007 were as follows (dollars �n m�ll�ons):

Payments Due By Per�od

Contractual Obl�gat�ons TotalLess than

1 year 1-3 years 3-5 yearsMore than

5 yearsLong-term debt(a) $ 1,321.4 $ 2.9 $ 3.7 $ 29.3 $ 1,285.5Guarantee fees 31.2 3.6 7.0 7.0 13.6Operat�ng leases 147.5 46.8 65.4 30.3 5.0Purchase obl�gat�ons 40.1 40.1 -- -- --

Total $ 1,540.2 $ 93.4 $ 76.1 $ 66.6 $ 1,304.1

(a) Excludes $84.9 m�ll�on �n letters of cred�t outstand�ng related to normal bus�ness transact�ons.

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Critical Accounting Policies and Estimates

General. Our d�scuss�on and analys�s of our f�nanc�al cond�t�on and results of operat�ons are based upon our f�nanc�al statements, wh�ch have been prepared �n accordance w�th account�ng pr�nc�ples generally accepted �n the U.S. The preparat�on of these f�nanc�al statements requ�res us to make est�mates and judgments that affect the reported amounts of assets, l�ab�l�t�es, revenues and expenses. On an ongo�ng bas�s, we evaluate our est�mates, �nclud�ng those related to revenue recogn�t�on, customer programs and �ncent�ves, allowance for doubtful accounts, �nventor�es, �ncome taxes and product recall account�ng. We base our est�mates on h�stor�cal exper�ence and on var�ous other assumpt�ons that are bel�eved to be reasonable under the c�rcumstances, the results of wh�ch form the bas�s for mak�ng judgments about the carry�ng values of assets and l�ab�l�t�es that are not read�ly apparent from other sources. Actual results may d�ffer from these est�mates under d�fferent assumpt�ons or cond�t�ons.

We bel�eve the follow�ng cr�t�cal account�ng pol�c�es affect our more s�gn�f�cant judgments and est�mates used �n the preparat�on of our f�nanc�al statements.

Revenue Recognition. Revenue �s recogn�zed upon sh�pment and transfer of ownersh�p of the product to the customer and �s recorded net of est�mated �ncent�ve offer�ngs �nclud�ng spec�al pr�c�ng agreements, promot�ons and other volume-based �ncent�ves. Rev�s�ons to these est�mates are charged back to net sales �n the per�od �n wh�ch the facts that g�ve r�se to the rev�s�on become known.

Inventory. L�ve poultry �nventor�es are stated at the lower of cost or market and breeder hens at the lower of cost, less accumulated amort�zat�on, or market. The costs assoc�ated w�th breeder hens are accumulated up to the product�on stage and amort�zed over the�r product�ve l�ves us�ng the un�t-of-product�on method. F�n�shed poultry products, feed, eggs and other �nventor�es are stated at the lower of cost (f�rst-�n, f�rst-out method) or market. We record valuat�ons and adjustments for our �nventory and for est�mated obsolescence at or equal to the d�fference between the cost of �nventory and the est�mated market value based upon known cond�t�ons affect�ng �nventory obsolescence, �nclud�ng s�gn�f�cantly aged products, d�scont�nued product l�nes, or damaged or obsolete products. We allocate meat costs between our var�ous f�n�shed poultry products based on a by-product cost�ng techn�que that reduces the cost of the whole b�rd by est�mated y�elds and amounts to be recovered for certa�n by-product parts. Th�s pr�mar�ly �ncludes leg quarters, w�ngs, tenders and offal, wh�ch are carr�ed �n �nventory at the est�mated recovery amounts, w�th the rema�n�ng amount be�ng reflected as our breast meat cost. Generally, the Company performs an evaluat�on of whether any lower of cost or market adjustments are requ�red at the segment level based on a number of factors, �nclud�ng: (�) pools of related �nventory, (��) product cont�nuat�on or d�scont�nuat�on, (��) est�mated market sell�ng pr�ces and (�v) expected d�str�but�on channels. If actual market cond�t�ons or other factors are less favorable than those projected by management, add�t�onal �nventory adjustments may be requ�red.

Property, Plant and Equipment. The Company records �mpa�rment charges on long-l�ved assets used �n operat�ons when events and c�rcumstances �nd�cate that the assets may be �mpa�red and the und�scounted cash flows est�mated to be generated by those assets are less than the carry�ng amount of those assets. The �mpa�rment charge �s determ�ned based upon the amount the net book value of the assets exceeds the�r fa�r market value. In mak�ng these determ�nat�ons, the Company ut�l�zes certa�n assumpt�ons, �nclud�ng, but not l�m�ted to: (�) future cash flows est�mated to be generated by these

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assets, wh�ch are based on add�t�onal assumpt�ons such as asset ut�l�zat�on, rema�n�ng length of serv�ce and est�mated salvage values; (��) est�mated fa�r market value of the assets; and (��) determ�nat�ons w�th respect to the lowest level of cash flows relevant to the respect�ve �mpa�rment test, generally group�ngs of related operat�onal fac�l�t�es.

Litigation and Contingent Liabilities. The Company �s subject to lawsu�ts, �nvest�gat�ons and other cla�ms related to employment, env�ronmental, product, and other matters, and �s requ�red to assess the l�kel�hood of any adverse judgments or outcomes to these matters as well as potent�al ranges of probable losses. A determ�nat�on of the amount of reserves requ�red, �nclud�ng legal defense costs, �f any, for these cont�ngenc�es �s made when losses are determ�ned to be probable and reasonably est�mat�ble and after cons�derable analys�s of each �nd�v�dual �ssue. These reserves may change �n the future due to favorable or adverse judgments, changes �n the Company’s assumpt�ons, the effect�veness of strateg�es or other factors beyond the Company’s control.

Accrued Self Insurance. Insurance expense for casualty cla�ms and employee-related health care benef�ts are est�mated us�ng h�stor�cal exper�ence and actuar�al est�mates. Stop-loss coverage �s ma�nta�ned w�th th�rd party �nsurers to l�m�t the Company’s total exposure. Certa�n categor�es of cla�m l�ab�l�t�es are actuar�ally determ�ned. The assumpt�ons used to arr�ve at per�od�c expenses are rev�ewed regularly by management. However, actual expenses could d�ffer from these est�mates and could result �n adjustments to be recogn�zed.

Purchase Price Accounting. The Company allocates the total purchase pr�ce �n connect�on w�th acqu�s�t�ons to assets and l�ab�l�t�es based upon the�r est�mated fa�r values. For property, plant and equ�pment and �ntang�ble assets other than goodw�ll, for s�gn�f�cant acqu�s�t�ons, the Company has h�stor�cally rel�ed upon the use of th�rd party valuat�on experts to ass�st �n the est�mat�on of fa�r values. H�stor�cally, the carry�ng value of acqu�red accounts rece�vable, �nventory and accounts payable have approx�mated the�r fa�r value as of the date of acqu�s�t�on, though adjustments are made w�th�n purchase pr�ce account�ng to the extent needed to record such assets and l�ab�l�t�es at fa�r value. W�th respect to accrued l�ab�l�t�es, the Company uses all ava�lable �nformat�on to make �ts best est�mate of the fa�r value of the acqu�red l�ab�l�t�es and, when necessary, may rely upon the use of th�rd party actuar�al experts to ass�st �n the est�mat�on of fa�r value for certa�n l�ab�l�t�es, pr�mar�ly self-�nsurance accruals.

Income Taxes. The Company recogn�zes deferred tax assets and l�ab�l�t�es for the effect of temporary d�fferences between the book and tax bases of recorded assets and l�ab�l�t�es. Taxes are prov�ded for �nternat�onal subs�d�ar�es based on the assumpt�on that the�r earn�ngs are �ndef�n�tely re�nvested �n fore�gn subs�d�ar�es and as such deferred taxes are not prov�ded for �n U.S. �ncome taxes that would be requ�red �n the event of d�str�but�on of these earn�ngs. We also reduce deferred tax assets by a valuat�on allowance �f �t �s more l�kely than not that some port�on or all of the deferred tax asset w�ll not be real�zed. We rev�ew the recoverab�l�ty of any tax assets recorded on the balance sheet, pr�mar�ly operat�ng loss carryforwards, based on both h�stor�cal and ant�c�pated earn�ngs levels of the �nd�v�dual operat�ons and prov�de a valuat�on allowance when �t �s more l�kely than not that amounts w�ll not be recovered.

The Company has reserves for taxes that may become payable �n future years as a result of aud�ts by tax author�t�es. Although the Company bel�eves that the pos�t�ons taken on prev�ously f�led tax returns are reasonable, �t nevertheless has establ�shed tax reserves �n recogn�t�on that var�ous tax�ng author�t�es

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may challenge the pos�t�ons taken by the Company result�ng �n add�t�onal l�ab�l�t�es for tax and �nterest. The tax reserves are rev�ewed as c�rcumstances warrant and adjusted as events occur that affect the Company’s potent�al l�ab�l�ty for add�t�onal taxes, such as laps�ng of appl�cable statutes of l�m�tat�ons, conclus�on of tax aud�ts, add�t�onal exposure based on current calculat�ons, �dent�f�cat�on of new �ssues, release of adm�n�strat�ve gu�dance, or render�ng of a court dec�s�on affect�ng a part�cular tax �ssue.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market Risk Sensitive Instruments and Positions

The r�sk �nherent �n our market r�sk sens�t�ve �nstruments and pos�t�ons �s pr�mar�ly the potent�al loss ar�s�ng from adverse changes �n the pr�ce of feed �ngred�ents, fore�gn currency exchange rates and �nterest rates as d�scussed below. The Company does not bel�eve �ts market r�sk related to �ts ava�lable-for-sale secur�t�es �s mater�al. The sens�t�v�ty analyses presented do not cons�der the effects that such adverse changes may have on overall econom�c act�v�ty, nor do they cons�der add�t�onal act�ons our management may take to m�t�gate our exposure to such changes. Actual results may d�ffer.

Feed Ingredients. We purchase certa�n commod�t�es, pr�mar�ly corn and soybean meal. As a result, our earn�ngs are affected by changes �n the pr�ce and ava�lab�l�ty of such feed �ngred�ents. As market cond�t�ons d�ctate, we w�ll from t�me to t�me f�x future feed �ngred�ent pr�ces us�ng var�ous hedg�ng techn�ques, �nclud�ng forward purchase agreements w�th suppl�ers and futures contracts. We do not use such f�nanc�al �nstruments for trad�ng purposes and are not a party to any leveraged der�vat�ves. Market r�sk �s est�mated as a hypothet�cal 10% �ncrease �n the we�ghted-average cost of our pr�mary feed �ngred�ents as of September 29, 2007. Based on our feed consumpt�on dur�ng f�scal 2007, such an �ncrease would have resulted �n an �ncrease to cost of sales of approx�mately $236.3 m�ll�on. A 10% change �n end�ng feed �ngred�ents �nventor�es at September 29, 2007 would be $5.0 m�ll�on, exclud�ng any potent�al �mpact on product�on costs of ch�cken and turkey �nventory.

Foreign Currency. Our earn�ngs are affected by fore�gn exchange rate fluctuat�ons related to the Mex�can peso net monetary pos�t�on of our Mex�co subs�d�ar�es. We manage th�s exposure pr�mar�ly by attempt�ng to m�n�m�ze our Mex�can peso net monetary pos�t�on, but from t�me to t�me, we have also cons�dered execut�ng hedges to help m�n�m�ze th�s exposure. Such �nstruments, however, have h�stor�cally not been econom�cally feas�ble. We are also exposed to the effect of potent�al exchange rate fluctuat�ons to the extent that amounts are repatr�ated from Mex�co to the U.S. However, we currently ant�c�pate that the future cash flows of our Mex�co subs�d�ar�es w�ll be re�nvested �n our Mex�co operat�ons. In add�t�on, the Mex�can peso exchange rate can d�rectly and �nd�rectly �mpact our results of operat�ons and f�nanc�al pos�t�on �n several ways, �nclud�ng potent�al econom�c recess�on �n Mex�co result�ng from a devalued peso. The �mpact on our f�nanc�al pos�t�on and results of operat�ons result�ng from a hypothet�cal change �n the exchange rate between the U.S. dollar and the Mex�can peso cannot be reasonably est�mated. Fore�gn currency exchange ga�ns and losses, represent�ng the change �n the U.S. dollar value of the net monetary assets of our Mex�co subs�d�ar�es denom�nated �n Mex�can pesos, was a loss of $1.4 m�ll�on �n f�scal 2007, a loss of $0.1 m�ll�on �n f�scal 2006, and a ga�n of $0.5 m�ll�on �n f�scal 2005. On September 29, 2007, the Mex�can peso closed at 10.93 to 1 U.S. dollar, compared to 11.01 at September 30, 2006. No assurance can be g�ven as to how future movements �n the peso could affect our future earn�ngs.

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Interest Rates. Our earn�ngs are also affected by changes �n �nterest rates due to the �mpact those changes have on our var�able-rate debt �nstruments. We had var�able-rate debt �nstruments represent�ng approx�mately 34.5% of our long-term debt at September 29, 2007. Hold�ng other var�ables constant, �nclud�ng levels of �ndebtedness, a 25 bas�s po�nts �ncrease �n �nterest rates would have �ncreased our �nterest expense by $1.1 m�ll�on for f�scal 2007. These amounts are determ�ned by cons�der�ng the �mpact of the hypothet�cal �nterest rates on our var�able-rate long-term debt at September 29, 2007.

Market r�sk for f�xed-rate long-term debt �s est�mated as the potent�al �ncrease �n fa�r value result�ng from a hypothet�cal 25 bas�s po�nts decrease �n �nterest rates and amounts to approx�mately $3.4 m�ll�on as of September 29, 2007, us�ng d�scounted cash flow analys�s.

Impact of Inflation. Due to low to moderate �nflat�on �n the U.S. and Mex�co and our rap�d �nventory turnover rate, the results of operat�ons have not been s�gn�f�cantly affected by �nflat�on dur�ng the past three-year per�od.

Item 8. Financial Statements and Supplementary Data

The consol�dated f�nanc�al statements together w�th the report of our �ndependent reg�stered publ�c account�ng f�rm and f�nanc�al statement schedule are �ncluded on pages 82 through 114 of th�s report. F�nanc�al statement schedules other than those �ncluded here�n have been om�tted because the requ�red �nformat�on �s conta�ned �n the consol�dated f�nanc�al statements or related notes, or such �nformat�on �s not appl�cable.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Appl�cable.

Item 9A. Controls and Procedures

As of September 29, 2007, an evaluat�on was performed under the superv�s�on and w�th the part�c�pat�on of the Company’s management, �nclud�ng the Sen�or Cha�rman of the Board of D�rectors, Ch�ef Execut�ve Off�cer and Ch�ef F�nanc�al Off�cer, of the effect�veness of the des�gn and operat�on of the Company’s “d�sclosure controls and procedures” (as def�ned �n Rules 13a-15(e) and 15d-15(e) under the Secur�t�es Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluat�on, the Company’s management, �nclud�ng the Sen�or Cha�rman of the Board of D�rectors, Ch�ef Execut�ve Off�cer and Ch�ef F�nanc�al Off�cer, concluded the Company’s d�sclosure controls and procedures were effect�ve to ensure that �nformat�on requ�red to be d�sclosed by the Company �n reports that �t f�les or subm�ts under the Exchange Act �s recorded, processed, summar�zed and reported w�th�n the t�me per�ods spec�f�ed �n Secur�t�es and Exchange Comm�ss�on rules and forms, and that �nformat�on we are requ�red to d�sclose �n our reports f�led w�th the Secur�t�es and Exchange Comm�ss�on �s accumulated and commun�cated to our management, �nclud�ng our Sen�or Cha�rman of the Board of D�rectors, Ch�ef Execut�ve Off�cer and Ch�ef F�nanc�al Off�cer, as appropr�ate to allow t�mely dec�s�ons regard�ng requ�red d�sclosure.

In the fourth quarter of f�scal 2007, the Company substant�ally completed the �ntegrat�on of Gold K�st’s account�ng processes �nto the legacy systems, pol�c�es and procedures of P�lgr�m’s Pr�de.

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In connect�on w�th the evaluat�on descr�bed above, the Company’s management, �nclud�ng the Sen�or Cha�rman of the Board, Ch�ef Execut�ve Off�cer and Ch�ef F�nanc�al Off�cer, �dent�f�ed no other change �n the Company’s �nternal control over f�nanc�al report�ng that occurred dur�ng the Company’s f�scal quarter ended September 29, 2007 and that has mater�ally affected, or �s reasonably l�kely to mater�ally affect, the Company’s �nternal control over f�nanc�al report�ng.

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

P�lgr�m’s Pr�de Corporat�on’s (“PPC”) management �s respons�ble for establ�sh�ng and ma�nta�n�ng adequate �nternal control over f�nanc�al report�ng, as such term �s def�ned �n Exchange Act Rules 13a-15(f). PPC’s �nternal control system �s des�gned to prov�de reasonable assurance regard�ng the rel�ab�l�ty of f�nanc�al report�ng and the preparat�on of f�nanc�al statements �n accordance w�th generally accepted account�ng pr�nc�ples.

Under the superv�s�on and w�th the part�c�pat�on of management, �nclud�ng �ts pr�nc�pal execut�ve off�cer and pr�nc�pal f�nanc�al off�cer, PPC’s management assessed the des�gn and operat�ng effect�veness of �nternal control over f�nanc�al report�ng as of September 29, 2007 based on the framework set forth �n Internal Control-Integrated Framework �ssued by the Comm�ttee of Sponsor�ng Organ�zat�on of the Treadway Comm�ss�on.

Based on th�s assessment, management concluded that PPC’s �nternal control over f�nanc�al report�ng was effect�ve as of September 29, 2007. Ernst & Young LLP, an �ndependent reg�stered publ�c account�ng f�rm, has �ssued an attestat�on report on the effect�veness of the Company’s �nternal control over f�nanc�al report�ng as of September 29, 2007. That report �s �ncluded here�n.

/s/ Lonn�e “Bo” P�lgr�mLonn�e “Bo” P�lgr�mSen�or Cha�rman of the Board of D�rectors

/s/ O. B. Goolsby, Jr.O. B. Goolsby, Jr.Pres�dent,Ch�ef Execut�ve Off�cerD�rector

/s/ R�chard A. Cogd�llR�chard A. Cogd�llCh�ef F�nanc�al Off�cer,Secretary and TreasurerD�rector

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of D�rectors and StockholdersP�lgr�m’s Pr�de Corporat�on

We have aud�ted P�lgr�m’s Pr�de Corporat�on’s �nternal control over f�nanc�al report�ng as of September 29, 2007, based on cr�ter�a establ�shed �n Internal Control - Integrated Framework �ssued by the Comm�ttee of Sponsor�ng Organ�zat�ons of the Treadway Comm�ss�on (the COSO cr�ter�a). P�lgr�m’s Pr�de Corporat�on’s management �s respons�ble for ma�nta�n�ng effect�ve �nternal control over f�nanc�al report�ng and for �ts assessment of the effect�veness of �nternal control over f�nanc�al report�ng �ncluded �n the accompany�ng Management’s Report on Internal Control Over Financial Reporting. Our respons�b�l�ty �s to express an op�n�on on the effect�veness of the Company’s �nternal control over f�nanc�al report�ng based on our aud�t.

We conducted our aud�t �n accordance w�th the standards of the Publ�c Company Account�ng Overs�ght Board (Un�ted States). Those standards requ�re that we plan and perform the aud�t to obta�n reasonable assurance about whether effect�ve �nternal control over f�nanc�al report�ng was ma�nta�ned �n all mater�al respects. Our aud�t �ncluded obta�n�ng an understand�ng of �nternal control over f�nanc�al report�ng, assess�ng the r�sk that a mater�al weakness ex�sts, test�ng and evaluat�ng the des�gn and operat�ng effect�veness of �nternal control based on the assessed r�sk, and perform�ng such other procedures as we cons�dered necessary �n the c�rcumstances. We bel�eve that our aud�t prov�des a reasonable bas�s for our op�n�on.

A company’s �nternal control over f�nanc�al report�ng �s a process des�gned to prov�de reasonable assurance regard�ng the rel�ab�l�ty of f�nanc�al report�ng and the preparat�on of f�nanc�al statements for external purposes �n accordance w�th generally accepted account�ng pr�nc�ples. A company’s �nternal control over f�nanc�al report�ng �ncludes those pol�c�es and procedures that (1) perta�n to the ma�ntenance of records that, �n reasonable deta�l, accurately and fa�rly reflect the transact�ons and d�spos�t�ons of the assets of the company; (2) prov�de reasonable assurance that transact�ons are recorded as necessary to perm�t preparat�on of f�nanc�al statements �n accordance w�th generally accepted account�ng pr�nc�ples, and that rece�pts and expend�tures of the company are be�ng made only �n accordance w�th author�zat�ons of management and d�rectors of the company; and (3) prov�de reasonable assurance regard�ng prevent�on or t�mely detect�on of unauthor�zed acqu�s�t�on, use, or d�spos�t�on of the company’s assets that could have a mater�al effect on the f�nanc�al statements.

Because of �ts �nherent l�m�tat�ons, �nternal control over f�nanc�al report�ng may not prevent or detect m�sstatements. Also, project�ons of any evaluat�on of effect�veness to future per�ods are subject to the r�sk that controls may become �nadequate because of changes �n cond�t�ons, or that the degree of compl�ance w�th the pol�c�es or procedures may deter�orate.

In our op�n�on, P�lgr�m’s Pr�de Corporat�on ma�nta�ned, �n all mater�al respects, effect�ve �nternal control over f�nanc�al report�ng as of September 29, 2007, based on the COSO cr�ter�a.

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We also have aud�ted, �n accordance w�th the standards of the Publ�c Company Account�ng Overs�ght Board (Un�ted States), the consol�dated balance sheets of P�lgr�m’s Pr�de Corporat�on as of September 29, 2007 and September 30, 2006, and the related consol�dated statements of operat�ons, stockholders’ equ�ty, and cash flows for each of the three years �n the per�od ended September 29, 2007, of P�lgr�m’s Pr�de Corporat�on, and our report dated November 13, 2007, expressed an unqual�f�ed op�n�on thereon.

Ernst & Young LLP

Dallas, TexasNovember 13, 2007

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Item 9B. Other Information

Not Appl�cable.

PART III

Item 10. Directors and Executive Officers and Corporate Governance

Certa�n �nformat�on regard�ng our execut�ve off�cers has been presented under “Execut�ve Off�cers” �ncluded �n Item 1. “Bus�ness,” above.

Reference �s made to the sect�on ent�tled “Elect�on of D�rectors” of the Company’s Proxy Statement for �ts 2008 Annual Meet�ng of Stockholders, wh�ch sect�on �s �ncorporated here�n by reference.

Reference �s made to the sect�on ent�tled “Sect�on 16(a) Benef�c�al Ownersh�p Report�ng Compl�ance” of the Company’s Proxy Statement for �ts 2008 Annual Meet�ng of Stockholders, wh�ch sect�on �s �ncorporated here�n by reference.

We have adopted a Code of Bus�ness Conduct and Eth�cs, wh�ch appl�es to all employees, �nclud�ng our Ch�ef Execut�ve Off�cer and our Ch�ef F�nanc�al Off�cer and Pr�nc�pal Account�ng Off�cer. The full text of our Code of Bus�ness Conduct and Eth�cs �s publ�shed on our webs�te, at www.p�lgr�mspr�de.com, under the “Investors-Corporate Governance” capt�on. We �ntend to d�sclose future amendments to, or wa�vers from, certa�n prov�s�ons of th�s Code on our webs�te w�th�n four bus�ness days follow�ng the date of such amendment or wa�ver.

See Item 13. “Certa�n Relat�onsh�ps and Related Transact�ons, and D�rector Independence.”

Item 11. Executive Compensation


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


As of September 29, 2007, the Company d�d not have any compensat�on plans (�nclud�ng �nd�v�dual compensat�on arrangements) under wh�ch equ�ty secur�t�es of the Company are author�zed for �ssuance by the Company.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Add�t�onal �nformat�on respons�ve to Items 10, 11, 12 and 13 �s �ncorporated by reference from the sect�ons ent�tled “Secur�ty Ownersh�p,” “Board of D�rectors Independence,” “Comm�ttees of the Board of D�rectors,” “Elect�on of D�rectors,” “Report of the Compensat�on Comm�ttee,” “Compensat�on D�scuss�on and Analys�s,” “Execut�ve Compensat�on,” “Compensat�on Comm�ttee Interlocks and Ins�der Part�c�pat�on” and “Certa�n Transact�ons” of the Company’s Proxy Statement for �ts 2008 Annual Meet�ng of Stockholders.

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Item 14. Principal Accounting Fees and Services

The �nformat�on requ�red by th�s �tem �s �ncorporated here�n by reference from the sect�on ent�tled “Independent Reg�stered Publ�c Account�ng F�rm Fee Informat�on” of the Company’s Proxy Statement for �ts 2008 Annual Meet�ng of Stockholders.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) F�nanc�al Statements

(1) The f�nanc�al statements and schedules l�sted �n the �ndex to f�nanc�al statements and schedules on page 3 of th�s report are f�led as part of th�s report.

(2) All other schedules for wh�ch prov�s�on �s made �n the appl�cable account�ng regulat�ons of the SEC are not requ�red under the related �nstruct�ons or are not appl�cable and therefore have been om�tted.

(3) The f�nanc�al statements schedule ent�tled “Valuat�on and Qual�fy�ng Accounts and Reserves” �s f�led as part of th�s report on page 114.

(b) Exh�b�ts

Exh�b�t Number

2.1 Agreement and Plan of Reorgan�zat�on dated September 15, 1986, by and among P�lgr�m’s Pr�de Corporat�on, a Texas corporat�on; P�lgr�m’s Pr�de Corporat�on, a Delaware corporat�on; and Dor�s P�lgr�m Jul�an, Aubrey Hal P�lgr�m, Paulette P�lgr�m Rolston, Evanne P�lgr�m, Lonn�e “Bo” P�lgr�m, Lonn�e Ken P�lgr�m, Greta P�lgr�m Owens and Patr�ck Wayne P�lgr�m (�ncorporated by reference from Exh�b�t 2.1 to the Company’s Reg�strat�on Statement on Form S-1 (No. 33-8805) effect�ve November 14, 1986).

2.2 Agreement and Plan of Merger dated September 27, 2000 (�ncorporated by reference from Exh�b�t 2 of WLR Foods, Inc.’s Current Report on Form 8-K (No. 000-17060) dated September 28, 2000).

2.3 Agreement and Plan of Merger dated as of December 3, 2006, by and among the Company, Prote�n Acqu�s�t�on Corporat�on, a wholly owned subs�d�ary of the Company, and Gold K�st Inc. (�ncorporated by reference from Exh�b�t 99.(D)(1) to Amendment No. 11 to the Company’s Tender Offer Statement on Schedule TO f�led on December 5, 2006).

3.1 Cert�f�cate of Incorporat�on of the Company, as amended (�ncorporated by reference from Exh�b�t 3.1 of the Company’s Annual Report on Form 10-K for the f�scal year ended October 2, 2004).

3.2 Amended and Restated Corporate Bylaws of the Company (�ncorporated by reference from Exh�b�t 4.4 of the Company’s Reg�strat�on Statement on Form S-8 (No. 333-111929) f�led on January 15, 2004).

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4.1 Cert�f�cate of Incorporat�on of the Company, as amended (�ncluded as Exh�b�t 3.1).4.2 Amended and Restated Corporate Bylaws of the Company (�ncluded as Exh�b�t 3.2).4.3 Indenture, dated November 21, 2003, between P�lgr�m’s Pr�de Corporat�on and The

Bank of New York as Trustee relat�ng to P�lgr�m’s Pr�de’s 9 ¼% Sen�or Notes due 2013 (�ncorporated by reference from Exh�b�t 4.1 of the Company’s Reg�strat�on Statement on Form S-4 (No. 333-111975) f�led on January 16, 2004).

4.4 Form of 9 ¼% Note due 2013 (�ncorporated by reference from Exh�b�t 4.3 of the Company’s Reg�strat�on Statement on Form S-4 (No. 333-111975) f�led on January 16, 2004).

4.5 Sen�or Debt Secur�t�es Indenture dated as of January 24, 2007, by and between the Company and Wells Fargo Bank, Nat�onal Assoc�at�on, as trustee (�ncorporated by reference from Exh�b�t 4.1 to the Company’s Current Report on Form 8-K f�led on January 24, 2007).

4.6 F�rst Supplemental Indenture to the Sen�or Debt Secur�t�es Indenture dated as of January 24, 2007, by and between the Company and Wells Fargo Bank, Nat�onal Assoc�at�on, as trustee (�ncorporated by reference from Exh�b�t 4.2 to the Company’s Current Report on Form 8-K f�led on January 24, 2007).

4.7 Form of 7 5/8% Sen�or Note due 2015 (�ncorporated by reference from Exh�b�t 4.3 to the Company’s Current Report on Form 8-K f�led on January 24, 2007).

4.8 Sen�or Subord�nated Debt Secur�t�es Indenture dated as of January 24, 2007, by and between the Company and Wells Fargo Bank, Nat�onal Assoc�at�on, as trustee (�ncorporated by reference from Exh�b�t 4.4 to the Company’s Current Report on Form 8-K f�led on January 24, 2007).

4.9 F�rst Supplemental Indenture to the Sen�or Subord�nated Debt Secur�t�es Indenture dated as of January 24, 2007, by and between the Company and Wells Fargo Bank, Nat�onal Assoc�at�on, as trustee (�ncorporated by reference from Exh�b�t 4.5 to the Company’s Current Report on Form 8-K f�led on January 24, 2007).

4.10 Form of 8 3/8% Subord�nated Note due 2017 (�ncorporated by reference from Exh�b�t 4.6 to the Company’s Current Report on Form 8-K f�led on January 24, 2007).

10.1 P�lgr�m’s Industr�es, Inc. Prof�t Shar�ng Ret�rement Plan, restated as of July 1, 1987 (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Form 8-K f�led on July 1, 1992).

10.2 Sen�or Execut�ve Performance Bonus Plan of the Company (�ncorporated by reference from Exh�b�t A �n the Company’s Proxy Statement dated December 13, 1999).

10.3 A�rcraft Lease Extens�on Agreement between B.P. Leas�ng Co. (L.A. P�lgr�m, �nd�v�dually) and P�lgr�m’s Pr�de Corporat�on (formerly P�lgr�m’s Industr�es, Inc.) effect�ve November 15, 1992 (�ncorporated by reference from Exh�b�t 10.48 of the Company’s Quarterly Report on Form 10-Q for the three months ended March 29, 1997).

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10.4 Bro�ler Grower Contract dated May 6, 1997 between P�lgr�m’s Pr�de Corporat�on and Lonn�e “Bo” P�lgr�m (Farm 30) (�ncorporated by reference from Exh�b�t 10.49 of the Company’s Quarterly Report on Form 10-Q for the three months ended March 29, 1997).

10.5 Commerc�al Egg Grower Contract dated May 7, 1997 between P�lgr�m’s Pr�de Corporat�on and P�lgr�m Poultry G.P. (�ncorporated by reference from Exh�b�t 10.50 of the Company’s Quarterly Report on Form 10-Q for the three months ended March 29, 1997).

10.6 Agreement dated October 15, 1996 between P�lgr�m’s Pr�de Corporat�on and P�lgr�m Poultry G.P. (�ncorporated by reference from Exh�b�t 10.23 of the Company’s Quarterly Report on Form 10-Q for the three months ended January 2, 1999).

10.7 Heavy Breeder Contract dated May 7, 1997 between P�lgr�m’s Pr�de Corporat�on and Lonn�e “Bo” P�lgr�m (Farms 44, 45 & 46) (�ncorporated by reference from Exh�b�t 10.51 of the Company’s Quarterly Report on Form 10-Q for the three months ended March 29, 1997).

10.8 Bro�ler Grower Contract dated January 9, 1997 by and between P�lgr�m’s Pr�de and O.B. Goolsby, Jr. (�ncorporated by reference from Exh�b�t 10.25 of the Company’s Reg�strat�on Statement on Form S-1 (No. 333-29163) effect�ve June 27, 1997).

10.9 Bro�ler Grower Contract dated January 15, 1997 by and between P�lgr�m’s Pr�de Corporat�on and B.J.M. Farms (�ncorporated by reference from Exh�b�t 10.26 of the Company’s Reg�strat�on Statement on Form S-1 (No. 333-29163) effect�ve June 27, 1997).

10.10 Bro�ler Grower Agreement dated January 29, 1997 by and between P�lgr�m’s Pr�de Corporat�on and Cl�fford E. Butler (�ncorporated by reference from Exh�b�t 10.27 of the Company’s Reg�strat�on Statement on Form S-1 (No. 333-29163) effect�ve June 27, 1997).

10.11 Rece�vables Purchase Agreement dated June 26, 1998 between P�lgr�m’s Pr�de Fund�ng Corporat�on, as Seller, P�lgr�m’s Pr�de Corporat�on, as Serv�cer, Pooled Accounts Rece�vable Cap�tal Corporat�on, as Purchaser, and Nesb�tt Burns Secur�t�es Inc., as Agent (�ncorporated by reference from Exh�b�t 10.33 of the Company’s Quarterly Report on Form 10-Q for the three months ended June 27, 1998).

10.12 Purchase and Contr�but�on Agreement dated as of June 26, 1998 between P�lgr�m’s Pr�de Fund�ng Corporat�on and P�lgr�m’s Pr�de Corporat�on (�ncorporated by reference from Exh�b�t 10.34 of the Company’s Quarterly Report on Form 10-Q for the three months ended June 27, 1998).

10.13 Guaranty Fee Agreement between P�lgr�m’s Pr�de Corporat�on and P�lgr�m Interests, Ltd., dated June 11, 1999 (�ncorporated by reference from Exh�b�t 10.24 of the Company’s Annual Report on Form 10-K for the f�scal year ended October 2, 1999).

10.14 Bro�ler Product�on Agreement between P�lgr�m’s Pr�de Corporat�on and Lonn�e “Bo” P�lgr�m dated November 15, 2005 (�ncorporated by reference from Exh�b�t 99.1 of the Company’s Current Report on Form 8-K dated November 10, 2005).

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10.15 Commerc�al Property Lease dated December 29, 2000 between P�lgr�m’s Pr�de Corporat�on and P�lgr�m Poultry G.P. (�ncorporated by reference from Exh�b�t 10.30 of the Company’s Quarterly Report on Form 10-Q for the three months ended December 30, 2000).

10.16 Amendment No. 1 dated as of July 12, 2002 to Rece�vables Purchase Agreement dated as of June 26, 1998 among P�lgr�m’s Pr�de Fund�ng Corporat�on, the Company, Fa�rway F�nance Corporat�on (as successor �n �nterest to Pooled Accounts Rece�vable Cap�tal Corporat�on) and BMO Nesb�tt Burns Corp. (f/k/a Nesb�tt Burns Secur�t�es Inc.) (�ncorporated by reference from Exh�b�t 10.32 of the Company’s Annual Report on Form 10-K f�led on December 6, 2002).

10.17 Amendment No. 3 dated as of July 18, 2003 to Rece�vables Purchase Agreement dated as of June 26, 1998 between P�lgr�m’s Pr�de Fund�ng Corporat�on (“Seller”), P�lgr�m’s Pr�de Corporat�on as �n�t�al Serv�cer, Fa�rway F�nance Corporat�on (as successor �n �nterest to Pooled Accounts Rece�vable Cap�tal Corporat�on) (“Purchaser”) and Harr�s Nesb�tt Corporat�on as agent for the purchaser (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Quarterly Report on Form 10-Q f�led July 23, 2003).

10.18 Agr�cultural Lease between P�lgr�m’s Pr�de Corporat�on (Lessor) and Patr�ck W. P�lgr�m (Tenant) dated May 1, 2003 (�ncorporated by reference from Exh�b�t 10.15 of the Company’s Quarterly Report on Form 10-Q f�led July 23, 2003).

10.19 Amendment No. 4 dated as of December 31, 2003 to Rece�vables Purchase Agreement dated as of June 26, 1998, among P�lgr�m’s Pr�de Fund�ng Corporat�on, P�lgr�m’s Pr�de Corporat�on as �n�t�al Serv�cer, Fa�rway F�nance Company, LLC (as successor to Fa�rway F�nance Corporat�on) as purchaser and Harr�s Nesb�tt Corp. (f/k/a BMO Nesb�tt Burns Corp.) as agent for the purchaser (�ncorporated by reference from Exh�b�t 10.4 of the Company’s Quarterly Report on Form 10-Q f�led February 4, 2004).

10.20 Amendment No. 1 dated as of December 31, 2003 to Purchase and Contr�but�on Agreement dated as of June 26, 1998, between P�lgr�m’s Pr�de Fund�ng Corporat�on and P�lgr�m’s Pr�de Corporat�on (�ncorporated by reference from Exh�b�t 10.5 of the Company’s Quarterly Report on Form 10-Q f�led February 4, 2004).

10.21 Employee Stock Investment Plan of the Company (�ncorporated by reference from Exh�b�t 4.1 of the Company’s Reg�strat�on Statement on Form S-8 (No. 333-111929) f�led on January 15, 2004).

10.22 Purchase and Amendment Agreement between P�lgr�m’s Pr�de Corporat�on and ConAgra Foods, Inc. dated August 3, 2005 (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Current Report on Form 8-K dated August 4, 2005).

10.23 Amended and Restated 2005 Deferred Compensat�on Plan of the Company (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Current Report on Form 8-K dated December 30, 2005).

10.24 Vendor Serv�ce Agreement dated effect�ve December 28, 2005 between P�lgr�m’s Pr�de Corporat�on and Pat P�lgr�m (�ncorporated by reference from Exh�b�t 10.2 of the Company’s Current Report on Form 8-K dated January 6, 2006).

73


10.25 Transportat�on Agreement dated effect�ve December 28, 2005 between P�lgr�m’s Pr�de Corporat�on and Pat P�lgr�m (�ncorporated by reference from Exh�b�t 10.3 of the Company’s Current Report on Form 8-K dated January 6, 2006).

10.26 Ground Lease Agreement dated effect�ve January 4, 2006 between P�lgr�m’s Pr�de Corporat�on and Pat P�lgr�m (�ncorporated by reference from Exh�b�t 10.4 of the Company’s Current Report on Form 8-K dated January 6, 2006).

10.27 Cred�t Agreement by and among the Avícola P�lgr�m’s Pr�de de Méx�co, S. de R.L. de C.V. (the “Borrower”), P�lgr�m’s Pr�de Corporat�on, certa�n Mex�co subs�d�ar�es of the Borrower, ING Cap�tal LLC, and the lenders s�gnatory thereto dated as of September 25, 2006 (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Current Report on Form 8-K f�led on September 28, 2006).

10.28 2006 Amended and Restated Cred�t Agreement by and among CoBank, ACB, Agr�land, FCS and the Company dated as of September 21, 2006 (�ncorporated by reference from Exh�b�t 10.2 of the Company’s Current Report on Form 8-K f�led on September 28, 2006).

10.29 F�rst Amendment to the P�lgr�m’s Pr�de Corporat�on Amended and Restated 2005 Deferred Compensat�on Plan Trust, dated as of November 29, 2006 (�ncorporated by reference from Exh�b�t 10.03 of the Company’s Current Report on Form 8-K f�led on December 05, 2006).

10.30 Agreement and Plan of Merger dated as of December 3, 2006, by and among the Company, the Purchaser and Gold K�st Inc. (�ncorporated by reference from Exh�b�t 99.(D)(1) to Amendment No. 11 to the Company’s Tender Offer Statement on Schedule TO f�led on December 5, 2006).

10.31 F�rst Amendment to Cred�t Agreement, dated as of December 13, 2006, by and among the Company, as borrower, CoBank, ACB, as lead arranger and co-synd�cat�on agent, and sole book runner, and as adm�n�strat�ve, documentat�on and collateral agent, Agr�land, FCS, as co-synd�cat�on agent, and as a synd�cat�on party, and the other synd�cat�on part�es s�gnatory thereto (�ncorporated by reference from Exh�b�t 10.01 to the Company’s Current Report on Form 8-K f�led on December 19, 2006).

10.32 Second Amendment to Cred�t Agreement, dated as of January 4, 2007, by and among the Company, as borrower, CoBank, ACB, as lead arranger and co-synd�cat�on agent, and sole book runner, and as adm�n�strat�ve, documentat�on and collateral agent, Agr�land, FCS, as co-synd�cat�on agent, and as a synd�cat�on party, and the other synd�cat�on part�es s�gnatory thereto (�ncorporated by reference from Exh�b�t 10.01 to the Company’s Current Report on Form 8-K f�led on January 9, 2007).

10.33 Fourth Amended and Restated Secured Cred�t Agreement, dated as of February 8, 2007, by and among the Company, To-R�cos, Ltd., To-R�cos D�str�but�on, Ltd., Bank of Montreal, as agent, SunTrust Bank, as synd�cat�on agent, U.S. Bank Nat�onal Assoc�at�on and Wells Fargo Bank, Nat�onal Assoc�at�on, as co-documentat�on agents, BMO Cap�tal Market, as lead arranger, and the other lenders s�gnatory thereto (�ncorporated by reference from Exh�b�t 10.01 of the Company’s Current Report on Form 8-K dated February 12, 2007).

74


10.34 Th�rd Amendment to Cred�t Agreement, dated as of February 7, 2007, by and among the Company as borrower, CoBank, ACB, as lead arranger and co-synd�cat�on agent, and the sole book runner, and as adm�n�strat�ve, documentat�on and collateral agent, Agr�land, FCS, as co-synd�cat�on agent, and as a synd�cat�on party, and the other synd�cat�on part�es s�gnatory thereto (�ncorporated by reference from Exh�b�t 10.02 of the Company’s Current Report on Form 8-K dated February 12, 2007).

10.35 F�rst Amendment to Cred�t Agreement, dated as of March 15, 2007, by and among the Borrower, the Company, the Subs�d�ary Guarantors, ING Cap�tal LLC, and the Lenders (�ncorporated by reference from Exh�b�t 10.01 of the Company’s Current Report on Form 8-K dated March 20, 2007).

10.36 Fourth Amendment to Cred�t Agreement, dated as of July 3, 2007, by and among the Company as borrower, CoBank, ACB, as lead arranger and co-synd�cat�on agent, and the sole book runner, and as adm�n�strat�ve, documentat�on and collateral agent, Agr�land, FCS, as co-synd�cat�on agent, and as synd�cat�on party, and the other synd�cat�on part�es s�gnatory thereto (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Quarterly Report on Form 10-Q f�led July 31, 2007).

10.37 Amendment No. 5 to Rece�vables Purchase Agreement dated as of August 20, 2007, among the Company, P�lgr�m’s Pr�de Fund�ng Corporat�on, Fa�rway F�nance Company, LLC and BMO Cap�tal Markets Corp. (�ncorporated by reference from Exh�b�t 10.01 of the Company’s Current Report on Form 8-K dated August 24, 2007).

10.38 Ret�rement and Consult�ng Agreement dated as of October 10, 2007, between the Company and Cl�fford E. Butler (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Current Report on Form 8-K dated October 10, 2007).

10.39 F�fth Amendment to Cred�t Agreement, dated as of August 7, 2007, by and among the Company as borrower, CoBank, ACB, as lead arranger and co-synd�cat�on agent, and the sole book runner, and as adm�n�strat�ve, documentat�on and collateral agent, Agr�land, FCS, as co-synd�cat�on agent, and as synd�cat�on party, and the other synd�cat�on part�es s�gnatory thereto.*

10.40 S�xth Amendment to Cred�t Agreement, dated as of November 7, 2007, by and among the Company as borrower, CoBank, ACB, as adm�n�strat�ve agent, and the other synd�cat�on part�es s�gnatory thereto (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Current Report on Form 8-K dated November 13, 2007).

12 Rat�o of Earn�ngs to F�xed Charges for the years ended September 29, 2007, September 30, 2006, October 1, 2005, October 2, 2004, September 27, 2003, and September 28, 2002.*

21 Subs�d�ar�es of Reg�strant.*23 Consent of Ernst & Young LLP.*31.1 Cert�f�cat�on of Co-Pr�nc�pal Execut�ve Off�cer pursuant to Sect�on 302 of the

Sarbanes-Oxley Act of 2002.*

75


31.2 Cert�f�cat�on of Co-Pr�nc�pal Execut�ve Off�cer pursuant to Sect�on 302 of the Sarbanes-Oxley Act of 2002.*

31.3 Cert�f�cat�on of Ch�ef F�nanc�al Off�cer pursuant to Sect�on 302 of the Sarbanes-Oxley Act of 2002.*

32.1 Cert�f�cat�on of Co-Pr�nc�pal Execut�ve Off�cer of P�lgr�m’s Pr�de Corporat�on pursuant to Sect�on 906 of the Sarbanes-Oxley Act of 2002.*

32.2 Cert�f�cat�on of Co-Pr�nc�pal Execut�ve Off�cer of P�lgr�m’s Pr�de Corporat�on pursuant to Sect�on 906 of the Sarbanes-Oxley Act of 2002.*

32.3 Cert�f�cat�on of Ch�ef F�nanc�al Off�cer of P�lgr�m’s Pr�de Corporat�on pursuant to Sect�on 906 of the Sarbanes-Oxley Act of 2002.*

*Filed herewith

Represents a management contract or compensation plan arrangement

76


SIGNATURES

Pursuant to the requ�rements of Sect�on 13 or 15(d) of the Secur�t�es Exchange Act of 1934, the reg�strant has duly caused th�s report to be s�gned on �ts behalf by the unders�gned, thereunto duly author�zed on the 19th day of November 2007.

PILGRIM’S PRIDE CORPORATION

By: /s/ R�chard A. Cogd�llR�chard A. Cogd�llCh�ef F�nanc�al Off�cer, Secretary and Treasurer(Pr�nc�pal F�nanc�al and Account�ng Off�cer)

77


Pursuant to the requ�rements of the Secur�t�es Exchange Act of 1934, th�s report has been s�gned below by the follow�ng persons on behalf of the Reg�strant and �n the capac�t�es and on the date �nd�cated.

S�gnature T�tle Date

/s/ Lonn�e “Bo” P�lgr�m Sen�or Cha�rman of the Board 11/19/07Lonn�e “Bo” P�lgr�m

/s/ Lonn�e Ken P�lgr�m Cha�rman of the Board 11/19/07Lonn�e Ken P�lgr�m

/s/ Cl�fford E. Butler V�ce Cha�rman of the Board 11/19/07Cl�fford E. Butler

/s/ O.B. Goolsby, Jr. Pres�dent 11/19/07O.B. Goolsby, Jr. Ch�ef Execut�ve Off�cer

D�rector

/s/ R�chard A. Cogd�ll Ch�ef F�nanc�al Off�cer, 11/19/07R�chard A. Cogd�ll Secretary and Treasurer

D�rector(Pr�nc�pal F�nanc�al and Account�ng Off�cer)

/s/ Charles L. Black D�rector 11/19/07Charles L. Black

/s/ L�nda Chavez D�rector 11/19/07L�nda Chavez

/s/ S. Key Coker D�rector 11/19/07S. Key Coker

/s/ Ke�th W. Hughes D�rector 11/19/07Ke�th W. Hughes

78


S�gnature T�tle Date

/s/ Blake D. Lovette D�rector 11/19/07Blake D. Lovette

/s/ Vance C. M�ller, Sr. D�rector 11/19/07Vance C. M�ller, Sr.

/s/ James G. Vetter, Jr. D�rector 11/19/07James G. Vetter, Jr.

/s/ Donald L. Wass, Ph.D. D�rector 11/19/07Donald L. Wass, Ph.D.

79


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of D�rectors and StockholdersP�lgr�m’s Pr�de Corporat�on

We have aud�ted the accompany�ng consol�dated balance sheets of P�lgr�m’s Pr�de Corporat�on as of September 29, 2007 and September 30, 2006, and the related consol�dated statements of operat�ons, stockholders’ equ�ty, and cash flows for each of the three years �n the per�od ended September 29, 2007. Our aud�ts also �ncluded the f�nanc�al statement schedule l�sted �n the �ndex at Item 15(a). These f�nanc�al statements and schedule are the respons�b�l�ty of the Company’s management. Our respons�b�l�ty �s to express an op�n�on on these f�nanc�al statements and schedule based on our aud�ts.

We conducted our aud�ts �n accordance w�th the standards of the Publ�c Company Account�ng Overs�ght Board (Un�ted States). Those standards requ�re that we plan and perform the aud�t to obta�n reasonable assurance about whether the f�nanc�al statements are free of mater�al m�sstatement. An aud�t �ncludes exam�n�ng, on a test bas�s, ev�dence support�ng the amounts and d�sclosures �n the f�nanc�al statements. An aud�t also �ncludes assess�ng the account�ng pr�nc�ples used and s�gn�f�cant est�mates made by management, as well as evaluat�ng the overall f�nanc�al statement presentat�on. We bel�eve that our aud�ts prov�de a reasonable bas�s for our op�n�on.

In our op�n�on, the f�nanc�al statements referred to above present fa�rly, �n all mater�al respects, the consol�dated f�nanc�al pos�t�on of P�lgr�m’s Pr�de Corporat�on as of September 29, 2007 and September 30, 2006, and the consol�dated results of �ts operat�ons and �ts cash flows for each of the three years �n the per�od ended September 29, 2007, �n conform�ty w�th U.S. generally accepted account�ng pr�nc�ples. Also, �n our op�n�on, the related f�nanc�al statement schedule, when cons�dered �n relat�on to the bas�c f�nanc�al statements taken as a whole, presents fa�rly �n all mater�al respects the �nformat�on set forth there�n.

We have also aud�ted, �n accordance w�th the standards of the Publ�c Company Account�ng Overs�ght Board (Un�ted States), the effect�veness of P�lgr�m’s Pr�de Corporat�on’s �nternal control over f�nanc�al report�ng as of September 29, 2007 based on cr�ter�a establ�shed �n Internal Control - Integrated Framework �ssued by the Comm�ttee of Sponsor�ng Organ�zat�ons of the Treadway Comm�ss�on, and our report dated November 13, 2007, expressed an unqual�f�ed op�n�on thereon.

Ernst & Young LLP

Dallas, TexasNovember 13, 2007

80


Consol�dated Balance SheetsP�lgr�m’s Pr�de Corporat�on

(In thousands, except shares and per share data) September 29, 2007 September 30, 2006

AssetsCurrent Assets:

Cash and cash equ�valents $ 66,168 $ 156,404Investment �n ava�lable-for-sale secur�t�es 8,153 21,246Trade accounts and other rece�vables, less

allowance for doubtful accounts 130,173 263,149Inventor�es 961,885 585,940Income taxes rece�vable 61,901 39,167Current deferred taxes 8,095 7,288Other current assets 47,959 32,480

Total Current Assets 1,284,334 1,105,674

Investment in Available-for-Sale Securities 46,035 115,375Other Assets 138,546 50,825Goodwill 505,166 --Property, Plant and Equipment:

Land 115,101 52,493Bu�ld�ngs, mach�nery and equ�pment 2,391,154 1,702,949Autos and trucks 59,559 57,177Construct�on �n progress 124,193 63,853

2,690,007 1,876,472Less accumulated deprec�at�on (889,852) (721,478)

1,800,155 1,154,994$ 3,774,236 $ 2,426,868

Liabilities and Stockholders’ EquityCurrent Liabilities:

Accounts payable $ 402,316 $ 293,685Accrued expenses 500,014 272,830Current matur�t�es of long-term debt 2,872 10,322

Total Current L�ab�l�t�es 905,202 576,837

Long-Term Debt, Less Current Maturities 1,318,558 554,876Deferred Income Taxes 326,570 175,869Other Long-Term Liabilities 51,685 1,958

Commitments and Contingencies -- --Stockholders’ Equity:

Preferred stock, $.01 par value, 5,000,000 author�zed shares; none �ssued -- --

Common stock, $.01 par value, 160,000,000 author�zed shares; 66,555,733 �ssued and outstand�ng 665 665

Add�t�onal pa�d-�n cap�tal 469,779 469,779Reta�ned earn�ngs 687,775 646,750Accumulated other comprehens�ve �ncome 14,002 134

Total Stockholders’ Equ�ty 1,172,221 1,117,328$ 3,774,236 $ 2,426,868

See Notes to Consol�dated F�nanc�al Statements

81


Consol�dated Statements of Operat�onsP�lgr�m’s Pr�de Corporat�on

(In thousands, except per share data) Three Years Ended September 29, 20072007 2006 2005

Net Sales $ 7,598,599 $ 5,235,565 $ 5,666,275Cost and Expenses:

Cost of sales 7,007,061 4,937,965 4,921,076

Gross Prof�t 591,538 297,600 745,199

Sell�ng, general and adm�n�strat�ve 359,001 294,598 309,387

Operat�ng Income 232,537 3,002 435,812

Other Expenses (Income):Interest expense 125,757 50,601 49,585Interest �ncome (4,640) (10,048) (5,653)Loss on early ext�ngu�shment of debt 26,463 -- --Fore�gn exchange (ga�n) loss 1,378 144 (474)M�scellaneous, net (8,028) (1,378) (11,169)

140,930 39,319 32,289

Income (Loss) Before Income Taxes 91,607 (36,317) 403,523Income Tax Expense (Benefit) 44,590 (2,085) 138,544Net Income (Loss) $ 47,017 $ (34,232) $ 264,979

Net Income (Loss) per Common Share-Basic and Diluted $ 0.71 $ (0.51) $ 3.98


82


Consol�dated Statements of Stockholders’ Equ�tyP�lgr�m’s Pr�de Corporat�on

(In thousands, except shares and per share data)

Shares of Common

Stock

Total Par

Value

Additional Paid-In Capital

Retained Earnings

Accumulated Other

Comprehensive Income (Loss)

Treasury Stock Total

Balance at October 2, 2004 66,826,833 $668 $431,662 $492,542 ($348) ($1,568) $922,956Sale of common stock 15,443,054 154 521,774 521,928Purchase and ret�rement of

common stock (15,443,054) (154) (482,092) (482,246)Net �ncome for year 264,979 264,979Other comprehens�ve loss (25) (25)

Total comprehens�ve �ncome 264,954Cash d�v�dends declared

($.06 per share) (3,993) (3,993)

Balance at October 1, 2005 66,826,833 668 471,344 753,527 (373) (1,568) 1,223,598Cancellat�on of Treasury Stock (271,100) (3) (1,565) 1,568Net loss for year (34,232) (34,232)Other comprehens�ve �ncome 507 507

Total comprehens�ve loss (33,725)Cash d�v�dends declared

($1.09 per share) (72,545) (72,545)

Balance at September 30, 2006 66,555,733 665 469,779 646,750 134 -- 1,117,328Net �ncome for year 47,017 47,017Other comprehens�ve �ncome 13,868 13,868

Total comprehens�ve �ncome 60,885Cash d�v�dends declared

($.09 per share) (5,992) (5,992)Balance at September 29, 2007 66,555,733 $665 $469,779 $687,775 $14,002 -- $1,172,221


83


Consol�dated Statements of Cash FlowsP�lgr�m’s Pr�de Corporat�on(In thousands) Three Years Ended September 29, 2007

2007 2006 2005

Cash Flows From Operating Activities:Net �ncome (loss) $ 47,017 $ (34,232) $ 264,979Adjustments to reconc�le net �ncome (loss) to cash prov�ded by

operat�ng act�v�t�es:Deprec�at�on and amort�zat�on 204,903 135,133 134,944Non-cash loss on early ext�ngu�shment of debt 9,543 -- --Asset �mpa�rment -- 3,767 --(Ga�n) loss on property d�sposals (446) 1,781 4,326Deferred �ncome taxes 83,884 20,455 2,247Changes �n operat�ng assets and l�ab�l�t�es, net of the effect of

bus�ness acqu�red:Accounts and other rece�vables 247,217 31,121 21,192Income taxes (payable) rece�vable 5,570 (55,363) (38,251)Inventor�es (129,645) (58,612) 82,669Prepa�d expenses and other current assets (2,981) (6,594) 20,800Accounts payable, and accrued expenses (5,097) (3,501) (610)Other 3,999 (3,573) 777

Cash Prov�ded by Operat�ng Act�v�t�es 463,964 30,382 493,073

Investing Activities:Acqu�s�t�ons of property, plant and equ�pment (172,323) (143,882) (116,588)Purchase of �nvestment secur�t�es (125,045) (318,266) (305,458)Proceeds from sale or matur�ty of �nvestment secur�t�es 208,676 490,764 --Bus�ness acqu�s�t�on, net of cash acqu�red (1,102,069) -- --Proceeds from property d�sposals 6,286 4,148 4,963Other, net -- (506) (524)

Cash Prov�ded by (Used �n) Invest�ng Act�v�t�es (1,184,475) 32,258 (417,607)

Financing Activities:Proceeds from notes payable to banks -- 270,500 --Repayments on notes payable to banks -- (270,500) --Proceeds from long-term debt 751,255 74,683 --Payments on long-term debt (1,368,700) (36,950) (16,829)Bank overdraft act�v�ty 39,231 -- --Purchases for ret�rement of common stock -- -- (482,246)Sale of common stock -- -- 521,928Borrow�ng for acqu�s�t�on 1,230,000 -- --Equ�ty and debt �ssue costs (15,565) (3,938) --Cash d�v�dends pa�d (5,992) (72,545) (3,993)

Cash Prov�ded by (Used �n) F�nanc�ng Act�v�t�es 630,229 (38,750) 18,860

Effect of exchange rate changes on cash and cash equ�valents 46 (53) 76

(Decrease) �ncrease �n cash and cash equ�valents (90,236) 23,837 94,402Cash and cash equ�valents at beg�nn�ng of year 156,404 132,567 38,165

Cash and Cash Equivalents at End of Year $ 66,168 $ 156,404 $ 132,567

Supplemental Disclosure Information:Cash pa�d dur�ng the year for:

Interest (net of amount cap�tal�zed) $ 104,394 $ 48,590 $ 46,945Income taxes pa�d $ 11,164 $ 37,813 $ 172,929


84


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

P�lgr�m’s Pr�de Corporat�on (referred to here�n as “the Company,” “we,” “us,” “our,” or s�m�lar terms) �s the world’s largest ch�cken company. In the U.S., we produce both prepared and fresh ch�cken and fresh turkey. In Mex�co and Puerto R�co, we produce exclus�vely fresh ch�cken. Through vert�cal �ntegrat�on, we control the breed�ng, hatch�ng and grow�ng of ch�ckens and the process�ng and preparat�on, packag�ng and sale of our product l�nes.

Our prepared ch�cken products �nclude port�on-controlled breast f�llets, tenderlo�ns and str�ps, del�catessen products, salads, formed nuggets and patt�es and bone-�n ch�cken parts. These products are sold e�ther refr�gerated or frozen and may be fully cooked, part�ally cooked or raw. In add�t�on, these products are breaded or non-breaded and e�ther pre-mar�nated or non-mar�nated. The Company also sells fresh ch�cken products to the foodserv�ce and reta�l markets. Our fresh ch�cken products cons�st of refr�gerated (non-frozen) whole or cut-up ch�cken, e�ther pre-mar�nated or non-mar�nated, and pre-packaged ch�cken �n var�ous comb�nat�ons of freshly refr�gerated, whole ch�ckens and ch�cken parts.

Our turkey products �nclude fresh and frozen whole b�rds. In add�t�on, we have fully cooked whole turkeys ava�lable.

Accounting Adjustments and Reclassifications

Dur�ng the fourth quarter of f�scal 2006, we recorded certa�n account�ng adjustments (“Account�ng Adjustments”) �n our 2006 Consol�dated F�nanc�al Statements. These Account�ng Adjustments related to the account�ng for the P�lgr�m’s Pr�de Ret�rement Plan for Un�on Employees and certa�n post-employment benef�t obl�gat�ons �n Mex�co. These Account�ng Adjustments resulted �n a charge of $4.6 m�ll�on, net of tax, �n our Consol�dated Statement of Operat�ons that related to pr�or per�ods.

We bel�eve these Account�ng Adjustments, cons�dered �nd�v�dually and �n the aggregate, were not mater�al to our Consol�dated F�nanc�al Statements for the years ended September 30, 2006 or October 1, 2005. As a result, they were reflected as an adjustment �n f�scal 2006 only. In mak�ng th�s assessment, we cons�dered qual�tat�ve and quant�tat�ve factors, �nclud�ng the s�gn�f�cant earn�ngs we reported �n f�scal 2005 and the �mpact of mak�ng these Account�ng Adjustments �n f�scal 2006, pr�mar�ly based on the�r s�gn�f�cance to other key f�nanc�al measures and cons�derat�on of the trend of earn�ngs for 2006 versus the pr�or per�ods presented.

Certa�n �tems �n pr�or year f�nanc�al statements have been reclass�f�ed to the current year’s presentat�on.

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Principles of Consolidation

The consol�dated f�nanc�al statements �nclude the accounts of P�lgr�m’s Pr�de Corporat�on and �ts major�ty owned subs�d�ar�es. S�gn�f�cant �ntercompany accounts and transact�ons have been el�m�nated.

The Company reports on the bas�s of a 52/53-week f�scal year that ends on the Saturday closest to September 30. As a result, f�scal years 2007, 2006, and 2005 each had 52 weeks.

The f�nanc�al statements of the Company’s Mex�co subs�d�ar�es are remeasured as �f the U.S. dollar were the funct�onal currency. Accord�ngly, we translate assets and l�ab�l�t�es, other than non-monetary assets, of the Mex�co subs�d�ar�es at current exchange rates. We translate non-monetary assets us�ng the h�stor�cal rates �n effect on the date of acqu�s�t�on. We translate �ncome and expenses at average exchange rates �n effect dur�ng the per�od. Fore�gn exchange ga�ns or losses are separately stated as a component of “Other Expenses (Income)” �n the Consol�dated Statement of Operat�ons.

Revenue Recognition

Revenue �s recogn�zed upon sh�pment and transfer of ownersh�p of the product to the customer and �s recorded net of est�mated �ncent�ve offer�ngs �nclud�ng spec�al pr�c�ng agreements, promot�ons and other volume-based �ncent�ves. Rev�s�ons to these est�mates are charged back to net sales �n the per�od �n wh�ch the facts that g�ve r�se to the rev�s�on become known.

Shipping and Handling Costs

Costs assoc�ated w�th the products sh�pped to customers are recogn�zed �n cost of sales.

Cash Equivalents

The Company cons�ders h�ghly l�qu�d �nvestments w�th a matur�ty of three months or less when purchased to be cash equ�valents.

Investment in Available-for-Sale Securities

The Company’s �nvestments at September 29, 2007 are �n debt and equ�ty secur�t�es wh�ch are class�f�ed as ava�lable for sale and carr�ed at market value. Investments are class�f�ed based on the�r underly�ng contractual matur�ty at date of purchase by the Company. Certa�n �nvestments are held �n trust as compensat�ng balance arrangements for our �nsurance l�ab�l�ty and are class�f�ed as long-term based on a matur�ty date greater than one year from the balance sheet date and management’s �ntent�on not to use such assets �n the next twelve months. Ava�lable-for-sale �nvestments w�th a rema�n�ng matur�ty date of one year or less from the balance sheet date are class�f�ed as current assets and those w�th a matur�ty date of greater than one year are class�f�ed as long-term assets based on management’s �ntent�on not to use such assets �n the next twelve months. Investments �n debt secur�t�es are pr�mar�ly �nvested �n mun�c�pal bonds. The average matur�ty per�od of the Company’s �nvestments at September 29, 2007 was 1-3 years. All equ�ty secur�t�es are class�f�ed as long-term. Approx�mately $0.9 m�ll�on, net of tax, �n unreal�zed ga�ns related to these �nvestments at September 29, 2007 were recorded as accumulated other comprehens�ve �ncome, a separate component of stockholders’ equ�ty.

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Fair Value of Financial Instruments

The carry�ng values of cash and cash equ�valents, accounts rece�vable, and accounts payable at September 29, 2007 and September 30, 2006 approx�mated the�r fa�r values due to the short-term nature of these �tems. Long-term �nvestments are adjusted to fa�r value on a monthly bas�s. The fa�r values of the Company’s long-term �nvestments �n ava�lable for sale secur�t�es was $46.0 m�ll�on. See Note E for d�scuss�on of the fa�r value of the Company’s long-term debt.

Concentrations of Credit Risk

The Company’s f�nanc�al �nstruments that are exposed to concentrat�ons of cred�t r�sk cons�st pr�mar�ly of cash equ�valents, �nvestment secur�t�es, and trade rece�vables. The Company’s cash equ�valents are �n h�gh-qual�ty secur�t�es placed w�th major banks and f�nanc�al �nst�tut�ons. Concentrat�ons of cred�t r�sk w�th respect to rece�vables are l�m�ted due to the large number of customers and the�r d�spers�on across geograph�c areas.

W�th the except�on of one customer that accounts for approx�mately 14.0% of accounts rece�vable at September 29, 2007 and 12% of net sales for f�scal 2007 pr�mar�ly related to our ch�cken segment, the Company does not bel�eve �t has s�gn�f�cant concentrat�ons of cred�t r�sk �n �ts accounts rece�vable, wh�ch are generally unsecured. Cred�t evaluat�ons are performed on all s�gn�f�cant customers and updated as c�rcumstances d�ctate.

Inventories

L�ve poultry �nventor�es are stated at the lower of cost or market and breeder hens at the lower of cost, less accumulated amort�zat�on, or market. The costs assoc�ated w�th breeder hens are accumulated up to the product�on stage and amort�zed over the product�ve l�ves us�ng the un�t-of-product�on method. F�n�shed poultry products, feed, eggs and other �nventor�es are stated at the lower of cost (f�rst-�n, f�rst-out method) or market. We record valuat�ons and adjustments for our �nventory and for est�mated obsolescence at or equal to the d�fference between the cost of �nventory and the est�mated market value based upon known cond�t�ons affect�ng the �nventory’s obsolescence, �nclud�ng s�gn�f�cantly aged products, d�scont�nued product l�nes, or damaged or obsolete products. We allocate meat costs between our var�ous f�n�shed poultry products based on a by-product cost�ng techn�que that reduces the cost of the whole b�rd by est�mated y�elds and amounts to be recovered for certa�n by-product parts, pr�mar�ly �nclud�ng leg quarters, w�ngs, tenders and offal, wh�ch are carr�ed �n �nventory at the est�mated recovery amounts, w�th the rema�n�ng amount be�ng reflected as our breast meat cost. Generally, the Company performs an evaluat�on of whether any lower of cost or market adjustments are requ�red at the segment level based on a number of factors, �nclud�ng: (�) pools of related �nventory, (��) product age, cond�t�on and cont�nuat�on or d�scont�nuat�on, (��) est�mated market sell�ng pr�ces and (�v) expected d�str�but�on channels. If actual market cond�t�ons or other factors are less favorable than those projected by management, add�t�onal �nventory adjustments may be requ�red.

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Property, Plant and Equipment

Property, plant and equ�pment are stated at cost, and repa�r and ma�ntenance costs are expensed as �ncurred. Deprec�at�on �s computed us�ng the stra�ght-l�ne method over the est�mated useful l�ves of these assets. Deprec�at�on expense was $196.4 m�ll�on, $130.5 m�ll�on and $130.6 m�ll�on �n f�scal 2007, 2006 and 2005, respect�vely. Est�mated useful l�ves for bu�ld�ng, mach�nery and equ�pment are 5 years to 33 years and for automob�les and trucks are 3 years to 10 years. The charge to �ncome result�ng from amort�zat�on of assets recorded under cap�tal leases �s �ncluded w�th deprec�at�on expense.

The Company records �mpa�rment charges on long-l�ved assets used �n operat�ons when events and c�rcumstances �nd�cate that the assets may be �mpa�red and the und�scounted cash flows est�mated to be generated by those assets are less than the carry�ng amount of those assets. The �mpa�rment charge �s determ�ned based upon the amount the net book value of the assets exceeds the�r fa�r market value. In mak�ng these determ�nat�ons, the Company ut�l�zes certa�n assumpt�ons, �nclud�ng, but not l�m�ted to: (�) future cash flows est�mates expected to be generated by these assets, wh�ch are based on add�t�onal assumpt�ons such as asset ut�l�zat�on, rema�n�ng length of serv�ce and est�mated salvage values; (��) est�mated fa�r market value of the assets; and (��) determ�nat�ons w�th respect to the lowest level of cash flows relevant to the respect�ve �mpa�rment test, generally group�ngs of related operat�onal fac�l�t�es.

Accrued Expenses

The carry�ng values of accrued expenses were as follows:

September 29, 2007

September 30, 2006

(Dollars in thousands)

Compensat�on and benef�ts $ 231,401 $ 143,555Interest 49,063 5,276Other 219,550 123,999

Accrued expenses $ 500,014 $ 272,830

Purchase Price Accounting

The Company allocates the total purchase pr�ce �n connect�on w�th acqu�s�t�ons to assets and l�ab�l�t�es based upon the�r est�mated fa�r values. For property, plant and equ�pment and �ntang�ble assets other than goodw�ll, for s�gn�f�cant acqu�s�t�ons, the Company has h�stor�cally rel�ed upon the use of th�rd-party valuat�on experts to ass�st �n the est�mat�on of fa�r values. H�stor�cally, the carry�ng value of acqu�red accounts rece�vable, �nventory and accounts payable have approx�mated the�r fa�r value as of the date of acqu�s�t�on, though adjustments are made w�th�n purchase pr�ce account�ng to the extent needed to record such assets and l�ab�l�t�es at fa�r value. W�th respect to accrued l�ab�l�t�es, the Company uses all ava�lable �nformat�on to make �ts best est�mate of the fa�r value of the acqu�red l�ab�l�t�es and, when necessary, may rely upon the use of th�rd-party actuar�al experts to ass�st �n the est�mat�on of fa�r value for certa�n l�ab�l�t�es, pr�mar�ly pens�on and self-�nsurance accruals.

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Litigation and Contingent Liabilities

The Company �s subject to lawsu�ts, �nvest�gat�ons and other cla�ms related to employment, env�ronmental, product, and other matters, and �s requ�red to assess the l�kel�hood of any adverse judgments or outcomes to these matters as well as potent�al ranges of probable losses. A determ�nat�on of the amount of reserves requ�red, �nclud�ng ant�c�pated cost of defense, �f any, for these cont�ngenc�es �s made when losses are determ�ned to be probable and after cons�derable analys�s of each �nd�v�dual �ssue. These reserves may change �n the future due to changes �n the Company’s assumpt�ons, the effect�veness of strateg�es, or other factors beyond the Company’s control.

Accrued Self Insurance

Insurance expense for casualty cla�ms and employee-related health care benef�ts are est�mated us�ng h�stor�cal and current exper�ence and actuar�al est�mates. Stop-loss coverage �s ma�nta�ned w�th th�rd-party �nsurers to l�m�t the Company’s total exposure. Certa�n categor�es of cla�m l�ab�l�t�es are actuar�ally determ�ned. The assumpt�on used to arr�ve at per�od�c expenses �s rev�ewed regularly by management. However, actual expenses could d�ffer from these est�mates and could result �n adjustments to be recogn�zed.

Income Taxes

We recogn�ze deferred tax assets and l�ab�l�t�es for the effect of temporary d�fferences between the book and tax bases of recorded assets and l�ab�l�t�es. Taxes are prov�ded for �nternat�onal subs�d�ar�es based on the assumpt�on that the�r earn�ngs are �ndef�n�tely re�nvested �n fore�gn subs�d�ar�es and as such deferred taxes are not prov�ded for �n U.S. �ncome taxes that would be requ�red �n the event of d�str�but�on of these earn�ngs. We also reduce deferred tax assets by a valuat�on allowance �f �t �s more l�kely than not that some port�on or all of the deferred tax asset w�ll not be real�zed. We rev�ew the recoverab�l�ty of any tax assets recorded on the balance sheet, pr�mar�ly operat�ng loss carryforwards, based on both h�stor�cal and ant�c�pated earn�ngs levels of the �nd�v�dual operat�ons and prov�de a valuat�on allowance when �t �s more l�kely than not that amounts w�ll not be recovered.

As of September 29, 2007, the Company had reserves total�ng $26.9 m�ll�on for taxes that may become payable �n future years as a result of aud�ts by tax author�t�es. Although the Company bel�eves that the pos�t�ons taken on prev�ously f�led tax returns are reasonable, �t nevertheless has establ�shed tax reserves �n recogn�t�on that var�ous tax�ng author�t�es may challenge the pos�t�ons taken by the Company result�ng �n add�t�onal l�ab�l�t�es for tax and �nterest. The tax reserves are rev�ewed as c�rcumstances warrant and adjusted as events occur that affect the Company’s potent�al l�ab�l�ty for add�t�onal taxes, such as laps�ng of appl�cable statutes of l�m�tat�ons, conclus�on of tax aud�ts, add�t�onal exposure based on current calculat�ons, �dent�f�cat�on of new �ssues, release of adm�n�strat�ve gu�dance, or render�ng of a court dec�s�on affect�ng a part�cular tax �ssue.

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Common Stock

Pr�or to November 21, 2003, the Company had two classes of author�zed common stock, Class A common stock and Class B common stock. After the New York Stock Exchange closed on November 21, 2003, each share of Class A common stock and each share of Class B common stock was reclass�f�ed �nto one share of new common stock. The new common stock �s our only class of author�zed common stock. The new common stock �s l�sted on the New York Stock Exchange under the symbol “PPC” and reg�stered under the Secur�t�es Exchange Act of 1934.

Follow�ng the reclass�f�cat�on, our cert�f�cate of �ncorporat�on conta�ns no prov�s�ons for Class A common stock or Class B common stock. In connect�on w�th the el�m�nat�on of the dual class cap�tal structure, our cert�f�cate of �ncorporat�on now author�zes 160 m�ll�on shares of common stock �nstead of 100 m�ll�on shares of Class A common stock and 60 m�ll�on shares of Class B common stock.

Except as to vot�ng r�ghts, the r�ghts of the new common stock are substant�ally �dent�cal to the r�ghts of the Class A common stock and Class B common stock. Each share of common stock that was reclass�f�ed �nto our new common stock �s generally ent�tled to cast twenty votes on all matters subm�tted to a vote of the stockholders unt�l there �s a change �n the benef�c�al ownersh�p of such share.

The reclass�f�cat�on had no s�gn�f�cant effect on our Consol�dated F�nanc�al Statements, as the comb�nat�on of the Class A and Class B shares �nto a new class of common stock d�d not affect the overall shares of common stock outstand�ng. Pr�or year balances reflect th�s reclass�f�cat�on as �f �t had occurred as of the earl�est per�od presented.

As of September 29, 2007, we est�mate that approx�mately 26 m�ll�on shares of our common stock carry 20 votes per share, of wh�ch 25.3 m�ll�on shares are benef�c�ally owned by our Sen�or Cha�rman, Lonn�e “Bo” P�lgr�m, or certa�n related ent�t�es.

Net Income (Loss) per Common Share

Net �ncome (loss) per common share �s based on the we�ghted average number of shares of common stock outstand�ng dur�ng the year. The we�ghted average number of shares outstand�ng (bas�c and d�luted) �ncluded here�n were 66,555,733 �n 2007, 2006 and 2005.

Use of Estimates

The preparat�on of f�nanc�al statements �n conform�ty w�th account�ng pr�nc�ples generally accepted �n the U.S. requ�res management to make est�mates and assumpt�ons that affect the reported amounts of assets and l�ab�l�t�es and d�sclosure of cont�ngent assets and l�ab�l�t�es at the date of the f�nanc�al statements and the reported amounts of revenues and expenses dur�ng the report�ng per�od. Actual results could d�ffer from those est�mates.

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Pending Adoption of Recent Accounting Pronouncements

In June 2006, the F�nanc�al Account�ng Standards Board (“FASB”) �ssued Interpretat�on (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109. Th�s Interpretat�on clar�f�es the account�ng for uncerta�nty �n �ncome taxes recogn�zed �n an enterpr�se’s f�nanc�al statements. FIN No. 48 prescr�bes a recogn�t�on threshold and measurement attr�bute for the f�nanc�al statement recogn�t�on and measurement of a tax pos�t�on taken or expected to be taken �n a tax return. The Company must adopt th�s Interpretat�on �n the f�rst quarter of f�scal 2008. The Company has not completed �ts evaluat�on as to the �mpact that adopt�on w�ll have on �ts consol�dated f�nanc�al statements.

In September 2006, the FASB �ssued Statement of F�nanc�al Account�ng Standards (“SFAS”) No. 157, Fair Value Measurements. Th�s Statement def�nes fa�r value, establ�shes a framework for measur�ng fa�r value �n generally accepted account�ng pr�nc�ples, and expands d�sclosures about fa�r value measurements. SFAS No. 157 does not requ�re any new fa�r value measurements. However, for some enterpr�ses, the appl�cat�on of th�s Statement w�ll change current pract�ce. The Company must adopt SFAS No. 157 �n the f�rst quarter of f�scal 2009. Although the Company has not completed �ts evaluat�on as to the �mpact that adopt�on w�ll have on �ts Consol�dated F�nanc�al Statements, �t currently bel�eves the adopt�on of SFAS No. 157 w�ll not requ�re mater�al mod�f�cat�on of �ts fa�r value measurements and w�ll be substant�ally l�m�ted to expanded d�sclosures �n the notes to �ts Consol�dated F�nanc�al Statements.

In January 2007, the FASB �ssued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. Th�s Statement perm�ts an enterpr�se to choose to measure many f�nanc�al �nstruments and certa�n other �tems at fa�r value. SFAS No. 159 w�ll become effect�ve for the Company �n the f�rst quarter of f�scal 2009. The Company �s currently evaluat�ng the �mpact that use of the fa�r value measurement opt�on on �ts f�nanc�al �nstruments and other appl�cable �tems would have on �ts Consol�dated F�nanc�al Statements.

NOTE B – BUSINESS ACQUISITION

On December 27, 2006, we acqu�red 45,343,812 shares, represent�ng 88.9% of shares outstand�ng, of Gold K�st Inc. (“Gold K�st”) common stock through a tender offer. We subsequently acqu�red all rema�n�ng Gold K�st shares and, on January 9, 2007, Gold K�st became a wholly owned subs�d�ary of the Company. Gold K�st, based �n Atlanta, Georg�a, was the th�rd largest ch�cken company �n the Un�ted States, account�ng for more than n�ne percent of ch�cken produced �n the Un�ted States �n recent years. Gold K�st operated a fully-�ntegrated ch�cken product�on bus�ness that �ncluded l�ve product�on, process�ng, market�ng and d�str�but�on.

For f�nanc�al report�ng purposes, we have not �ncluded the operat�ng results and cash flows of Gold K�st �n our consol�dated f�nanc�al statements for the per�od from December 27, 2006 through December 30, 2006. The operat�ng results and cash flows of Gold K�st from December 27, 2006 through December 30, 2006 were not mater�al. We have �ncluded the acqu�red assets and assumed l�ab�l�t�es �n our balance sheet us�ng an allocat�on of the purchase pr�ce based on an appra�sal rece�ved from a th�rd-party valuat�on spec�al�st.

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The follow�ng summar�zes our purchase pr�ce at December 27, 2006 (�n thousands):

Purchase 50,146,368 shares at $21.00 per share $ 1,053,074Prem�um pa�d on ret�rement of debt 22,208Ret�rement of var�ous share-based compensat�on awards 25,677Var�ous costs and fees 37,740

Total purchase pr�ce $ 1,138,699

We ret�red the Gold K�st 10 1/4% Sen�or Notes due 2014 w�th a book value of $128.5 m�ll�on at a cost of $149.8 m�ll�on plus accrued �nterest and the Gold K�st Subord�nated Cap�tal Cert�f�cates of Interest at par plus accrued �nterest and a prem�um of one year’s �nterest. We also pa�d acqu�s�t�on transact�on costs and funded change �n control payments to certa�n Gold K�st employees. Th�s acqu�s�t�on was �n�t�ally funded by (1) $780 m�ll�on borrowed under our revolv�ng-term secured cred�t fac�l�ty and (2) $450 m�ll�on borrowed under our $450 m�ll�on Sen�or Unsecured Term Loan Agreement (“Br�dge Loan”) (see Note E below).

In connect�on w�th the acqu�s�t�on, we elected to freeze certa�n of the Gold K�st benef�t plans w�th the �ntent to ult�mately term�nate them. We recorded a purchase pr�ce adjustment of $65.6 m�ll�on to �ncrease the benef�t plans l�ab�l�ty to the $82.5 m�ll�on current est�mated cost of these plan term�nat�ons. We do not ant�c�pate any mater�al net per�od�c benef�t costs (�ncome) related to these plans �n the future. Add�t�onally, we conformed Gold K�st’s account�ng pol�c�es to our account�ng pol�c�es and prov�ded for deferred �ncome taxes on all related purchase adjustments.

The follow�ng summar�zes our est�mates of the fa�r value of the assets acqu�red and l�ab�l�t�es assumed at the date of acqu�s�t�on (�n thousands):

Current assets $ 418,583Property, plant and equ�pment 675,054 Goodw�ll 505,166Intang�ble assets 64,500Other assets 65,597

Total assets acqu�red 1,728,900

Current l�ab�l�t�es 276,194Long-term debt, less current matur�t�es 140,674 Deferred �ncome taxes 93,509Other long-term l�ab�l�t�es 79,824

Total l�ab�l�t�es assumed 590,201Total purchase pr�ce $ 1,138,699

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Goodw�ll and other �ntang�ble assets reflected above were determ�ned to meet the cr�ter�a for recogn�t�on apart from tang�ble assets acqu�red and l�ab�l�t�es assumed. Intang�ble assets related to the acqu�s�t�on cons�sted of the follow�ng at December 27, 2006:

EstimatedFair Value

AmortizationPeriod

(In millions) (In years)Intang�ble assets subject to amort�zat�on:

Customer relat�onsh�ps $ 51,000 13.0Trade name 13,200 3.0Non-compete agreements 300 3.0

Total �ntang�ble assets subject to amort�zat�on 64,500

Goodw�ll 505,166

Total �ntang�ble assets $ 569,666

We�ghted average amort�zat�on per�od 10.9Goodw�ll, wh�ch �s recogn�zed �n the Company’s ch�cken segment, represents the purchase pr�ce

�n excess of the value ass�gned to �dent�f�able tang�ble and �ntang�ble assets. We elected to acqu�re Gold K�st at a pr�ce that resulted �n the recogn�t�on of goodw�ll because of the follow�ng strateg�c and f�nanc�al benef�ts:

- The comb�ned company �s now pos�t�oned as the world’s lead�ng ch�cken producer and that pos�t�on has prov�ded us w�th enhanced ab�l�t�es to:

• Compete more eff�c�ently and prov�de even better customer serv�ce;

• Expand our geograph�c reach and customer base;

• Further pursue value-added and prepared foods opportun�t�es; and

• Offer long-term growth opportun�t�es for our stockholders, employees, and growers.

- The comb�ned company �s better pos�t�oned to compete �n the �ndustry both �nternat�onally and �n the Un�ted States as add�t�onal consol�dat�on occurs.

The amort�zable �ntang�ble assets were determ�ned by us to have f�n�te l�ves. The useful l�fe for the customer relat�onsh�ps �ntang�ble asset we recogn�zed was based on our forecasts of customer turnover. The useful l�fe for the trade name �ntang�ble asset we recogn�zed was based on the est�mated length of our use of the Gold K�st trade name wh�le �t �s phased out and replaced w�th the P�lgr�m’s Pr�de trade name. The useful l�fe of the non-compete agreements �ntang�ble asset we recogn�zed was based on the rema�n�ng l�fe of the agreements. We amort�ze these �ntang�ble assets over the�r rema�n�ng useful l�ves on a stra�ght-l�ne bas�s. Annual amort�zat�on expense for these �ntang�ble assets was $6.3 m�ll�on �n f�scal 2007. We expect to recogn�ze annual amort�zat�on expense of $8.4 m�ll�on �n f�scal 2008 and f�scal 2009, $5.1 m�ll�on �n f�scal 2010, $3.9 m�ll�on �n f�scal 2011 through f�scal 2019, and $1.0 m�ll�on �n f�scal 2020.

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The follow�ng unaud�ted pro forma f�nanc�al �nformat�on has been presented as �f the acqu�s�t�on had occurred at the beg�nn�ng of each per�od presented.

Fiscal 2007 Fiscal 2006Pro forma Pro forma

(In thousands, except shares and per share data)

Net sales $ 8,126,409 $ 7,352,018Deprec�at�on and amort�zat�on $ 230,126 $ 228,105Operat�ng �ncome (loss) $ 201,986 $ (53,585)Interest expense, net $ 146,928 $ 125,314Income (loss) before taxes $ 36,372 $ (172,740)Net �ncome (loss) $ 12,832 $ (118,571)Net �ncome (loss) per common share $ 0.19 $ (1.78)We�ghted average shares outstand�ng 66,555,733 66,555,733

NOTE C – ACCOUNTS RECEIVABLE

In connect�on w�th the Rece�vables Purchase Agreement dated June 26, 1998, as amended, the Company sells, on a revolv�ng bas�s, certa�n of �ts trade rece�vables (the “Pooled Rece�vables”) to a spec�al purpose corporat�on wholly owned by the Company, wh�ch �n turn sells a percentage ownersh�p �nterest to th�rd part�es. As of September 29, 2007, $300.0 m�ll�on �n Pooled Rece�vables had been sold. Dur�ng f�scal 2006 and 2005 there were no Pooled Rece�vables sold. The gross proceeds result�ng from the sale are �ncluded �n cash flows from operat�ng act�v�t�es �n the Consol�dated Statements of Cash Flows. Losses on the sale were �mmater�al.

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NOTE D – INVENTORIES

Inventor�es cons�st of the follow�ng (dollars �n thousands):

September 29, 2007

September 30, 2006

Ch�cken:L�ve ch�cken and hens $ 343,185 $ 196,284Feed and eggs 223,631 132,309F�n�shed ch�cken products 337,052 201,516

903,868 530,109Turkey:

L�ve turkey and hens 8,839 7,138Feed and eggs 2,664 4,740F�n�shed turkey products 25,929 26,685

37,432 38,563Other Products:

Commerc�al feed, table eggs, and reta�l farm store 11,327 7,080D�str�but�on �nventor�es 9,258 10,188

20,585 17,268

Total Inventor�es $ 961,885 $ 585,940

NOTE E – NOTES PAYABLE AND LONG-TERM DEBT

The follow�ng table presents our long-term debt as of September 29, 2007 and September 30, 2006 (dollars �n thousands):

F�nal Matur�ty

September 29, 2007

September 30, 2006

Sen�or unsecured notes, at 7 5/8% 2015 $ 400,000 $ --Sen�or unsecured notes, at 8 3/8% 2017 250,000 --Sen�or unsecured notes, at 9 5/8% 2011 -- 299,601Sen�or subord�nated unsecured notes, at 9 1/4% 2013 5,135 82,640Secured revolv�ng cred�t fac�l�ty w�th notes payable

at LIBOR plus 1.25% to LIBOR plus 2.75% 2011 26,293 74,682Note payable to an �nsurance company at 6.68% 2012 -- 50,115Notes payable to an �nsurance company at LIBOR

plus 2.2075% 2013 -- 41,333Secured revolv�ng-term/cred�t fac�l�ty w�th notes

payable at LIBOR or US Treasur�es, plus a spread 2016 622,350 --Other Var�ous 17,652 16,827

1,321,430 565,198Less current matur�t�es (2,872) (10,322)

Total $ 1,318,558 $ 554,876

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In September 2006, the Company entered �nto an amended and restated revolver/term cred�t agreement w�th a matur�ty date of September 21, 2016. At September 29, 2007 th�s revolver/term cred�t agreement prov�des for an aggregate comm�tment of $1.172 b�ll�on cons�st�ng of (�) a $550 m�ll�on revolv�ng/term loan comm�tment and (��) $622.4 m�ll�on �n var�ous term loans. At September 29, 2007, the Company had noth�ng outstand�ng under the revolver and $622.4 m�ll�on outstand�ng �n var�ous term loans. The total cred�t fac�l�ty �s presently secured by certa�n f�xed assets w�th a current ava�lab�l�ty of $550.0 m�ll�on. From t�me to t�me, �f certa�n cond�t�ons are sat�sf�ed, the Company has the r�ght to �ncrease the revolv�ng/term loan comm�tment and term loan comm�tment to a total max�mum amount of $1.0 b�ll�on and $750 m�ll�on, respect�vely. Borrow�ngs under the revolv�ng/term loan comm�tment are ava�lable on a revolv�ng bas�s unt�l September 21, 2011 at wh�ch t�me the outstand�ng borrow�ngs w�ll be converted to a term loan matur�ng on September 21, 2016. The f�xed rate term loans bear �nterest at rates rang�ng from 6.84% to 7.06%. The voluntary converted loans bear �nterest at rates rang�ng from LIBOR plus 1.0%-2.0%, depend�ng upon the Company’s total debt to cap�tal�zat�on rat�o. The float�ng rate term loans bear �nterest at LIBOR plus 1.50%-1.75% based on the rat�o of the Company’s debt to EBITDA, as def�ned �n the agreement. The revolv�ng/term loans prov�de for �nterest rates rang�ng from LIBOR plus 1.0%-2.0%, depend�ng upon the Company’s total debt to cap�tal�zat�on rat�o. Revolv�ng/term loans converted to term loans on September 21, 2011 w�ll be payable �n equal quarterly pr�nc�pal payments of 10% per annum of the or�g�nal pr�nc�pal amount beg�nn�ng the calendar quarter follow�ng the convers�on date w�th the rema�n�ng balance due on the matur�ty date. Of the term loans outstand�ng, $208.7 m�ll�on must be repa�d �n equal quarterly pr�nc�pal payments of 1% per annum of the or�g�nal pr�nc�pal amount w�th the rema�n�ng balance due on the matur�ty date. All borrow�ngs are subject to the ava�lab�l�ty of el�g�ble collateral and no mater�al adverse change prov�s�ons. Comm�tment fees charged on the unused balance of th�s fac�l�ty range from 0.20% to 0.40%, depend�ng upon the Company’s total debt to cap�tal�zat�on rat�o. One-half of the outstand�ng obl�gat�ons under the revolver/term cred�t agreement are guaranteed by P�lgr�m Interests, Ltd., an ent�ty related to our Sen�or Cha�rman, Lonn�e “Bo” P�lgr�m.

On December 15, 2006, the Company borrowed $100 m�ll�on at 6.84% under our revolver/term cred�t agreement and used substant�ally all of the funds to repay, �n full, term loans payable to an �nsurance company under a note purchase agreement matur�ng �n 2012 and 2013.

In January 2007, the Company borrowed (1) $780 m�ll�on under our revolver/term cred�t agreement and (2) $450 m�ll�on under our br�dge loan agreement to fund the Gold K�st acqu�s�t�on. On January 24, 2007, the Company closed on the sale of $400 m�ll�on of 7 5/8% Sen�or Notes due 2015 (the “Sen�or Notes”) and $250 m�ll�on of 8 3/8% Sen�or Subord�nated Notes due 2017 (the “Subord�nated Notes”), sold at par. Interest �s payable on May 1 and November 1 of each year, beg�nn�ng November 1, 2007. We may redeem all or part of the Sen�or Notes on or after May 1, 2011. We may redeem all or part of the Subord�nated Notes on or after May 1, 2012. Before May 1, 2010, we also may redeem up to 35% of the aggregate pr�nc�pal amount of each of the Sen�or Notes and the Subord�nated Notes w�th the proceeds of certa�n equ�ty offer�ngs. Each of these opt�onal redempt�ons �s at a prem�um as descr�bed �n the �ndentures under wh�ch the notes were �ssued. The proceeds from the sale of the notes, after underwr�t�ng d�scounts, were used to (1) ret�re the loans outstand�ng under our br�dge loan agreement, (2) repurchase $77.5 m�ll�on of the Company’s 9 1/4% Sen�or Subord�nated Notes due 2013 at a prem�um of $7.4 m�ll�on plus accrued �nterest of $1.3 m�ll�on and (3) reduce outstand�ng revolv�ng loans under our revolv�ng/term cred�t agreement. Loss on early ext�ngu�shment of debt �ncludes the $7.4 m�ll�on prem�um along w�th unamort�zed loan costs of $7.1 m�ll�on related to the ret�rement of these Notes.

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On September 21, 2007, the Company redeemed all of �ts 9 5/8% Sen�or Notes due 2011 at a total cost of $307.5 m�ll�on. To fund a port�on of the aggregate redempt�on pr�ce, the Company sold $300 m�ll�on of trade rece�vables under �ts Rece�vables Purchase Agreement. Loss on early ext�ngu�shment of debt �ncludes the $9.5 m�ll�on prem�um along w�th unamort�zed loan costs of $2.5 m�ll�on related to the ret�rement of these Notes.

As of September 29, 2007, we had a $300.0 m�ll�on comm�tment under a domest�c revolv�ng cred�t fac�l�ty that prov�des for �nterest rates rang�ng from LIBOR plus 0.75-1.75%, depend�ng upon our total debt to cap�tal�zat�on rat�o. From t�me to t�me, �f certa�n cond�t�ons are sat�sf�ed, the Company has the r�ght to �ncrease the revolv�ng comm�tment to a total max�mum amount of $450 m�ll�on. At September 29, 2007, $215.1 m�ll�on was ava�lable for borrow�ng under the domest�c revolv�ng cred�t fac�l�ty. Borrow�ngs aga�nst th�s fac�l�ty are subject to the ava�lab�l�ty of el�g�ble collateral and no mater�al adverse change prov�s�ons. The obl�gat�ons under th�s fac�l�ty are secured by domest�c ch�cken �nventor�es. Comm�tment fees charged on the unused balance of th�s fac�l�ty range from 0.175% to 0.35%, depend�ng upon the Company’s total debt to cap�tal�zat�on rat�o. One-half of the outstand�ng obl�gat�ons under the domest�c revolv�ng cred�t fac�l�ty are guaranteed by P�lgr�m Interests, Ltd., an ent�ty related to our Sen�or Cha�rman, Lonn�e “Bo” P�lgr�m.

On September 25, 2006, a subs�d�ary of the Company, Avícola P�lgr�m’s Pr�de de Méx�co, S. de R.L. de C.V. (the “Borrower”), entered �nto a secured revolv�ng cred�t agreement of up to $75 m�ll�on w�th a f�nal matur�ty date of September 25, 2011. In March 2007, the Borrower elected to reduce the comm�tment under th�s agreement to approx�mately $50 m�ll�on. Outstand�ng amounts bear �nterest at rates rang�ng from the h�gher of the Pr�me Rate or Federal Funds Effect�ve Rate plus 0.5%; LIBOR plus 1.25%-2.75%; or TIIE plus 1.05%-2.55% depend�ng on the loan des�gnat�on. Obl�gat�ons under th�s agreement are secured by a secur�ty �nterest �n and l�en upon all cap�tal stock and other equ�ty �nterests of the Company’s Mex�can subs�d�ar�es. All the obl�gat�ons of the Borrower are secured by uncond�t�onal guaranty by the Company. At September 29, 2007, $26.3 m�ll�on was outstand�ng and approx�mately $23.7 m�ll�on was ava�lable under th�s l�ne. All borrow�ngs are subject to no mater�al adverse effect prov�s�ons.

On June 29, 1999, the Camp County Industr�al Development Corporat�on �ssued $25.0 m�ll�on of var�able-rate env�ronmental fac�l�t�es revenue bonds supported by letters of cred�t obta�ned by us. We may draw from these proceeds over the construct�on per�od for new sewage and sol�d waste d�sposal fac�l�t�es at a poultry by-products plant to be bu�lt �n Camp County, Texas. We are not requ�red to borrow the full amount of the proceeds from these revenue bonds. All amounts borrowed from these funds w�ll be due �n 2029. The revenue bonds are supported by letters of cred�t obta�ned by us under our ava�lable revolv�ng cred�t fac�l�t�es. The bonds w�ll be recorded as debt of the Company �f and when they are spent to fund construct�on.

Most of our domest�c �nventor�es and domest�c f�xed assets are pledged as collateral on our long-term debt and cred�t fac�l�t�es.

Annual matur�t�es of long-term debt for the f�ve years subsequent to September 29, 2007 are: 2008 -- $2.9 m�ll�on; 2009 -- $2.4 m�ll�on; 2010 -- $1.3 m�ll�on; 2011 -- $27.9 m�ll�on; 2012 -- $1.3 m�ll�on and thereafter -- $1.286 b�ll�on.

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The Company �s requ�red, by certa�n prov�s�ons of �ts debt agreements, to ma�nta�n levels of work�ng cap�tal and net worth, to l�m�t d�v�dends to a max�mum of $26 m�ll�on per year, and to ma�nta�n var�ous f�xed charge, leverage, current and debt-to-equ�ty rat�os. In f�scal 2006, wa�vers were obta�ned to perm�t a spec�al $1 per share d�v�dend. At September 29, 2007, the Company has fully compl�ed w�th these covenants.

Total �nterest expense was $125.8 m�ll�on, $50.6 m�ll�on and $49.6 m�ll�on �n f�scal 2007, 2006 and 2005, respect�vely. Interest related to new construct�on cap�tal�zed �n f�scal 2007, 2006 and 2005 was $5.7 m�ll�on, $4.3 m�ll�on and $2.8 m�ll�on, respect�vely.

The fa�r value of long-term debt, at September 29, 2007 and September 30, 2006 and based upon quoted market pr�ces for the same or s�m�lar �ssues where ava�lable or by us�ng d�scounted cash flow analys�s, was approx�mately $1.338 b�ll�on and $592.3 m�ll�on, respect�vely.

NOTE F – INCOME TAXES

Income (loss) before �ncome taxes after allocat�on of certa�n expenses to fore�gn operat�ons for f�scal 2007, 2006 and 2005 was $80.0 m�ll�on, ($19.7) m�ll�on and $361.1 m�ll�on, respect�vely, for U.S. operat�ons and $11.6 m�ll�on, ($16.6) m�ll�on and $42.4 m�ll�on, respect�vely, for fore�gn operat�ons. The prov�s�ons for �ncome taxes are based on pre-tax f�nanc�al statement �ncome (loss).

The components of �ncome tax expense (benef�t) are set forth below (dollars �n thousands):

2007 2006 2005Current:

Federal $ (37,191) $ (23,147) $ 117,518Fore�gn 1,573 5,130 3,880State and other (3,676) (4,523) 14,899

Total current (39,294) (22,540) 136,297Deferred:

Federal 73,285 9,511 (1,594)Fore�gn (1,637) 10,221 4,475State and other 12,236 723 113

Total deferred 83,884 20,455 2,994Change �n valuat�on allowance -- -- (747)

$ 44,590 $ (2,085) $ 138,544

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The follow�ng �s a reconc�l�at�on between the statutory U.S. federal �ncome tax rate and the Company’s effect�ve �ncome tax rate:

2007 2006 2005Federal �ncome tax rate 35.0% (35.0)% 35.0%State tax rate, net 2.6 (0.7) 2.1Permanent Items 2.9D�fference �n U.S. statutory tax rate and fore�gn

country effect�ve tax rate (0.8) (1.0) (1.3)Tax cred�ts (8.0) (13.1) (1.1)Tax effect of Amer�can Jobs Creat�on Act

repatr�at�on -- 68.3 0.6Currency related d�fferences 3.8 8.4 (1.1)Change �n cont�ngency reserves 6.8 (29.7) --Change �n valuat�on allowance -- -- (0.2)Change �n tax rate 3.2 -- --Other 3.2 (3.0) 0.3

Total 48.7% (5.8)% 34.3%

Deferred �ncome taxes reflect the net effects of temporary d�fferences between the carry�ng amounts of assets and l�ab�l�t�es for f�nanc�al report�ng purposes and the amounts used for �ncome tax purposes.

S�gn�f�cant components of the Company’s deferred tax l�ab�l�t�es and assets are as follows (dollars �n thousands):

2007 2006Deferred tax l�ab�l�t�es:

Property and equ�pment $ 256,341 $ 144,361Inventor�es 109,410 43,627Pr�or use of cash account�ng 16,936 18,457Acqu�s�t�on related �tems 14,820 15,600Deferred fore�gn taxes 25,002 24,127Ident�f�ed �ntang�bles 21,964 --Other 58,956 36,570

Total deferred tax l�ab�l�t�es 503,429 282,742Deferred tax assets:

Fore�gn net operat�ng losses 41,257 42,683Expenses deduct�ble �n d�fferent years 143,697 71,478

Total deferred tax asset 184,954 114,161Net deferred tax l�ab�l�t�es $ 318,475 $ 168,581

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The Company has not prov�ded any deferred �ncome taxes on the rema�n�ng und�str�buted earn�ngs of �ts Mex�co subs�d�ar�es based upon �ts determ�nat�on that such earn�ngs w�ll be �ndef�n�tely re�nvested. As of September 29, 2007, the cumulat�ve und�str�buted earn�ngs of these subs�d�ar�es were approx�mately $92.0 m�ll�on. If such earn�ngs were not cons�dered �ndef�n�tely re�nvested, certa�n deferred fore�gn and U.S. �ncome taxes would have been prov�ded, after cons�derat�on of est�mated fore�gn tax cred�ts. However, determ�nat�on of the amount of deferred �ncome taxes �s not pract�cal.

The Mex�can tax operat�ng loss carryforwards of approx�mately $147.9 m�ll�on w�ll exp�re �n the years rang�ng from 2008 through 2012.

The Amer�can Jobs Creat�on Act was enacted �n October 2004 (“Jobs Creat�on Act”). The Jobs Creat�on Act �ncludes a temporary �ncent�ve to U.S. mult�nat�onals to repatr�ate fore�gn earn�ngs at an approx�mate effect�ve 5.25% U.S. federal tax rate. Dur�ng the fourth quarter of f�scal year 2006, the Company repatr�ated $155.0 m�ll�on �n prev�ously unrem�tted untaxed earn�ngs under the prov�s�ons of the Jobs Creat�on Act. The total �ncome tax effects of repatr�at�ons under the Jobs Creat�on Act was $28.2 m�ll�on, of wh�ch $25.8 m�ll�on was recorded f�scal 2006. The key components of the 2006 prov�s�on �ncluded domest�c �ncome taxes of $10.1 m�ll�on to reflect federal and state taxes on the transact�on, a deferred fore�gn tax prov�s�on of $24.1 m�ll�on to accrue for future taxes that w�ll result from certa�n �ntra-Mex�can d�v�dends undertaken �n 2006 to complete th�s transact�on, and a benef�t of $6.0 m�ll�on to reflect the revaluat�on of certa�n deferred tax assets �n Mex�co that as a result of the transact�on are expected to be real�zed at h�gher enacted tax rates.

In October 2007, Mex�co’s leg�slat�ve bod�es enacted La Ley del Impuesto Empresar�al a Tasa Ún�ca (“IETU”), a new m�n�mum corporat�on tax, wh�ch w�ll be assessed on compan�es do�ng bus�ness �n Mex�co beg�nn�ng January 1, 2008. We are currently evaluat�ng the ant�c�pated �mpact that IETU w�ll have on our bus�ness and operat�ng results. Because of IETU, there can be no assurance that we w�ll be able to ut�l�ze the net operat�ng loss carryovers and other deferred tax benef�ts generated �n Mex�co. There can also be no assurance that IETU w�ll not have a mater�al adverse effect on our f�nanc�al results.

NOTE G – COMPREHENSIVE INCOME (LOSS)

For the per�od end�ng September 29, 2007, comprehens�ve �ncome was $60.9 m�ll�on, cons�st�ng of net �ncome of $47.0 m�ll�on, unreal�zed ga�ns related to our �nvestments �n debt secur�t�es of $0.8 m�ll�on, to pens�on l�ab�l�ty ga�ns of $7.9 m�ll�on and unreal�zed ga�ns on cash flow hedges of $3.4 m�ll�on. Th�s compares to the f�scal year ended September 30, 2006 �n wh�ch comprehens�ve loss was $33.7 m�ll�on, cons�st�ng of net loss of $34.2 m�ll�on and unreal�zed ga�ns related to our �nvestments �n debt secur�t�es of $0.5 m�ll�on. Comprehens�ve �ncome for the f�scal year ended October 1, 2005 was $265.0 m�ll�on, cons�st�ng of net �ncome of $265.0 m�ll�on.

Accumulated other comprehens�ve �ncome at September 29, 2007 was $14.0 m�ll�on net of taxes of $6.6 m�ll�on and cons�sted of pretax adjustments for pens�on l�ab�l�ty ga�ns total�ng $14.3 m�ll�on accumulated unreal�zed ga�ns on cash flow hedges total�ng $5.3 m�ll�on and accumulated unreal�zed ga�n on our �nvestments �n debt secur�t�es total�ng $0.9 m�ll�on.

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NOTE H – SAVINGS AND PENSION PLANS

Retirement Plans

The Company ma�nta�ns ret�rement plans for el�g�ble employees as follows:

• the P�lgr�m’s Pr�de Ret�rement Sav�ngs Plan (the “RS Plan”), a Sect�on 401(k) Salary Deferral Plan

• the P�lgr�m’s Pr�de Ret�rement Plan for Un�on Employees (the “Un�on Plan”), a def�ned benef�t plan

• the To-R�co’s Employee Cash or Deferred Arrangement Prof�t Shar�ng Plan (the “To-R�co’s Plan”), a Sect�on 1165(e) Salary Deferral Plan

• the legacy Gold K�st Pens�on Plan (the “GK Pens�on Plan”), a def�ned benef�t plan acqu�red w�th Gold K�st Inc.

The Company ma�nta�ns three postret�rement plans for el�g�ble Mex�co employees as requ�red by Mex�co law wh�ch cover pr�mar�ly term�nat�on benef�ts. Separate d�sclosure of plan obl�gat�ons �s not cons�dered mater�al.

The RS Plan �s ma�nta�ned for certa�n el�g�ble U.S. employees. Under the RS Plan, el�g�ble employees may voluntar�ly contr�bute a percentage of the�r compensat�on and there are var�ous Company match�ng prov�s�ons. The Un�on Plan covers certa�n locat�ons or work groups w�th�n the Company. The To-R�co’s Plan �s ma�nta�ned for certa�n el�g�ble Puerto R�can employees. Under the To-R�co’s Plan, el�g�ble employees may voluntar�ly contr�bute a percentage of the�r compensat�on and there are var�ous Company match�ng prov�s�ons. The GK Pens�on Plan covers certa�n el�g�ble U.S. employees who were employed at locat�ons that P�lgr�m’s Pr�de acqu�red �n �ts acqu�s�t�on of Gold K�st Inc. and part�c�pat�on �n the GK Pens�on Plan was frozen as of February 8, 2007 for all part�c�pants w�th the except�on of term�nated vested part�c�pants who are or may become permanently and totally d�sabled. The plan was frozen for that group as of March 31, 2007.

Under all of our ret�rement plans, the Company’s expenses were $10.0 m�ll�on and $16.0 m�ll�on �n f�scal 2007 and 2006, respect�vely, �nclud�ng the correct�on of $4.6 m�ll�on, pretax, as descr�bed �n Note A.

The Company uses a calendar year measurement date for �ts def�ned benef�ts plans, wh�le �ts postret�rement benef�t plans use a f�scal year end of September 29, 2007. Certa�n d�sclosures are l�sted below; other d�sclosures are not mater�al to the f�nanc�al statements.

Medical and Life Insurance Plans

The acqu�s�t�on of Gold K�st by P�lgr�m’s Pr�de resulted �n acqu�r�ng some postret�rement med�cal and l�fe �nsurance obl�gat�ons. In January 2001, Gold K�st began to substant�ally curta�l �ts programs for act�ve employees. On July 1, 2003, Gold K�st term�nated med�cal coverage for ret�rees age 65 and older, and only ret�red employees �n the closed group between ages 55 and 65 could cont�nue the�r

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coverage at rates above the average cost of the med�cal �nsurance plan for act�ve employees. These ret�red employees w�ll all reach the age of 65 by 2012 and l�ab�l�t�es of the postret�rement med�cal plan w�ll then end.

Benefit Obligations, Plan Assets, and Assumptions

The follow�ng table sets forth the plans’ change �n benef�t obl�gat�on, change �n plan assets and econom�c assumpt�ons for the years ended September 29, 2007 and September 30, 2006 (dollars �n thousands):

Pension BenefitsOther Postretirement

Benefits2007 2006 2007 2006

Change in benefit obligation:Benef�t obl�gat�on at beg�nn�ng of year $ 9,882 $ 8,778 $ -- $ --Serv�ce cost 2,029 2,242 -- --Interest cost 8,455 458 103 --Plan part�c�pant contr�but�ons 61 27 681 --Actuar�al (ga�ns) losses (12,933) (1,533) (41) --Acqu�s�t�ons 218,623 -- 2,689 --Pr�or serv�ce cost (cred�t) 237 -- - --Benef�ts pa�d (29,551) (90) (1,000) --Benef�t obl�gat�on at end of year $ 196,803 $ 9,882 $ 2,432 $ --

Change in plan assets:Fa�r value of plan assets at beg�nn�ng of year $ 6,252 $ 5,405 $ -- $ --Acqu�s�t�ons 139,229 -- -- --Actual return on plan assets 11,571 208 -- --Contr�but�ons by employer 10,462 702 319 --Plan part�c�pant contr�but�ons 61 27 681 --Benef�ts pa�d (29,551) (90) (1,000) --Fa�r value of plan assets at end of year 138,024 6,252 -- -- Funded status (58,779) (3,630) (2,432) -- Unrecogn�zed pr�or serv�ce cost (benef�t) 237 -- -- --Unrecogn�zed net (ga�n) loss (14,824) (818) (41) --Net (accrued) prepa�d expense (73,366) (4,448) (2,473) -- Accumulated other comprehens�ve loss 14,587 -- 41 --Net amount recogn�zed $ (58,779) $ (4,448) $ (2,432) $ --

Projected benef�t obl�gat�on $ 196,803 $ 9,882 $ 2,432 $ --Accumulated benef�t obl�gat�on $ 196,217 $ 9,301 $ 2,432 $ --Fa�r value of plan assets $ 138,024 $ 6,252 $ -- $ --

Weighted-average assumptions used to determine benefit obligation:D�scount rate 5.06% 5.75% 5.87% NARate of �ncrease �n compensat�on levels 3.00% 3.00% NA NA

The health care cost trend rate used to determ�ne the other postret�rement benef�ts obl�gat�on at September 29, 2007 and September 30, 2006 was 8.0% and 8.5%, respect�vely. The rate w�ll decl�ne ratably to 5.0% by f�scal 2014 and rema�n at that level thereafter. A 1% �ncrease or decrease would have an �ns�gn�f�cant �mpact on the other postret�rement benef�t obl�gat�on as of September 29, 2007.

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Net Periodic Benefit Cost

The follow�ng table sets forth the plans’ net per�od�c benef�t cost and econom�c assumpt�ons for the years ended September 29, 2007 and September 30, 2006 (dollars �n thousands):

Pension Benefits

Other Postretirement

Benefits2007 2006 2007 2006

Components of net periodic benefit cost (income): Serv�ce cost $ 2,029 $ 2,242 $ -- $ --Interest cost 8,455 458 103 --Est�mated return on plan assets (8,170) (454) -- --Settlement (ga�n) loss (2,327) -- -- --Net per�od�c benef�t cost (�ncome) $ (13) $ 2,246 $ 103 $ --

Weighted-average assumptions used to determine benefit cost:

D�scount rate 5.06% 5.25% 5.50% NARate of �ncrease �n compensat�on levels 3.00% 3.00% NA NAExpected return on plan assets 7.75% 7.75% 7.75% NA

A 1% �ncrease or decrease �n the health care cost trend rate would have an �ns�gn�f�cant �mpact on the other postret�rement serv�ce and �nterest cost components for 2007.

Unrecognized Gain

The follow�ng table sets forth the plans’ accumulated other comprehens�ve �ncome that has not yet been recogn�zed for the year ended September 29, 2007 (�n thousands):

Unrecogn�zed (ga�n) loss at beg�nn�ng of per�od $ (818)Curta�lment and settlement adjustments 2,327 Actuar�al (ga�n) loss (12,974)Asset (ga�n) loss (3,400)Pr�or serv�ce cost (cred�t) 237

$ (14,628)

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Plan Assets

The fa�r value of plan assets for the Company’s pens�on plans, along w�th the asset allocat�on by category, �s shown below (dollars �n thousands):

Pension Benefits2007 2006

Fa�r value of plan assets at end of year $ 138,024 $ 6,252

Asset allocation:Cash and money market funds 2 % 0 %Equ�ty secur�t�es 71 % 66 %Debt secur�t�es 27 % 34 %

Total assets 100 % 100 %

Absent regulatory or statutory l�m�tat�ons, the target asset allocat�on for the �nvestment of the assets for our ongo�ng pens�on plans �s 25% �n debt secur�t�es and 75% �n equ�ty secur�t�es. The plans only �nvest �n debt and equ�ty �nstruments for wh�ch there �s a ready publ�c market. We develop our expected long-term rate of return assumpt�ons based on the h�stor�cal rates of returns for equ�ty and debt secur�t�es of the type �n wh�ch our plans �nvest.

Benefit Payments

The expected benef�t payments from the Company’s pens�on and postret�rement plans for the f�scal years �nd�cated are as follows (dollars �n thousands):

Expected Benefit Payments for fiscal year:Pension Benefits

OtherPostretirement

Benefits2008 $ 17,614 $ 3802009 17,502 243 2010 17,010 2052011 16,230 1752012 15,812 1772013-2017 62,515 889

Total $ 146,683 $ 2,069

NOTE I – RELATED PARTY TRANSACTIONS

Lonn�e “Bo” P�lgr�m, the Sen�or Cha�rman and, through certa�n related ent�t�es, the major stockholder of the Company (collect�vely, the “major stockholder”) owns an egg lay�ng and a ch�cken grow�ng operat�on. In add�t�on, at certa�n t�mes dur�ng the year, the major stockholder may purchase from the Company l�ve ch�ckens and hens and certa�n feed �nventor�es dur�ng the grow-out process and then contract w�th the Company to resell the b�rds at matur�ty us�ng a market-based formula, w�th pr�ce subject to a ce�l�ng pr�ce calculated at h�s cost plus two percent. No purchases have been

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made by the Company under th�s agreement s�nce the f�rst quarter of f�scal 2006 when the major stockholder recogn�zed an operat�ng marg�n of $4,539 on gross amounts pa�d by the Company to the major stockholder as descr�bed below �n “L�ve ch�cken purchases from major stockholder.” For the f�scal year ended October 1, 2005, the formula resulted �n an operat�ng marg�n of $1,017,000 on gross amounts pa�d by the Company to the major stockholder.

Transact�ons w�th the major stockholders or related ent�t�es are summar�zed as follows (dollars �n thousands):

2007 2006 2005Lease payments on commerc�al egg property $ 750 $ 750 $ 750Contract grower pay 885 976 682Other sales to major stockholder 620 747 51,258L�ve ch�cken purchases from major stockholder -- 231 50,070Loan guaranty fees 3,592 1,615 1,775Lease payments and operat�ng expenses on a�rplane 507 492 536

The Company leases a commerc�al egg property �nclud�ng all of the ongo�ng costs of the operat�on from the Company’s major stockholder. The lease term runs for ten years w�th a monthly lease payment of $62,500.

A port�on of the Company’s debt obl�gat�ons have been guaranteed by P�lgr�m Interests, Ltd., an ent�ty related to the Company’s Sen�or Cha�rman, Lonn�e “Bo” P�lgr�m. In cons�derat�on of such guarantees, the Company has pa�d P�lgr�m Interests, Ltd. a quarterly fee equal to 0.25% of one-half of the average aggregate outstand�ng balance of such guaranteed debt. Dur�ng f�scal 2007, we pa�d $3.6 m�ll�on to P�lgr�m Interests, Ltd.

The Company leases an a�rplane from �ts major stockholder under an operat�ng lease agreement that �s renewable annually. The terms of the lease agreement requ�re monthly payments of $33,000 plus operat�ng expenses. Lease expense was $396,000 for each of the years 2007, 2006 and 2005. Operat�ng expenses were $111,210, $96,480 and $140,090 �n 2007, 2006 and 2005, respect�vely.

The Company ma�nta�ns depos�tory accounts w�th a f�nanc�al �nst�tut�on �n wh�ch the Company’s major stockholder �s also a major stockholder. Fees pa�d to th�s bank �n 2007, 2006 and 2005 are �ns�gn�f�cant, and as of September 29, 2007, the Company had bank balances at th�s f�nanc�al �nst�tut�on of approx�mately $1.8 m�ll�on.

The major stockholder has depos�ted $0.3 m�ll�on w�th the Company as an advance on m�scellaneous expend�tures.

A son of the major stockholder sold commod�ty feed products and a l�m�ted amount of other serv�ces to the Company aggregat�ng approx�mately $0.6 m�ll�on �n f�scal 2007. He also leases an �ns�gn�f�cant amount of land from the Company.

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The Company has entered �nto ch�cken grower contracts �nvolv�ng farms owned by certa�n of �ts off�cers and d�rectors, prov�d�ng the placement of Company-owned flocks on the�r farms dur�ng the grow-out phase of product�on. These contracts are on terms substant�ally the same as contracts entered �nto by the Company w�th unaff�l�ated part�es and can be term�nated by e�ther party upon complet�on of the grow-out of each flock. The aggregate amounts pa�d by the Company to these off�cers and d�rectors under these grower contracts dur�ng each of the f�scal years 2007, 2006 and 2005 were less than $1 m�ll�on �n total.

NOTE J – COMMITMENTS and CONTINGENCIES

General

We are a party to many rout�ne contracts �n wh�ch we prov�de general �ndemn�t�es �n the normal course of bus�ness to th�rd part�es for var�ous r�sks. Among other cons�derat�ons, we have not recorded a l�ab�l�ty for any of these �ndemn�t�es as based upon the l�kel�hood of payment, the fa�r value of such �ndemn�t�es �s �mmater�al.

Purchase Obligations

The Company w�ll somet�mes enter �nto non-cancelable contracts to purchase cap�tal equ�pment and feed �ngred�ents. At September 29, 2007, the Company was party to outstand�ng purchase contracts total�ng $40.1 m�ll�on. Payments for purchases made under these contracts are due �n less than 1 year.

Leases

The Consol�dated Statements of Operat�ons �nclude rental expense for operat�ng leases of approx�mately $54.0 m�ll�on, $35.1 m�ll�on and $35.4 m�ll�on �n 2007, 2006 and 2005, respect�vely. The Company’s future m�n�mum lease comm�tments under non-cancelable operat�ng leases are as follows: 2008 -- $46.8 m�ll�on; 2009 -- $37.1 m�ll�on; 2010 -- $28.2 m�ll�on; 2011 -- $21.0 m�ll�on; 2012 -- $9.3 m�ll�on and thereafter $5.0 m�ll�on.

Certa�n of the Company’s operat�ng leases �nclude rent escalat�ons. The Company �ncludes the rent escalat�on �n �ts m�n�mum lease payments obl�gat�ons and recogn�zes them as a component of rental expense on a stra�ght-l�ne bas�s over the m�n�mum lease term.

The Company also ma�nta�ns operat�ng leases for var�ous types of equ�pment, some of wh�ch conta�n res�dual value guarantees for the market value of assets at the end of the term of the lease. The terms of the lease matur�t�es range from one to seven years. The max�mum potent�al amount of the res�dual value guarantees �s est�mated to be approx�mately $21.1 m�ll�on; however, the actual amount would be offset by any recoverable amount based on the fa�r market value of the underly�ng leased assets. No l�ab�l�ty has been recorded related to th�s cont�ngency as the l�kel�hood of payments under these guarantees �s not cons�dered to be probable and the fa�r value of such guarantees �s �mmater�al. The Company h�stor�cally has not exper�enced s�gn�f�cant payments under s�m�lar res�dual guarantees.

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Financial Instruments

At September 29, 2007, the Company had $84.9 m�ll�on �n letters of cred�t outstand�ng relat�ng to normal bus�ness transact�ons.

The Company’s loan agreements generally obl�gate the Company to re�mburse the appl�cable lender for �ncremental �ncreased costs due to a change �n law that �mposes (�) any reserve or spec�al depos�t requ�rement aga�nst assets of, depos�ts w�th or cred�t extended by such lender related to the loan, (��) any tax, duty or other charge w�th respect to the loan (except standard �ncome tax) or (��) cap�tal adequacy requ�rements. In add�t�on, some of the Company’s loan agreements conta�n a w�thhold�ng tax prov�s�on that requ�res the Company to pay add�t�onal amounts to the appl�cable lender or other f�nanc�ng party, generally �f w�thhold�ng taxes are �mposed on such lender or other f�nanc�ng party as a result of a change �n the appl�cable tax law. These �ncreased cost and w�thhold�ng tax prov�s�ons cont�nue for the ent�re term of the appl�cable transact�on, and there �s no l�m�tat�on on the max�mum add�t�onal amounts the Company could be obl�gated to pay under such prov�s�ons. Any fa�lure to pay amounts due under such prov�s�ons generally would tr�gger an event of default, and, �n a secured f�nanc�ng transact�on, would ent�tle the lender to foreclose upon the collateral to real�ze the amount due.

Litigation

The Company �s subject to var�ous legal proceed�ngs and cla�ms wh�ch ar�se �n the ord�nary course of bus�ness. Below �s a summary of the most s�gn�f�cant cla�ms outstand�ng aga�nst the Company. In the Company’s op�n�on, �t has made appropr�ate and adequate accruals for cla�ms where necessary, and the Company bel�eves the probab�l�ty of a mater�al loss beyond the amounts accrued to be remote; however, the ult�mate l�ab�l�ty for these matters �s uncerta�n, and �f s�gn�f�cantly d�fferent than the amounts accrued, the ult�mate outcome could have a mater�al effect on the f�nanc�al cond�t�on or results of operat�ons of the Company. The Company bel�eves �t has substant�al defenses to the cla�ms made and �ntends to v�gorously defend these cases.

Among the cla�ms presently pend�ng aga�nst the Company are cla�ms seek�ng unspec�f�ed damages brought by current and former employees seek�ng compensat�on for the t�me spent donn�ng and doff�ng work equ�pment. We are aware of an �ndustry-w�de �nvest�gat�on by the Wage and Hour D�v�s�on of the U.S. Department of Labor to ascerta�n compl�ance w�th var�ous wage and hour �ssues, �nclud�ng the compensat�on of employees for the t�me spent on such act�v�t�es such as donn�ng and doff�ng work equ�pment. Due, �n part, to the government �nvest�gat�on and the recent U.S. Supreme Court dec�s�on �n IBP, Inc. v. Alvarez, �t �s poss�ble that we may be subject to add�t�onal employee cla�ms. We �ntend to assert v�gorous defenses to the l�t�gat�on. Nonetheless, there can be no assurances that other s�m�lar cla�ms may not be brought aga�nst the Company.

On December 31, 2003, we were served w�th a purported class act�on compla�nt styled “Angela Goodw�n, Glor�a W�ll�s, Johnny G�ll, Greg Ham�lton, Nathan Rob�nson, Edd�e Gusby, Pat Curry, Persons S�m�larly S�tuated v. ConAgra Poultry Company and P�lgr�m’s Pr�de, Incorporated” �n the Un�ted States D�str�ct Court, Western D�str�ct of Arkansas, El Dorado D�v�s�on, alleg�ng rac�al and age d�scr�m�nat�on at one of the fac�l�t�es we acqu�red from ConAgra. The Court d�sm�ssed the cla�ms of a th�rd pla�nt�ff Robert Nelson �n the�r ent�rety based on the theory of jud�c�al estoppel. On May 15, 2007,

107


the Court �ssued �ts order deny�ng Pla�nt�ffs’ Mot�on for Class Cert�f�cat�on �n �ts ent�rety. The pla�nt�ffs subsequently w�thdrew the�r pet�t�on appeal to the E�ghth C�rcu�t Court of Appeals. Thus the Court’s order deny�ng pla�nt�ffs class cert�f�cat�on mot�on stands as a f�nal b�nd�ng order. Subsequent to the Court’s order on July 18, 2007, the s�x rema�n�ng pla�nt�ffs have f�led �nd�v�dual act�ons. We bel�eve we have mer�tor�ous defenses to these �nd�v�dual cla�ms and we �ntend to v�gorously defend these �nd�v�dual cla�ms.

In March 2005, the Company, through arb�trat�on, settled l�t�gat�on related to a breach of contract that occurred �n a pr�or year. The settlement resulted �n a non-recurr�ng ga�n of $11.7 m�ll�on be�ng recogn�zed and recorded �n m�scellaneous, net �n f�scal 2005.

NOTE K – BUSINESS SEGMENTS

We operate �n three reportable bus�ness segments as (1) a producer and seller of ch�cken products, (2) a producer and seller of turkey products and (3) a seller of other products.

Our ch�cken segment �ncludes sales of ch�cken products we produce and purchase for resale �n the U.S., �nclud�ng Puerto R�co, and Mex�co. Our ch�cken segment conducts separate operat�ons �n the U.S. and Puerto R�co and �n Mex�co and �s reported as two separate geograph�cal areas.

Our turkey segment �ncludes sales of turkey products we produce and purchase for resale �n our turkey and d�str�but�on operat�ons, operat�ng �n the U.S.

Our other products segment �ncludes d�str�but�on of non-poultry products that are purchased from th�rd part�es and sold to �ndependent grocers and qu�ck serv�ce restaurants. Also �ncluded �n th�s category are sales of table eggs, feed, prote�n products, l�ve hogs and other �tems, some of wh�ch are produced or ra�sed by the Company.

Inter-area sales and �nter-segment sales, wh�ch are not mater�al, are accounted for at pr�ces comparable to normal trade customer sales. Corporate expenses are allocated to Mex�co based upon var�ous apport�onment methods for spec�f�c expend�tures �ncurred related thereto w�th the rema�n�ng amounts allocated to the U.S. port�ons of the segments based on number of employees.

Assets assoc�ated w�th our corporate funct�ons, �ncluded cash and cash equ�valents and �nvestments �n ava�lable for sale secur�t�es are �ncluded �n our ch�cken segment.

Sell�ng, general and adm�n�strat�ve expenses related to our d�str�but�on centers are allocated based on the proport�on of net sales to the part�cular segment to wh�ch the product sales relate.

Deprec�at�on and amort�zat�on, total assets and cap�tal expend�tures of our d�str�but�on centers are �ncluded �n our ch�cken segment based on the pr�mary focus of the centers.

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The follow�ng table presents certa�n �nformat�on regard�ng our segments (dollars �n thousands):

(Fiscal Year Ended)September 29,

2007(a) September 30, 2006 October 1, 2005Net Sales to Customers:Ch�cken:

Un�ted States $ 6,328,354 $ 4,098,403 $ 4,411,269Mex�co 488,466 418,745 403,353 Sub-total 6,816,820 4,517,148 4,814,622

Turkey 122,364 130,901 204,838Other Products:


Sub-total 659,415 587,516 646,815Total 7,598,599 5,235,565 5,666,275

Operating Income (Loss): Ch�cken:

Un�ted States $ 192,447 $ 28,619 $ 405,662Mex�co 13,116 (17,960) 39,809

Sub-total 205,563 10,659 445,471Turkey (4,655) (15,511) (22,539)Other Products:


Sub-total 31,629 7,854 12,880Total $ 232,537 $ 3,002 $ 435,812

Depreciation and Amortization:(b) Ch�cken:


Sub-total 194,823 120,651 126,216Turkey 1,587 6,593 3,343Other Products:


Sub-total 8,493 7,889 5,385Total $ 204,903 $ 135,133 $ 134,944

Total Assets: Ch�cken:




Sub-total 107,877 90,310 87,591Total $ 3,774,236 $ 2,426,868 $ 2,511,903

Capital Expenditures (excluding acquisition): Ch�cken:


Sub-total 166,082 139,642 107,394Turkey 502 257 3,604Other Products:


Sub-total 5,739 3,983 5,590Total $ 172,323 $ 143,882 $ 116,588

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(a) The Company acqu�red Gold K�st on December 27, 2006 for $1.139 b�ll�on. For f�nanc�al report�ng purposes, we have not �ncluded the operat�ng results and cash flows of Gold K�st �n our consol�dated f�nanc�al statements for the per�od from December 27, 2006 through December 30, 2006. The operat�ng results and cash flows of Gold K�st from December 27, 2006 through December 30, 2006 were not mater�al.

(b) Includes amort�zat�on of cap�tal�zed f�nanc�ng costs of approx�mately $6.6 m�ll�on, $2.3 m�ll�on, and $2.0 m�ll�on �n f�scal 2007, 2006 and 2005, respect�vely, and amort�zat�on of �ntang�ble assets of approx�mately $6.3 m�ll�on �n f�scal 2007.

The Company had one customer that represented 10% or more of annual net sales �n f�scal years 2007, 2006 and 2005.

As of each of the three years ended September 29, 2007, Mex�co has net long l�ved assets of $106.2 m�ll�on, $116.9 m�ll�on and $122.1 m�ll�on, respect�vely.

At September 29, 2007, Mex�co has net assets of $284.8 m�ll�on.

NOTE L – QUARTERLY RESULTS (UNAUDITED)

(In thousands, except per share data) Fiscal Year Ended September 29, 2007F�rst

Quarter Second

Quarter (b)Th�rd

Quarter(b)Fourth

Quarter(b) F�scalYear

Net sales $ 1,337,132 $ 1,993,965 $ 2,118,386 $ 2,149,116 $ 7,598,599Gross prof�t 65,526 83,942 235,239 206,831 591,538Operat�ng �ncome (loss) (2.906) (11,699) 136,777 110,365 232,537Net �ncome (loss) (8,736) (40,077) 62,641 33,189 47,017Per Share:

Net �ncome (loss) (0.13) (0.60) 0.94 0.50 0.71Cash d�v�dends 0.0225 0.0225 0.0225 0.0225 0.090

(In thousands, except per share data) Fiscal Year Ended September 30, 2006F�rst

QuarterSecondQuarter

Th�rdQuarter

FourthQuarter(a)

F�scalYear

Net sales $ 1,343,812 $ 1,265,709 $ 1,287,646 $ 1,338,398 $ 5,235,565Gross prof�t 118,400 37,201 42,696 99,303 297,600Operat�ng �ncome (loss) 46,198 (37,936) (26,737) 21,477 3,002Net �ncome (loss) 25,678 (31,954) (20,473) (7,483) (34,232)Per Share:

Net �ncome (loss) 0.39 (0.48) (0.31) (0.11) (0.51)Cash d�v�dends 1.0225 0.0225 0.0225 0.0225 1.090

(a) Included �n gross prof�t �n the fourth quarter of f�scal 2006 are charges for account�ng adjustments of $6.4 m�ll�on, pretax, related to certa�n benef�t plans. Included �n net �ncome �n the fourth quarter of f�scal 2006 �s a $25.8 m�ll�on tax prov�s�on for the Amer�can Jobs Creat�on Act of 2004 and a $10.6 m�ll�on tax benef�t for a change �n est�mate of cont�ngency reserves as descr�bed �n Note A and Note F.

(b) The Company acqu�red Gold K�st on December 27, 2006 for $1.139 b�ll�on. For f�nanc�al report�ng purposes, we have not �ncluded the operat�ng results and cash flows of Gold K�st �n our consol�dated f�nanc�al statements for the per�od from December 27, 2006 through December 30, 2006. The operat�ng results and cash flows of Gold K�st from December 27, 2006 through December 30, 2006 were not mater�al.

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PILGRIM’S PRIDE CORPORATION

SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS

Add�t�ons

Descr�pt�on

Balance at Beg�nn�ng of Per�od

Charged to Costs

and Expenses

Charged toOther

Accounts-Descr�be(a)

Deduct�ons Descr�be(b)

Balance at end

of Per�od

Year ended September 29, 2007:Reserves and allowances deductedFrom asset accounts:

Allowance for doubtful accounts $ 2,084,409 $ 4,768,272 $ 1,324,131 $ 2,313,018 $ 5,863,794

Year ended September 30, 2006:Reserves and allowances deductedFrom asset accounts:

Allowance for doubtful accounts $ 4,663,155 $ (100,676) $ -- $ 2,478,070 $ 2,084,409

Year ended October 1, 2005: Reserves and allowances deducted

From asset accounts:Allowance for doubtful accounts $ 4,244,644 $ 767,923 $ -- $ 349,412 $ 4,663,155

(a) Balance of allowance for doubtful accounts establ�shed for accounts rece�vable acqu�red from Gold K�st.

(b) Uncollect�ble accounts wr�tten off, net of recover�es.

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Exhibit Index

2.1 Agreement and Plan of Reorgan�zat�on dated September 15, 1986, by and among P�lgr�m’s Pr�de Corporat�on, a Texas corporat�on; P�lgr�m’s Pr�de Corporat�on, a Delaware corporat�on; and Dor�s P�lgr�m Jul�an, Aubrey Hal P�lgr�m, Paulette P�lgr�m Rolston, Evanne P�lgr�m, Lonn�e “Bo” P�lgr�m, Lonn�e Ken P�lgr�m, Greta P�lgr�m Owens and Patr�ck Wayne P�lgr�m (�ncorporated by reference from Exh�b�t 2.1 to the Company’s Reg�strat�on Statement on Form S-1 (No. 33-8805) effect�ve November 14, 1986).

2.2 Agreement and Plan of Merger dated September 27, 2000 (�ncorporated by reference from Exh�b�t 2 of WLR Foods, Inc.’s Current Report on Form 8-K (No. 000-17060) dated September 28, 2000).

2.3 Agreement and Plan of Merger dated as of December 3, 2006, by and among the Company, Prote�n Acqu�s�t�on Corporat�on, a wholly-owned subs�d�ary of the Company, and Gold K�st Inc. (�ncorporated by reference from Exh�b�t 99.(D)(1) to Amendment No. 11 to the Company’s Tender Offer Statement on Schedule TO f�led on December 5, 2006).

3.1 Cert�f�cate of Incorporat�on of the Company, as amended (�ncorporated by reference from Exh�b�t 3.1 of the Company’s Annual Report on Form 10-K for the f�scal year ended October 2, 2004).

3.2 Amended and Restated Corporate Bylaws of the Company (�ncorporated by reference from Exh�b�t 4.4 of the Company’s Reg�strat�on Statement on Form S-8 (No. 333-111929) f�led on January 15, 2004).

4.1 Cert�f�cate of Incorporat�on of the Company, as amended (�ncluded as Exh�b�t 3.1).4.2 Amended and Restated Corporate Bylaws of the Company (�ncluded as Exh�b�t 3.2).4.3 Indenture, dated November 21, 2003, between P�lgr�m’s Pr�de Corporat�on and The

Bank of New York as Trustee relat�ng to P�lgr�m’s Pr�de’s 9 ¼% Sen�or Notes due 2013 (�ncorporated by reference from Exh�b�t 4.1 of the Company’s Reg�strat�on Statement on Form S-4 (No. 333-111975) f�led on January 16, 2004).

4.4 Form of 9 ¼% Note due 2013 (�ncorporated by reference from Exh�b�t 4.3 of the Company’s Reg�strat�on Statement on Form S-4 (No. 333-111975) f�led on January 16, 2004).

4.5 Sen�or Debt Secur�t�es Indenture dated as of January 24, 2007, by and between the Company and Wells Fargo Bank, Nat�onal Assoc�at�on, as trustee (�ncorporated by reference from Exh�b�t 4.1 to the Company’s Current Report on Form 8-K f�led on January 24, 2007).

4.6 F�rst Supplemental Indenture to the Sen�or Debt Secur�t�es Indenture dated as of January 24, 2007, by and between the Company and Wells Fargo Bank, Nat�onal Assoc�at�on, as trustee (�ncorporated by reference from Exh�b�t 4.2 to the Company’s Current Report on Form 8-K f�led on January 24, 2007).

4.7 Form of 7 5/8% Sen�or Note due 2015 (�ncorporated by reference from Exh�b�t 4.3 to the Company’s Current Report on Form 8-K f�led on January 24, 2007).

112


4.8 Sen�or Subord�nated Debt Secur�t�es Indenture dated as of January 24, 2007, by and between the Company and Wells Fargo Bank, Nat�onal Assoc�at�on, as trustee (�ncorporated by reference from Exh�b�t 4.4 to the Company’s Current Report on Form 8-K f�led on January 24, 2007).

4.9 F�rst Supplemental Indenture to the Sen�or Subord�nated Debt Secur�t�es Indenture dated as of January 24, 2007, by and between the Company and Wells Fargo Bank, Nat�onal Assoc�at�on, as trustee (�ncorporated by reference from Exh�b�t 4.5 to the Company’s Current Report on Form 8-K f�led on January 24, 2007).

4.10 Form of 8 3/8% Subord�nated Note due 2017 (�ncorporated by reference from Exh�b�t 4.6 to the Company’s Current Report on Form 8-K f�led on January 24, 2007).

10.1 P�lgr�m’s Industr�es, Inc. Prof�t Shar�ng Ret�rement Plan, restated as of July 1, 1987 (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Form 8-K f�led on July 1, 1992).

10.2 Sen�or Execut�ve Performance Bonus Plan of the Company (�ncorporated by reference from Exh�b�t A �n the Company’s Proxy Statement dated December 13, 1999).

10.3 A�rcraft Lease Extens�on Agreement between B.P. Leas�ng Co. (L.A. P�lgr�m, �nd�v�dually) and P�lgr�m’s Pr�de Corporat�on (formerly P�lgr�m’s Industr�es, Inc.) effect�ve November 15, 1992 (�ncorporated by reference from Exh�b�t 10.48 of the Company’s Quarterly Report on Form 10-Q for the three months ended March 29, 1997).

10.4 Bro�ler Grower Contract dated May 6, 1997 between P�lgr�m’s Pr�de Corporat�on and Lonn�e “Bo” P�lgr�m (Farm 30) (�ncorporated by reference from Exh�b�t 10.49 of the Company’s Quarterly Report on Form 10-Q for the three months ended March 29, 1997).

10.5 Commerc�al Egg Grower Contract dated May 7, 1997 between P�lgr�m’s Pr�de Corporat�on and P�lgr�m Poultry G.P. (�ncorporated by reference from Exh�b�t 10.50 of the Company’s Quarterly Report on Form 10-Q for the three months ended March 29, 1997).

10.6 Agreement dated October 15, 1996 between P�lgr�m’s Pr�de Corporat�on and P�lgr�m Poultry G.P. (�ncorporated by reference from Exh�b�t 10.23 of the Company’s Quarterly Report on Form 10-Q for the three months ended January 2, 1999).

10.7 Heavy Breeder Contract dated May 7, 1997 between P�lgr�m’s Pr�de Corporat�on and Lonn�e “Bo” P�lgr�m (Farms 44, 45 & 46) (�ncorporated by reference from Exh�b�t 10.51 of the Company’s Quarterly Report on Form 10-Q for the three months ended March 29, 1997).

10.8 Bro�ler Grower Contract dated January 9, 1997 by and between P�lgr�m’s Pr�de and O.B. Goolsby, Jr. (�ncorporated by reference from Exh�b�t 10.25 of the Company’s Reg�strat�on Statement on Form S-1 (No. 333-29163) effect�ve June 27, 1997).

10.9 Bro�ler Grower Contract dated January 15, 1997 by and between P�lgr�m’s Pr�de Corporat�on and B.J.M. Farms (�ncorporated by reference from Exh�b�t 10.26 of the Company’s Reg�strat�on Statement on Form S-1 (No. 333-29163) effect�ve June 27, 1997).

113


10.10 Bro�ler Grower Agreement dated January 29, 1997 by and between P�lgr�m’s Pr�de Corporat�on and Cl�fford E. Butler (�ncorporated by reference from Exh�b�t 10.27 of the Company’s Reg�strat�on Statement on Form S-1 (No. 333-29163) effect�ve June 27, 1997).

10.11 Rece�vables Purchase Agreement dated June 26, 1998 between P�lgr�m’s Pr�de Fund�ng Corporat�on, as Seller, P�lgr�m’s Pr�de Corporat�on, as Serv�cer, Pooled Accounts Rece�vable Cap�tal Corporat�on, as Purchaser, and Nesb�tt Burns Secur�t�es Inc., as Agent (�ncorporated by reference from Exh�b�t 10.33 of the Company’s Quarterly Report on Form 10-Q for the three months ended June 27, 1998).

10.12 Purchase and Contr�but�on Agreement dated as of June 26, 1998 between P�lgr�m’s Pr�de Fund�ng Corporat�on and P�lgr�m’s Pr�de Corporat�on (�ncorporated by reference from Exh�b�t 10.34 of the Company’s Quarterly Report on Form 10-Q for the three months ended June 27, 1998).

10.13 Guaranty Fee Agreement between P�lgr�m’s Pr�de Corporat�on and P�lgr�m Interests, Ltd., dated June 11, 1999 (�ncorporated by reference from Exh�b�t 10.24 of the Company’s Annual Report on Form 10-K for the f�scal year ended October 2, 1999).

10.14 Bro�ler Product�on Agreement between P�lgr�m’s Pr�de Corporat�on and Lonn�e “Bo” P�lgr�m dated November 15, 2005 (�ncorporated by reference from Exh�b�t 99.1 of the Company’s Current Report on Form 8-K dated November 10, 2005).

10.15 Commerc�al Property Lease dated December 29, 2000 between P�lgr�m’s Pr�de Corporat�on and P�lgr�m Poultry G.P. (�ncorporated by reference from Exh�b�t 10.30 of the Company’s Quarterly Report on Form 10-Q for the three months ended December 30, 2000).

10.16 Amendment No. 1 dated as of July 12, 2002 to Rece�vables Purchase Agreement dated as of June 26, 1998 among P�lgr�m’s Pr�de Fund�ng Corporat�on, the Company, Fa�rway F�nance Corporat�on (as successor �n �nterest to Pooled Accounts Rece�vable Cap�tal Corporat�on) and BMO Nesb�tt Burns Corp. (f/k/a Nesb�tt Burns Secur�t�es Inc.) (�ncorporated by reference from Exh�b�t 10.32 of the Company’s Annual Report on Form 10-K f�led on December 6, 2002).

10.17 Amendment No. 3 dated as of July 18, 2003 to Rece�vables Purchase Agreement dated as of June 26, 1998 between P�lgr�m’s Pr�de Fund�ng Corporat�on (“Seller”), P�lgr�m’s Pr�de Corporat�on as �n�t�al Serv�cer, Fa�rway F�nance Corporat�on (as successor �n �nterest to Pooled Accounts Rece�vable Cap�tal Corporat�on) (“Purchaser”) and Harr�s Nesb�tt Corporat�on as agent for the purchaser (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Quarterly Report on Form 10-Q f�led July 23, 2003).

10.18 Agr�cultural Lease between P�lgr�m’s Pr�de Corporat�on (Lessor) and Patr�ck W. P�lgr�m (Tenant) dated May 1, 2003 (�ncorporated by reference from Exh�b�t 10.15 of the Company’s Quarterly Report on Form 10-Q f�led July 23, 2003).

114


10.19 Amendment No. 4 dated as of December 31, 2003 to Rece�vables Purchase Agreement dated as of June 26, 1998, among P�lgr�m’s Pr�de Fund�ng Corporat�on, P�lgr�m’s Pr�de Corporat�on as �n�t�al Serv�cer, Fa�rway F�nance Company, LLC (as successor to Fa�rway F�nance Corporat�on) as purchaser and Harr�s Nesb�tt Corp. (f/k/a BMO Nesb�tt Burns Corp.) as agent for the purchaser (�ncorporated by reference from Exh�b�t 10.4 of the Company’s Quarterly Report on Form 10-Q f�led February 4, 2004).

10.20 Amendment No. 1 dated as of December 31, 2003 to Purchase and Contr�but�on Agreement dated as of June 26, 1998, between P�lgr�m’s Pr�de Fund�ng Corporat�on and P�lgr�m’s Pr�de Corporat�on (�ncorporated by reference from Exh�b�t 10.5 of the Company’s Quarterly Report on Form 10-Q f�led February 4, 2004).

10.21 Employee Stock Investment Plan of the Company (�ncorporated by reference from Exh�b�t 4.1 of the Company’s Reg�strat�on Statement on Form S-8 (No. 333-111929) f�led on January 15, 2004).

10.22 Purchase and Amendment Agreement between P�lgr�m’s Pr�de Corporat�on and ConAgra Foods, Inc. dated August 3, 2005 (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Current Report on Form 8-K dated August 4, 2005).

10.23 Amended and Restated 2005 Deferred Compensat�on Plan of the Company (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Current Report on Form 8-K dated December 30, 2005).

10.24 Vendor Serv�ce Agreement dated effect�ve December 28, 2005 between P�lgr�m’s Pr�de Corporat�on and Pat P�lgr�m (�ncorporated by reference from Exh�b�t 10.2 of the Company’s Current Report on Form 8-K dated January 6, 2006).

10.25 Transportat�on Agreement dated effect�ve December 28, 2005 between P�lgr�m’s Pr�de Corporat�on and Pat P�lgr�m (�ncorporated by reference from Exh�b�t 10.3 of the Company’s Current Report on Form 8-K dated January 6, 2006).

10.26 Ground Lease Agreement dated effect�ve January 4, 2006 between P�lgr�m’s Pr�de Corporat�on and Pat P�lgr�m (�ncorporated by reference from Exh�b�t 10.4 of the Company’s Current Report on Form 8-K dated January 6, 2006).

10.27 Cred�t Agreement by and among the Avícola P�lgr�m’s Pr�de de Méx�co, S. de R.L. de C.V. (the “Borrower”), P�lgr�m’s Pr�de Corporat�on, certa�n Mex�co subs�d�ar�es of the Borrower, ING Cap�tal LLC, and the lenders s�gnatory thereto dated as of September 25, 2006 (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Current Report on Form 8-K f�led on September 28, 2006).

10.28 2006 Amended and Restated Cred�t Agreement by and among CoBank, ACB, Agr�land, FCS and the Company dated as of September 21, 2006 (�ncorporated by reference from Exh�b�t 10.2 of the Company’s Current Report on Form 8-K f�led on September 28, 2006).

10.29 F�rst Amendment to the P�lgr�m’s Pr�de Corporat�on Amended and Restated 2005 Deferred Compensat�on Plan Trust, dated as of November 29, 2006 (�ncorporated by reference from Exh�b�t 10.03 of the Company’s Current Report on Form 8-K f�led on December 05, 2006).

115


10.30 Agreement and Plan of Merger dated as of December 3, 2006, by and among the Company, the Purchaser and Gold K�st Inc. (�ncorporated by reference from Exh�b�t 99.(D)(1) to Amendment No. 11 to the Company’s Tender Offer Statement on Schedule TO f�led on December 5, 2006).

10.31 F�rst Amendment to Cred�t Agreement, dated as of December 13, 2006, by and among the Company, as borrower, CoBank, ACB, as lead arranger and co-synd�cat�on agent, and sole book runner, and as adm�n�strat�ve, documentat�on and collateral agent, Agr�land, FCS, as co-synd�cat�on agent, and as a synd�cat�on party, and the other synd�cat�on part�es s�gnatory thereto (�ncorporated by reference from Exh�b�t 10.01 to the Company’s Current Report on Form 8-K f�led on December 19, 2006).

10.32 Second Amendment to Cred�t Agreement, dated as of January 4, 2007, by and among the Company, as borrower, CoBank, ACB, as lead arranger and co-synd�cat�on agent, and sole book runner, and as adm�n�strat�ve, documentat�on and collateral agent, Agr�land, FCS, as co-synd�cat�on agent, and as a synd�cat�on party, and the other synd�cat�on part�es s�gnatory thereto (�ncorporated by reference from Exh�b�t 10.01 to the Company’s Current Report on Form 8-K f�led on January 9, 2007).

10.33 Fourth Amended and Restated Secured Cred�t Agreement, dated as of February 8, 2007, by and among the Company, To-R�cos, Ltd., To-R�cos D�str�but�on, Ltd., Bank of Montreal, as agent, SunTrust Bank, as synd�cat�on agent, U.S. Bank Nat�onal Assoc�at�on and Wells Fargo Bank, Nat�onal Assoc�at�on, as co-documentat�on agents, BMO Cap�tal Market, as lead arranger, and the other lenders s�gnatory thereto (�ncorporated by reference from Exh�b�t 10.01 of the Company’s Current Report on Form 8-K dated February 12, 2007).

10.34 Th�rd Amendment to Cred�t Agreement, dated as of February 7, 2007, by and among the Company as borrower, CoBank, ACB, as lead arranger and co-synd�cat�on agent, and the sole book runner, and as adm�n�strat�ve, documentat�on and collateral agent, Agr�land, FCS, as co-synd�cat�on agent, and as a synd�cat�on party, and the other synd�cat�on part�es s�gnatory thereto (�ncorporated by reference from Exh�b�t 10.02 of the Company’s Current Report on Form 8-K dated February 12, 2007).

10.35 F�rst Amendment to Cred�t Agreement, dated as of March 15, 2007, by and among the Borrower, the Company, the Subs�d�ary Guarantors, ING Cap�tal LLC, and the Lenders (�ncorporated by reference from Exh�b�t 10.01 of the Company’s Current Report on Form 8-K dated March 20, 2007).

10.36 Fourth Amendment to Cred�t Agreement, dated as of July 3, 2007, by and among the Company as borrower, CoBank, ACB, as lead arranger and co-synd�cat�on agent, and the sole book runner, and as adm�n�strat�ve, documentat�on and collateral agent, Agr�land, FCS, as co-synd�cat�on agent, and as synd�cat�on party, and the other synd�cat�on part�es s�gnatory thereto (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Quarterly Report on Form 10-Q f�led July 31, 2007).

10.37 Amendment No. 5 to Rece�vables Purchase Agreement dated as of August 20, 2007, among the Company, P�lgr�m’s Pr�de Fund�ng Corporat�on, Fa�rway F�nance Company, LLC and BMO Cap�tal Markets Corp. (�ncorporated by reference from Exh�b�t 10.01 of the Company’s Current Report on Form 8-K dated August 24, 2007).

116


10.38 Ret�rement and Consult�ng Agreement dated as of October 10, 2007, between the Company and Cl�fford E. Butler (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Current Report on Form 8-K dated October 10, 2007).

10.39 F�fth Amendment to Cred�t Agreement, dated as of August 7, 2007, by and among the Company as borrower, CoBank, ACB, as lead arranger and co-synd�cat�on agent, and the sole book runner, and as adm�n�strat�ve, documentat�on and collateral agent, Agr�land, FCS, as co-synd�cat�on agent, and as synd�cat�on party, and the other synd�cat�on part�es s�gnatory thereto.*

10.40 S�xth Amendment to Cred�t Agreement, dated as of November 7, 2007, by and among the Company as borrower, CoBank, ACB, as adm�n�strat�ve agent, and the other synd�cat�on part�es s�gnatory thereto (�ncorporated by reference from Exh�b�t 10.1 of the Company’s Current Report on Form 8-K dated November 13, 2007).

12 Rat�o of Earn�ngs to F�xed Charges for the years ended September 29, 2007, September 30, 2006, October 1, 2005, October 2, 2004, September 27, 2003, and September 28, 2002.*

21 Subs�d�ar�es of Reg�strant.*23 Consent of Ernst & Young LLP.*31.1 Cert�f�cat�on of Co-Pr�nc�pal Execut�ve Off�cer pursuant to Sect�on 302 of the Sarbanes-

Oxley Act of 2002.*31.2 Cert�f�cat�on of Co-Pr�nc�pal Execut�ve Off�cer pursuant to Sect�on 302 of the Sarbanes-

Oxley Act of 2002.*31.3 Cert�f�cat�on of Ch�ef F�nanc�al Off�cer pursuant to Sect�on 302 of the Sarbanes-Oxley Act

of 2002.*32.1 Cert�f�cat�on of Co-Pr�nc�pal Execut�ve Off�cer of P�lgr�m’s Pr�de Corporat�on pursuant to

Sect�on 906 of the Sarbanes-Oxley Act of 2002.*32.2 Cert�f�cat�on of Co-Pr�nc�pal Execut�ve Off�cer of P�lgr�m’s Pr�de Corporat�on pursuant to

Sect�on 906 of the Sarbanes-Oxley Act of 2002.*32.3 Cert�f�cat�on of Ch�ef F�nanc�al Off�cer of P�lgr�m’s Pr�de Corporat�on pursuant to Sect�on

906 of the Sarbanes-Oxley Act of 2002.*

* Filed herewith

Represents a management contract or compensation plan arrangement

117


EXHIBIT 10.39

FIFTH AMENDMENT TO CREDIT AGREEMENTParties:

“CoBank”: CoBank, ACB 5500 South Quebec Street Greenwood V�llage, Colorado 80111

“Borrower”: P�lgr�m’s Pr�de Corporat�on 4845 US H�ghway 271 N. P�ttsburg, Texas 75686

“Synd�cat�on Part�es”: Whose s�gnatures appear below

Execution Date: August 7, 2007

Recitals:

• CoBank (�n �ts capac�ty as the Adm�n�strat�ve Agent (“Agent”), the Synd�cat�on Part�es s�gnatory thereto, and Borrower have entered �nto that certa�n 2006 Amended and Restated Cred�t Agreement (Convert�ble Revolv�ng Loan and Term Loan) dated as of September 21, 2006, that certa�n F�rst Amendment to Cred�t Agreement dated as of December 13, 2006, that certa�n Second Amendment to Cred�t Agreement dated as of January 4, 2007, and that certa�n Th�rd Amendment to Cred�t Agreement dated as of February 7, 2007, and that certa�n Fourth Amendment to Cred�t Agreement dated as of July 3, 2007 (as so amended and as amended, mod�f�ed, or supplemented from t�me to t�me �n the future, the “Credit Agreement”) pursuant to wh�ch the Synd�cat�on Part�es, and any ent�ty wh�ch becomes a Synd�cat�on Party on or after September 21, 2006, have extended certa�n cred�t fac�l�t�es to Borrower under the terms and cond�t�ons set forth �n the Cred�t Agreement.

• Borrower has requested that the Agent and the Synd�cat�on Part�es mod�fy the def�n�t�on of the GK L�en Date, wh�ch the Agent and the Synd�cat�on Part�es are w�ll�ng to do under the terms and cond�t�ons as set forth �n th�s F�fth Amendment to Cred�t Agreement (“Fifth Amendment”).

Agreement:

Now, therefore, �n cons�derat�on of the mutual covenants and agreements here�n conta�ned and other good and valuable cons�derat�on, the rece�pt and adequacy of wh�ch are hereby acknowledged, the part�es hereto hereby agree as follows:

• Amendments to Credit Agreement. The Cred�t Agreement �s amended as of the Effect�ve Date as follows:

1.1 Sect�ons 1.57 �s amended to read as follows:

1.57 GK L�en Date: means September 23, 2007.

118


• Conditions to Effectiveness of this Fifth Amendment. The effect�veness of th�s F�fth Amendment �s subject to sat�sfact�on, �n the Adm�n�strat�ve Agent’s sole d�scret�on, of each of the follow�ng cond�t�ons precedent (the date on wh�ch all such cond�t�ons precedent are so sat�sf�ed shall be the “Effect�ve Date”):

a. Delivery of Executed Loan Documents. Borrower shall have del�vered to the Adm�n�strat�ve Agent, for the benef�t of, and for del�very to, the Adm�n�strat�ve Agent and the Synd�cat�on Part�es, the follow�ng document, duly executed by Borrower:

• Th�s F�fth Amendment

b. Syndication Parties Execution; Voting Participant Approval. The Adm�n�strat�ve Agent shall have rece�ved (a) wr�tten approval of th�s F�fth Amendment by at least the Requ�red Lenders (�nclud�ng Vot�ng Part�c�pants); and (b) a copy of th�s F�fth Amendment executed by the Synd�cat�on Part�es as requ�red.

c. Representations and Warranties. The representat�ons and warrant�es of Borrower �n the Cred�t Agreement shall be true and correct �n all mater�al respects on and as of the Effect�ve Date as though made on and as of such date.

d. No Event of Default. No Event of Default shall have occurred and be cont�nu�ng under the Cred�t Agreement as of the Effect�ve Date of th�s F�fth Amendment.

e. Payment of Fees and Expenses. Borrower shall have pa�d the Adm�n�strat�ve Agent, by w�re transfer of �mmed�ately ava�lable federal funds (a) all fees presently due under the Cred�t Agreement (as amended by th�s F�fth Amendment); and (b) all expenses ow�ng as of the Effect�ve Date pursuant to Sect�on 15.1 of the Cred�t Agreement.

• General Prov�s�ons.

a. No Other Modifications. The Cred�t Agreement, as expressly mod�f�ed here�n, shall cont�nue �n full force and effect and be b�nd�ng upon the part�es thereto.

b. Successors and Assigns. Th�s F�fth Amendment shall be b�nd�ng upon and �nure to the benef�t of Borrower, Agent, and the Synd�cat�on Part�es, and the�r respect�ve successors and ass�gns, except that Borrower may not ass�gn or transfer �ts r�ghts or obl�gat�ons hereunder w�thout the pr�or wr�tten consent of all the Synd�cat�on Part�es.

c. Definitions. Cap�tal�zed terms used, but not def�ned, �n th�s F�fth Amendment shall have the mean�ng set forth �n the Cred�t Agreement.

d. Severability. Should any prov�s�on of th�s F�fth Amendment be deemed unlawful or unenforceable, sa�d prov�s�on shall be deemed several and apart from all other prov�s�ons of th�s F�fth Amendment and all rema�n�ng prov�s�on of th�s F�fth Amendment shall be fully enforceable.

119


e. Governing Law. To the extent not governed by federal law, th�s F�fth Amendment and the r�ghts and obl�gat�ons of the part�es hereto shall be governed by, �nterpreted and enforced �n accordance w�th the laws of the State of Colorado.

f. Headings. The capt�ons or head�ngs �n th�s F�fth Amendment are for conven�ence only and �n no way def�ne, l�m�t or descr�be the scope or �ntent of any prov�s�on of th�s F�fth Amendment.

g. Counterparts. Th�s F�fth Amendment may be executed by the part�es hereto �n separate counterparts, each of wh�ch, when so executed and del�vered, shall be an or�g�nal, but all such counterparts shall together const�tute one and the same �nstrument. Each counterpart may cons�st of a number of cop�es hereof, each s�gned by less than all, but together s�gned by all, of the part�es hereto. Cop�es of documents or s�gnature pages bear�ng or�g�nal s�gnatures, and executed documents or s�gnature pages del�vered by a party by telefax, facs�m�le, or e-ma�l transm�ss�on of an Adobe® f�le format document (also known as a PDF f�le) shall, �n each such �nstance, be deemed to be, and shall const�tute and be treated as, an or�g�nal s�gned document or counterpart, as appl�cable. Any party del�ver�ng an executed counterpart of th�s F�fth Amendment by telefax, facs�m�le, or e-ma�l transm�ss�on of an Adobe® f�le format document also shall del�ver an or�g�nal executed counterpart of th�s F�fth Amendment, but the fa�lure to del�ver an or�g�nal executed counterpart shall not affect the val�d�ty, enforceab�l�ty, and b�nd�ng effect of th�s F�fth Amendment.

[Signatures to follow on next page.]

120


IN WITNESS WHEREOF, the part�es hereto have caused th�s F�fth Amendment to be executed as of the Effect�ve Date.

ADMINISTRATIVE AGENT: CoBank, ACB

By: /s/ J�m Stutzman Name: J�m Stutzman T�tle: V�ce Pres�dent

BORROWER: Pilgrim’s Pride Corporation

By: /s/ R�chard A. Cogd�ll Name: R�chard A. Cogd�ll T�tle: Exe. VP, CFO, Sec & Treas.

SYNDICATION PARTIES: CoBank, ACB

By: /s/ J�m Stutzman Name: J�m Stutzman T�tle: V�ce Pres�dent

Agriland, FCS

By: /s/ Dwayne C. Young Name: Dwayne C. Young T�tle: Ch�ef Cred�t Off�cer

Deere Credit, Inc.

By: /s/ John H. W�nger Name: John H. W�nger T�tle: Manager, AFS Cred�t Operat�ons

121


Bank of the West

By: /s/ Lee Ros�n Name: Lee Ros�n T�tle: Reg�onal V�ce Pres�dent

John Hancock Life Insurance Company

By: /s/ Kenneth L. Warl�ck Name: Kenneth L. Warl�ck T�tle: Manag�ng D�rector

The Variable Annuity Life Insurance Company

By: /s/ Lochlan O. McNew Name: Lochlan O. McNew T�tle: Manag�ng D�rector

The United States Life Insurance Company in the City of New York


Merit Life Insurance Co.


122


American General Assurance Company


AIG International Group, Inc.


AIG Annuity Insurance Company


Transamerica Life Insurance Company

By: /s/ Stephen Noonan Name: Stephen Noonan T�tle: V�ce Pres�dent

The CIT Group/Business Credit, Inc.

By: /s/ Tedd Johnson Name: Tedd Johnson T�tle: V�ce Pres�dent

123


Metropolitan Life Insurance Company

By: /s/ Steven D. Cra�g Name: Steven D. Cra�g T�tle: D�rector

Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank-Nederland” New York Branch

By: /s/ R�chard J. Beard Name: R�chard J. Beard T�tle: Execut�ve D�rector

By: /s/ Rebecca Morrow Name: Rebecca Morrow T�tle: Execut�ve D�rector

Farm Credit Services of America, PCA

By: /s/ Bruce P. Rouse Name: Bruce P. Rouse T�tle: V�ce Pres�dent

124


EXHIBIT 12PILGRIM’S PRIDE CORPORATION

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(Year Ended)

September 29,2007

September 30,2006

October 1,2005

October 2,2004

September 27,2003

(In thousands, except ratios)EARNINGS: Income before �ncome taxes $ 91,607 $ (36,317) $ 403,523 $ 208,535 $ 63,235

Add: Total f�xed charges (see below) 149,493 67,172 64,735 67,168 49,647Less: Interest cap�tal�zed (5,736) (4,298) (2,841) (1,714) (1,535)

Total earn�ngs $ 235,364 $ 26,557 $ 465,417 $ 273,989 $ 111,347

FIXED CHARGES: Interest (a) $ 131,493 $ 54,899 $ 52,426 $ 56,150 $ 40,356Port�on of rental expense representat�ve

of the �nterest factor (b) 18,000 12,273 12,309 11,018 9,291Total f�xed charges $ 149,493 $ 67,172 $ 64,735 $ 67,168 $ 49,647Rat�o of earn�ngs to f�xed charges 1.57 (c) 7.19 4.08 2.24

(a) Interest �ncludes amort�zat�on of cap�tal�zed f�nanc�ng fees.

(b) One-th�rd of rental expenses �s assumed to be representat�ve of the �nterest factor.

(c) Earn�ngs were �nsuff�c�ent to cover f�xed charges by $40,615.

125


EXHIBIT 21

SUBSIDIARIES OF REGISTRANT JURISDICTION OF INCORPORATION

OR ORGANIZATION U.S. Entities

PFS DISTRIBUTION COMPANY DELAWARE GK FINANCE CORPORATION DELAWARE PILGRIM’S PRIDE FUNDING CORPORATION DELAWARE PILGRIM’S TURKEY COMPANY, LLC DELAWARE PPC OF DELAWARE BUSINESS TRUST DELAWARE PPC OF DELAWARE, INC. DELAWARE PPC TRANSPORTATION COMPANY DELAWARE PILGRIM’S PRIDE, LLC DELAWARE PPC OF DELAWARE LLC DELAWARE POPPSA 3, LLC DELAWARE POPPSA 4, LLC DELAWARE AGRATECH SEEDS INC. GEORGIA AGRATRADE FINANCING, INC. GEORGIA AGVESTMENTS, INC. GEORGIA GK PECANS, INC. GEORGIA LUKER INC. GEORGIA PPC OF ALABAMA, INC. GEORGIA PILGRIM’S PRIDE CORPORATION FOUNDATION, INC. GEORGIA GC PROPERTIES, GP GEORGIA PILGRIM’S PRIDE CORPORATION POLITICAL ACTION COMMITTEE, INC. GEORGIA PILGRIM’S PRIDE AFFORDABLE HOUSING CORPORATION NEVADA PILGRIM’S PRIDE OF NEVADA, INC. NEVADA PPC MARKETING, LTD. TEXAS GK INSURANCE COMPANY VERMONT VALLEY RAIL SERVICE, INC. VIRGINIA PILGRIM’S PRIDE CORPORATION OF WEST VIRGINIA, INC. WEST VIRGINIA

Foreign Entities MAYFLOWER INSURANCE BERMUDA TO-RICOS DISTRIBUTION, LTD. BERMUDA TO-RICOS, LTD. BERMUDA AVICOLA PILGRIM’S PRIDE DE MEXICO, S. DE R.L. DE C. V. MEXICO CARNES Y PRODUCTOS AVICOLA S DE MEXICO S. DE R.L. DE C. V. (INACTIVE) MEXICOCOMERCIALIZADORA DE CARNES DE MEXICO S. DE R.L. DE C. V. MEXICOCOMPANIA INCUBADORA HIDALGO S. DE R.L. DE C. V. MEXICOGALLINA PESADA S.A. DE C.V. MEXICOGRUPO PILGRIM’S PRIDE FUNDING HOLDINGS S. DE R.L. DE C.V. MEXICOGRUPO PILGRIM’S PRIDE FUNDING S. DE R.L. DE C.V. MEXICOINMOBILIARIA AVICOLA PILGRIM’S PRIDE, S. DE R.L. MEXICOOPERADORA DE PRODUCTOS AVICOLAS S. DE R.L. DE C. V. (INACTIVE) MEXICOPILGRIM’S PRIDE S. DE R.L. DE C. V. MEXICOSERVICIOS ADMINISTRATIVOS PILGRIM’S PRIDE S. DE R.L. DE C. V. MEXICO

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EXHIBIT 23

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the �ncorporat�on by reference �n the Reg�strat�on Statements (Form S-8 No. 3-12043, Form S-8 No. 333-74984, Form S-8 No. 333-111929, Form S-3 No. 333-117472, Form S-3 No. 333-127198, Form S-3 No. 333-130113 and Form S-4 No. 333-111975) of P�lgr�m’s Pr�de Corporat�on and �n the related Prospectuses of our reports dated November 13, 2007, w�th respect to the consol�dated f�nanc�al statements and schedule of P�lgr�m’s Pr�de Corporat�on and the effect�veness of �nternal control over f�nanc�al report�ng of P�lgr�m’s Pr�de Corporat�on, �ncluded �n th�s Annual Report (Form 10-K) for the year ended September 29, 2007.

ERNST & YOUNG LLP

Dallas, Texas November 13, 2007

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EXHIBIT 31.1CERTIFICATION BY CO-PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 302OF THE SARBANES-OXLEY ACT OF 2002

I, Lonn�e “Bo” P�lgr�m, Sen�or Cha�rman of P�lgr�m’s Pr�de Corporat�on, cert�fy that:

1. I have rev�ewed th�s annual report on Form 10-K for the f�scal year ended September 29, 2007, of P�lgr�m’s Pr�de Corporat�on;

2. Based on my knowledge, th�s report does not conta�n any untrue statement of a mater�al fact or om�t to state a mater�al fact necessary to make the statement made, �n l�ght of the c�rcumstances under wh�ch such statements were made, not m�slead�ng w�th respect to the per�od covered by th�s report;

3. Based on my knowledge, the f�nanc�al statements and other f�nanc�al �nformat�on �ncluded �n th�s report, fa�rly present �n all mater�al respects the f�nanc�al cond�t�on, results of operat�ons and cash flows of the reg�strant as of, and for, the per�ods presented �n th�s annual report;

4. The reg�strant’s other cert�fy�ng off�cers and I are respons�ble for establ�sh�ng and ma�nta�n�ng d�sclosure controls and procedures (as def�ned �n Exchange Act Rules 13a-15(e) and 15d-15(e)) and �nternal control over f�nanc�al report�ng (as def�ned �n Exchange Act Rules 13a-15(f) and 15d-15(f)) for the reg�strant and have:

a.) Des�gned such d�sclosure controls and procedures, or caused such d�sclosure controls and procedures to be des�gned under our superv�s�on, to ensure that mater�al �nformat�on relat�ng to the reg�strant, �nclud�ng �ts consol�dated subs�d�ar�es, �s made known to us by others w�th�n those ent�t�es, part�cularly dur�ng the per�od �n wh�ch th�s annual report �s be�ng prepared;

b.) Des�gned such �nternal control over f�nanc�al report�ng, or caused such �nternal control over f�nanc�al report�ng to be des�gned under our superv�s�on, to prov�de reasonable assurance regard�ng the rel�ab�l�ty of f�nanc�al report�ng and the preparat�on of f�nanc�al statements for external purposes �n accordance w�th generally accepted account�ng pr�nc�ples;

c.) Evaluated the effect�veness of the reg�strant’s d�sclosure controls and procedures and presented �n th�s report our conclus�ons about the effect�veness of the d�sclosure controls and procedures, as of the end of the per�od covered by th�s report based upon such evaluat�on; and

d.) D�sclosed �n th�s report any change �n the reg�strant’s �nternal control over f�nanc�al report�ng that occurred dur�ng the reg�strant’s most recent f�scal quarter (the reg�strant’s fourth f�scal quarter �n the case of an annual report) that has mater�ally affected, or �s reasonably l�kely to mater�ally affect, the reg�strant’s �nternal control over f�nanc�al report�ng; and

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5. The reg�strant’s other cert�fy�ng off�cers and I have d�sclosed, based on our most recent evaluat�on of �nternal control over f�nanc�al report�ng, to the reg�strant’s aud�tors and the aud�t comm�ttee of reg�strant’s board of d�rectors (or persons perform�ng the equ�valent funct�ons):

a.) All s�gn�f�cant def�c�enc�es and mater�al weaknesses �n the des�gn or operat�on of �nternal control over f�nanc�al report�ng wh�ch are reasonably l�kely to adversely affect the reg�strant’s ab�l�ty to record, process, summar�ze and report f�nanc�al �nformat�on; and

b.) Any fraud, whether or not mater�al, that �nvolves management or other employees who have a s�gn�f�cant role �n the reg�strant’s �nternal control over f�nanc�al report�ng.

Date: November 19, 2007 /s/ Lonn�e “Bo” P�lgr�m Lonn�e “Bo” P�lgr�m Co-Pr�nc�pal Execut�ve Off�cer

129


EXHIBIT 31.2CERTIFICATION BY CO-PRINCIPAL EXECUTIVE OFFICER


I, O.B. Goolsby, Jr., Ch�ef Execut�ve Off�cer of P�lgr�m’s Pr�de Corporat�on, cert�fy that:









130





Date: November 19, 2007 /s/ O.B. Goolsby, Jr. O.B. Goolsby, Jr. Co-Pr�nc�pal Execut�ve Off�cer

131


EXHIBIT 31.3CERTIFICATION BY CHIEF FINANCIAL OFFICER


I, R�chard A. Cogd�ll, Ch�ef F�nanc�al Off�cer of P�lgr�m’s Pr�de Corporat�on, cert�fy that:









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Date: November 19, 2007 /s/ R�chard A. Cogd�ll R�chard A. Cogd�ll Pr�nc�pal F�nanc�al and Account�ng Off�cer

133


EXHIBIT 32.1CERTIFICATION OF CO-PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. § 1350 ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to sect�on 906 of the Sarbanes-Oxley Act of 2002 (subsect�ons (a) and (b) of sect�on 1350, chapter 63 of t�tle 18, Un�ted States Code), the unders�gned off�cer of P�lgr�m’s Pr�de Corporat�on (the “Company”), does hereby cert�fy, to such off�cer’s knowledge, that:

The Annual Report on Form 10-K for the year ended September 29, 2007 (the “Form 10-K”) of the Company fully compl�es w�th the requ�rements of Sect�on 13(a) or 15(d) of the Secur�t�es Exchange Act of 1934, and �nformat�on conta�ned �n the Form 10-K fa�rly presents, �n all mater�al respects, the f�nanc�al cond�t�on and results of operat�ons of the Company.

Date: November 19, 2007 /s/ Lonn�e “Bo” P�lgr�m Lonn�e “Bo” P�lgr�m Co-Pr�nc�pal Execut�ve Off�cer

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EXHIBIT 32.2CERTIFICATION OF CO-PRINCIPAL EXECUTIVE OFFICER




Date: November 19, 2007 /s/ O.B. Goolsby, Jr. O.B. Goolsby, Jr. Co-Pr�nc�pal Execut�ve Off�cer

135


EXHIBIT 32.3CERTIFICATION OF CHIEF FINANCIAL OFFICER




Date: November 19, 2007 /s/ R�chard A. Cogd�ll R�chard A. Cogd�ll Ch�ef F�nanc�al and Account�ng Off�cer

Officers

LONNIE “BO” PILGRIMSenior Chairman

LONNIE KEN PILGRIMChairman

O.B. GOOLSBY, JR.President and Chief Executive Officer

RICHARD A. COGDILLChief Financial Officer, Secretary and Treasurer

J. CLINTON RIVERSChief Operating Officer

Board of Directors

LONNIE “BO” PILGRIM ¹Senior Chairman

LONNIE KEN PILGRIM ¹Chairman

O.B. GOOLSBY, JR.President and Chief Executive Officer

RICHARD A. COGDILLChief Financial Officer,Secretary and Treasurer

CHARLES L. BLACK ³Retired Banker, Mt. Pleasant, Texas

LINDA CHAVEZ ²Chairman, Center for Equal Opportunity, Sterling, Virginia

S. KEY COKERExecutive Vice President, Compass Bank, Dallas, Texas

KEITH W. HUGHES ²Consultant and Former CEO of Associates First Capital, Dallas, Texas

BLAKE D. LOVETTE¹Retired Poultry Executive, North Wilkesboro, North Carolina

VANCE C. MILLER, SR.¹ ² ³Chairman of Vance C. Miller Interests, Chairman and Chief Executive Officer of Henry S. Miller Cos., Dallas, Texas

JAMES G. VETTER, JR. ¹Attorney, Godwin Pappas Ronquillo, LLP, Dallas, Texas

DONALD L. WASS, PH.D.President, The William Oncken Company of Texas, Dallas, Texas

1 - Member of Compensation Committee2 - Member of Audit Committee3 - Member of Compensation Subcommittee

4845 U.S. Hwy. 271 NorthP.O. Box 93

Pittsburg, TX 75686 (903) 434-1000

www.pilgrimspride.com

Economy & Finance

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