SEC Filing | Pilgrim's Pride Corporation

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2012
OR
c		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File number 1-9273

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

Delaware	75-1285071
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

1770 Promontory Circle, Greeley, Colorado	80634-9038
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (970) 506-8000
Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, Par Value $0.01	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ¨	Accelerated Filer x
Non-accelerated Filer ¨	Smaller reporting company ¨
(Do not check if a smaller reporting company)

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

The aggregate market value of the Registrant’s Common Stock, $0.01 par value, held by non-affiliates of the Registrant as of June 24, 2012, was $459,039,553. For purposes of the foregoing calculation only, all directors, executive officers and greater than 10% beneficial owners have been deemed affiliates. Number of shares of the Registrant’s Common Stock outstanding as of February 15, 2013 was 258,999,033.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s Proxy Statement for the 2013 Annual Meeting of Stockholders are incorporated by reference into Part III of this annual report.

PILGRIM’S PRIDE CORPORATION
FORM 10-K

TABLE OF CONTENTS

	PART I	Page
Item 1.	Business	2
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	17
Item 2.	Properties	18
Item 3.	Legal Proceedings	18
Item 4.	Mine Safety Disclosures	22
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity	23
	Securities
Item 6.	Selected Financial Data	25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	43
Item 8.	Financial Statements and Supplementary Data	44
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	102
Item 9A.	Controls and Procedures	102
Item 9B.	Other Information	105
	PART III
Item 10.	Directors and Executive Officers and Corporate Governance	106
Item 11.	Executive Compensation	106
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	106
Item 13.	Certain Relationships and Related Transactions, and Director Independence	106
Item 14.	Principal Accounting Fees and Services	106
	PART IV
Item 15.	Exhibits and Financial Statement Schedule	107
Signatures		110

PART I

Item 1. Business

Company Overview

Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms), which was incorporated in Texas in 1968 and reincorporated in Delaware in 1986, is the successor to a partnership founded in 1946 as a retail feed store. We are the second-largest chicken producer in the world with operations in the United States (“U.S.”), Mexico and Puerto Rico. We are primarily engaged in the production, processing, marketing and distribution of fresh, frozen and value-added chicken products to retailers, distributors and foodservice operators. We employ approximately 38,000 people and have the capacity to process more than 36 million birds per week for a total of more than 9.5 billion pounds of live chicken annually. In 2012, we generated $8.1 billion in total revenue and produced 7.9 billion pounds of chicken products.

The Company operates on the basis of a 52/53-week fiscal year that ends on the Sunday falling on or before December 31. The reader should assume any reference we make to a particular year (for example, 2012) in the notes to these Consolidated Financial Statements applies to our fiscal year and not the calendar year. Fiscal 2012 was a 53-week fiscal year.

We have a broad geographic reach and we offer our diverse customer base a balanced portfolio of fresh and prepared chicken products. We have consistently provided our customers with high quality products and service with a focus on delivering higher-value, higher-quality products. As such, we have become a valuable partner to our customers and a recognized industry leader. Our sales efforts are largely targeted towards the foodservice industry, principally chain restaurants and food processors such as Yum! Brands^®, Burger King^®and Chick-fil-A^®, distributors such as US Foods and Sysco^®and retail customers including grocery store chains and wholesale clubs such as Kroger^®, Wal-Mart^®, Costco^®, Publix^® and Sam’s Club^®. We also export products to customers in approximately 100 countries.

Our Mexico operations generated approximately 10.7% of our net sales in 2012. We are the second-largest producer and seller of chicken in Mexico and are one of the lower-cost producers of chicken in the country. While the market for chicken products in Mexico is less developed than in the U.S., with sales attributed to fewer, more basic products, we have been successful in differentiating our products through high-quality client service and product improvements. Additionally, we are an important player in the live market, which accounts for approximately 33% of the chicken sales in Mexico. We believe that Mexican supermarket chains consider us one of the leaders in innovation for fresh products. Our strategy is to capitalize on this trend through our vast U.S. experience in products, quality and our well-known service.

As a vertically integrated company, we control every phase of the production of our products. We believe that vertical integration helps us better manage food safety and quality, as well as more effectively control margins and improve customer service. We currently operate in 12 U.S. states, Puerto Rico and Mexico. Our plants are strategically located to ensure that customers timely receive the freshest products. We operate 25 fresh processing plants, eight prepared foods cook plants, one fresh processing plant in Puerto Rico, three processing plants in Mexico, and 14 distribution centers (one in Puerto Rico and 13 in Mexico). In addition, the Company operates nine rendering facilities (six in the U.S., one in Puerto Rico and two in Mexico) and three pet food plants in the U.S. The Company has four additional processing plants that are currently idle. Combined with our global network of approximately 4,200 growers, 30 feed mills and 37 hatcheries, we believe we are well positioned to keep up with the growing demand for our products.

On December 1, 2008, Pilgrim’s and six of its subsidiaries filed voluntary petitions in the United States Bankruptcy Court for the Northern District of Texas, Fort Worth Division (the “Bankruptcy Court”), seeking reorganization relief under the provisions of Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). We emerged from Chapter 11 bankruptcy proceedings on December 28, 2009. In connection with our emergence from bankruptcy, our common stock outstanding immediately prior to the emergence was cancelled and converted into the right to receive newly-issued shares of common stock of the reorganized Company based on a one-for-one exchange ratio, which constituted 36.0% of the total number of shares of our newly-issued common stock on that date. The remaining shares of our newly-issued common stock, constituting 64.0% of our total issued and outstanding common stock on December 28, 2009, were purchased for $800.0 million by JBS USA Holdings, Inc. (“JBS USA”), a wholly-owned indirect subsidiary of JBS S.A., a Brazil-based meat producer. As the result of subsequent purchases, JBS USA owned 75.5% of our total issued and outstanding common stock on December 30, 2012.

The Industry

Industry Overview

The U.S. consumes more chicken than any other protein (approximately 29.8 billion pounds projected in calendar year 2013), and chicken is the second most consumed protein globally after pork. The U.S. is the world’s largest producer of chicken and is projected to produce approximately 36.9 billion pounds of ready-to-cook broiler meat in calendar year 2013, representing 20.0% of the total world production. China and Brazil produce the second and third most broiler meat, with 16.9% and 15.6% of the world market, respectively.

The U.S. is the second-largest exporter of broiler meat behind Brazil. The U.S. is projected to export 7.25 billion pounds in calendar year 2013 which would account for 31.0% of the total world exports and 19.6% of the total U.S. production. The top five exporters control over 87% of the market. The broiler export marketplace has grown at a rapid pace since the early 1990s. The growth has been driven by various geopolitical events such as the collapse of the former Soviet Union as well as changing consumer preferences. Key importers of broilers include Russia, China, the EU, Mexico and Saudi Arabia. Other export markets such as Hong Kong, Vietnam, the Middle East and Africa are projected to increase their imports of U.S. chicken.

The U.S. market is concentrated with four major chicken producers accounting for over 50% of production. The U.S. chicken industry is largely vertically integrated with major producers owning and operating feed mills, processing plants and further processing plants while contracting out breeding and broiler production to thousands of contractually bound chicken farmers. More than 90% of all chickens raised for consumption are produced by farmers under a contract with processing companies. Processing companies provide the growers with chickens, feed, vaccines and medicines required for the production of broilers. The grower supplies all systems and labor required to bring the broilers up to slaughter weight. The grower is then paid based on the weight gain exhibited by the flock.

According to the USDA, chicken production in the U.S. has increased at a compounded annual growth rate of 2.8% over the past 20 years. Similarly, per capita consumption of chicken has increased at a compounded annual growth rate of 2.1%. During this same period of time, per capita beef consumption has declined at a compounded annual growth rate of 0.6% while pork has declined at a compounded annual growth rate of 0.3%. The growth in chicken demand is attributable to (i) relative affordability compared to other proteins such as beef and pork, (ii) the increasingly health conscious nature of U.S. consumers, (iii) chicken’s consistent quality and versatility and (iv) its introduction on many foodservice menus. In addition, global protein demand has remained strong, and we believe protein demand will continue to expand consistent with rising standards of living and a growing middle class in developing countries around the world.

We benefit from a shorter production lifecycle of chickens compared to other proteins. While production for beef takes approximately 28 to 30 months from breeding to slaughter and the production for pork takes 11 to 12 months, the production lifecycle for the broiler is only ten weeks. There are three key components of broilers that are sold for consumption: the breast, the wing and the leg quarters. An estimated 88% of broiler production in the U.S. is sold in separate parts, rather than as a whole bird. This is due primarily to an increase in demand associated with the white meat of the breast, as well as demand for boneless breasts and wings.

Key Industry Dynamics

Pricing. Like other commodities, changes to either the supply or demand components of the market can largely impact the profitability of key players in the industry. Specifically, given the low margins associated with the broiler industry, a change in pricing of commodity chicken products has a significant impact on the income generated by the producer. Items that impact chicken pricing in the U.S. include international demand, changes in production by other broiler exporting countries, input costs and the demand associated with substitute products such as beef and pork. While broiler producers attempt to match supply and demand, a minor change in downstream demand can impact whether the planned supply meets the market need.

Feed. Broilers are fed corn and soybean meal as well as certain vitamins and minerals. Corn and soybean meal account for approximately 65% and 24% of the feed, respectively. Broiler production is significantly more efficient from a feed perspective than cattle or hogs. Approximately 1.9 pounds of feed are required for each pound of chicken, as compared to approximately 6.5 and 3.7 pounds for cattle and hogs, respectively.

Prior to 2008, cost of feed had been largely steady, with occasional spikes resulting from externalities. These externalities often took the form of poor weather conditions, such as droughts or excessive rains leading to poor crop yields and increased demand both domestically for ethanol and globally for protein production. More recently, feed prices have been impacted by increased demand both domestically for ethanol and globally for protein production. Market prices for feed ingredients remained at historically high levels throughout 2012 and remain volatile.

Competitive Strengths

We believe that our competitive strengths will enable us to maintain and grow our position as a leading chicken company and to capitalize on future favorable growth opportunities:

Leading market position in the growing chicken industry. We are the second-largest chicken producer in the U.S. with a 17.4% market share, based on ready-to-cook production. We believe we can maintain this leading market position as we are one of the few producers in the chicken industry that can fully supply larger retailers and foodservice companies due to our broad product offering and technical capabilities. We are a viable supplier for large integrated customers due to our ability to ensure supply, demonstrate innovation and new product development and provide competitive pricing. Our vertical integration gives us control over our supply of chicken and chicken parts. Further, our processing facilities offer a wide range of capabilities and are particularly suited for the high-volume production as well as low-volume custom production runs necessary to meet both the capacity and quality requirements of our customer base. Finally, we have established a reputation for dependable quality, highly responsive service and excellent technical support.

Experienced management team. We have a proven senior management team whose tenure in the chicken industry has spanned numerous market cycles and is among the most experienced in the industry. Our senior management team is led by William W. Lovette, our Chief Executive Officer, who has over 30 years of experience in the chicken industry. Our management team has successfully improved and realigned our business and instilled a corporate culture focused on performance and accountability. Our senior operating executives have backgrounds with leading agribusiness companies, including Tyson Foods, Inc., ConAgra Foods, Inc. and Bunge Limited, among others. We believe that this combination of backgrounds and experience will continue to provide the foundation for a focused business strategy and will enable us to maintain and strengthen long-term relationships with customers and help us grow our business in the future. We also benefit from management ideas, best practices, and talent shared with the seasoned management team at our majority stockholder, JBS USA, and its parent company, JBS S.A., who have over 50 years of combined experience operating protein processing facilities in South America, the U.S. and Australia.

Leaner, more focused enterprise since emergence from bankruptcy. Following our restructuring efforts, we are a more efficient and lean organization supported by a market-driven business strategy. Since 2008, we have closed, idled or sold ten plants and 13 distribution centers, reduced or consolidated production at other facilities, streamlined our workforce and reduced administrative and corporate expenses including moving our corporate headquarters and closing satellite headquarters as part of our becoming a majority owned subsidiary of JBS USA. In addition, we continue to make significant production improvements driven by improved yields, labor, cost savings and product mix. In the past two years, these efforts resulted in an approximate $560.0 million annualized run rate improvement in plant-related costs and product yield. As a result of these efforts, we are a financially stronger company with a more conservative balance sheet.

Blue chip and diverse customer base. We benefit from strong relationships with leading companies, including Sysco^®, US Foods, Yum! Brands^®, Chick-fil-A^®, Burger King^®, Kroger^®, Wal-Mart^®, Costco^®, Publix^®, Sam’s Club^®, ConAgra Foods^®, and Nestle^®, many of whom have been doing business with us for more than six years. We sell our products to a large and diverse customer base, with over 5,000 customers and no concentrations above 7.0% of net sales except for our largest customer, Wal-Mart Stores, Inc., which accounted for 9.7% of net sales in 2012.

Relationship with JBS USA. In addition to cost savings through the integration of certain corporate functions and the rationalization of facilities, our relationship with JBS USA allows us to enjoy several advantages given its diversified international operations and strong record in commodity risk management. We seek to leverage JBS USA’s international network by expanding into untapped international markets and strengthening our presence in geographies in which we already operate. In addition, JBS USA’s expertise in managing the risk associated with volatile commodity inputs will help us to further improve our operations and manage our margins.

Business Strategy

Our objectives are to (i) be a valued partner with our key customers, (ii) relentlessly pursue operational excellence and (iii) strategically grow value added exports. To achieve these goals, we plan to continue pursuing the following strategies:

Valued partner with our key customers. We are the second-largest producer of chicken products in the world. We have developed and acquired complementary markets, distributor relationships and geographic locations, establishing relationships with broad-line national distributors and retailers which have enabled us to expand our customer base and provide nationwide distribution capabilities for all of our product lines. As a result, we believe we are one of only two U.S. chicken producers that can supply the growing demand for a broad range of price competitive standard and specialized products with well-known brand names on a nationwide basis from a single-source supplier. By having the best in class quality management systems, we plan to further grow our industry position and continue being a valued partner with our key customers.

Operational excellence. As production and sales grow, we continue to focus on improving operating efficiencies by focusing on cost reductions, improving processes, training and our total quality management program. In addition, we remain focused on cost control. Specific initiatives include:

Benchmarking live and plant costs against the industry;
Striving to be in the top 25% of the industry for yields and costs;
Driving accountability and ownership deeper in the organization;
Conducting monthly performance reviews with senior management; and
Improving sales mix and price.

Strategically grow value added exports. We will continue to focus on international opportunities and we plan to further diversify our international markets to complement our U.S. chicken operations and capitalize on attractive export markets. According to the USDA, the export of U.S. chicken products increased at an average annual growth rate of 3.9% from 2000 through 2011. We believe U.S. chicken exports will continue to grow as worldwide demand increases for high-grade, low-cost meat protein sources. Historically, we targeted international markets to generate additional demand for our dark chicken meat, which is a natural by-product of our U.S. operations given our concentration on prepared foods products and the U.S. customers’ general preference for white chicken meat. As part of this initiative, we created a significant international distribution network into several markets, including Mexico, which we now utilize not only for dark chicken meat distribution, but also for various higher-margin prepared foods and other poultry products. We employ both a direct international sales force and export brokers. Our key international markets include Mexico, the Far East and countries within the CIS. Our relationship with our majority owner, JBS USA, has improved our access to markets such as Africa, the Middle East and Asia. We believe substantial opportunities exist to expand our sales to these markets by capitalizing on direct international distribution channels supplemented by our existing export broker relationships. We also believe that opportunities exist to sell more profitable products into these markets. Our export sales accounted for approximately 11.9% of our U.S. chicken sales in 2012.

Reportable Business Segment

We operate in one reportable business segment, as a producer and seller of chicken products we either produce or purchase for resale in the U.S., Puerto Rico and Mexico. We conduct separate operations in the U.S., Puerto Rico and Mexico; however, for geographic reporting purposes, we include Puerto Rico with our U.S. operations. See “Note 22. Business Segment and Geographic Reporting” of our Consolidated Financial Statements included in this annual report for additional information.

Narrative Description of Business

Products and Markets

Our primary chicken product types are fresh, prepared and export. We sell our fresh chicken products to the foodservice and retail markets. Our fresh chicken products consist of refrigerated (nonfrozen) whole or cut-up chicken, either pre-marinated or non-marinated and prepackaged case-ready chicken. Our case-ready chicken includes various combinations of freshly refrigerated, whole chickens and chicken parts in trays, bags or other consumer packs labeled and priced ready for the retail grocer’s fresh meat counter. Our fresh chicken sales in 2012 accounted for 54.0% of our total U.S. chicken sales.

We also sell prepared chicken products, including portion-controlled breast fillets, tenderloins and strips, delicatessen products, salads, formed nuggets and patties and bone-in chicken parts. These products are sold either refrigerated or frozen and may be fully cooked, partially cooked or raw. In addition, these products are breaded or non-breaded and either pre-marinated or non-marinated. Our prepared chicken products sales in 2012 accounted for 33.7% of our total U.S. chicken sales.

Export and other chicken products primarily consist of whole chickens and chicken parts sold mostly in bulk, non-branded form either refrigerated for distributors in the U.S. or frozen for distribution to export markets. In the U.S., prices of these products are negotiated daily or weekly and are generally related to market prices quoted by the U.S. Department of Agriculture (“USDA”) or other public price reporting services. We sell U.S.-produced chicken products for export to Mexico, the Far East, countries within the CIS and other world markets. Our export and other chicken products sales in 2012 accounted for 12.3% of our total U.S. chicken sales.

Our primary customer markets consist of the foodservice and retail channels, as well as selected export and other markets. The foodservice market principally consists of chain restaurants, food processors, broad-line distributors and certain other institutions located throughout the continental U.S. We supply chicken products ranging from portion-controlled refrigerated chicken parts to fully-cooked and frozen, breaded or non-breaded chicken parts or formed products.

Our categories within foodservice include frozen, fresh and corporate accounts. Fresh and frozen chicken products are usually pre-cut to customer specifications and are often marinated to enhance value and product differentiation. Corporate accounts include further-processed and value-added products supplied to select foodservice customers improving their ability to manage product consistency and quality in a cost efficient manner. We believe we are positioned to be the primary or secondary supplier to national and international chain restaurants who require multiple suppliers of chicken products. Additionally, we believe we are well suited to be the sole supplier for many regional chain restaurants. Regional chain restaurants often offer better margin opportunities and a growing base of business. We believe we have operational strengths in terms of full-line product capabilities, high-volume production capacities, research and development expertise and extensive distribution and marketing experience relative to smaller and non-vertically integrated producers. Foodservice growth is anticipated to continue, despite the effects resulting from continued weak economic conditions in the U.S.

The retail market consists primarily of grocery store chains, wholesale clubs and other retail distributors. We concentrate our efforts in this market on sales of branded, prepackaged cut-up and whole chicken and chicken parts to grocery store chains and retail distributors. For many years, we have invested in both trade and retail marketing designed to establish high levels of brand name awareness and consumer preferences. We utilize numerous marketing techniques, including advertising, to develop and strengthen trade and consumer awareness and increase brand loyalty for consumer products marketed under the Pilgrim’s Pride^® and Pilgrim’s^® brands. We believe our efforts to achieve and maintain brand awareness and loyalty help to provide more secure distribution for our products. We also believe our efforts at brand awareness generate greater price premiums than would otherwise be the case in certain markets. Additionally, we maintain an active program to identify consumer preferences. The program primarily consists of discovering and validating new product ideas, packaging designs and methods through sophisticated qualitative and quantitative consumer research techniques in key geographic markets.

The export and other chicken market consists primarily of customers who purchase for distribution in the U.S. or for export to Mexico, the Far East, countries within the CIS and other world markets. Our export and other chicken products, with the exception of our exported prepared chicken products, consist of whole chickens and chicken parts sold primarily in bulk, nonbranded form, either refrigerated or frozen.

Historically, we have targeted international markets to generate additional demand for our dark chicken meat, which is a natural by-product of our U.S. operations given our concentration on prepared chicken products and the U.S. customers’ general preference for white chicken meat. We have also begun selling prepared chicken products for export to the international divisions of our U.S. chain restaurant customers. Utilizing the extensive sales network of JBS USA, we believe that we can accelerate the sales of value-added chicken products into international channels. We also believe that the history of our successful export sales and our relationship with JBS USA position us favorably to capitalize on international growth.

The following table sets forth, for the periods beginning with 2008, net sales attributable to each of our primary product lines and markets served with those products. We based the table on our internal sales reports and their classification of product types.

							Transition
	2012		2011		2010		Period(a)		2009(a)		2008(a)
U.S. chicken:	(In thousands)
Prepared chicken	$	2,239,289	$	2,135,337	$	2,262,107	$	535,810	$	2,294,576	$	2,552,065
Fresh chicken		3,583,854		3,160,429		2,834,972		663,418		3,113,062		3,591,785
Export and other chicken
by-products		817,723		808,038		581,303		134,976		656,276		933,197
Total U.S. chicken		6,640,866		6,103,804		5,678,382		1,334,204		6,063,914		7,077,047
Mexico chicken		758,023		720,333		615,433		127,557		487,785		543,583
Total chicken		7,398,889		6,824,137		6,293,815		1,461,761		6,551,699		7,620,630
Other products:
U.S.		608,619		674,923		558,675		132,500		505,738		863,495
Mexico		113,874		36,638		29,139		8,473		30,618		34,632
Total other products		722,493		711,561		587,814		140,973		536,356		898,127
Total net sales	$	8,121,382	$	7,535,698	$	6,881,629	$	1,602,734	$	7,088,055	$	8,518,757

(a)

In December 2009, we changed our fiscal year end from the Saturday nearest September 30 of each year to the last Sunday in December of each year. The change was effective for our 2010 fiscal year, which began December 28, 2009 and ended December 26, 2010 and resulted in an approximate three-month transition period which began September 27, 2009 and ended December 27, 2009.

The following table sets forth, beginning with 2008, the percentage of net U.S. chicken sales attributable to each of our primary product lines and the markets serviced with those products. We based the table and related discussion on our internal sales reports and their classification of product types and customers.

				Transition
	2012	2011	2010	Period(a)	2009(a)	2008(a)
				(Percent)
Prepared chicken	33.7	35.0	39.9	40.2	37.9	36.1
Fresh chicken	54.0	51.7	49.9	49.7	51.3	50.7
Export and other chicken
by-products	12.3	13.3	10.2	10.1	10.8	13.2
Total U.S. chicken	100.0	100.0	100.0	100.0	100.0	100.0

(a)

United States

Product Types

Fresh Chicken Overview. Fresh chicken is an important component of our sales and accounted for $3,583.9 million, or 54.0%, of our total U.S. chicken sales in 2012 and $3,591.8 million, or 50.7%, in 2008. Most fresh chicken products are sold to established customers, based upon certain weekly or monthly market prices reported by the USDA and other public price reporting services, plus a markup, which is dependent upon the customer’s location, volume, product specifications and other factors. We believe our practices with respect to sales of fresh chicken are generally consistent with those of our competitors. The majority of these products are sold pursuant to agreements with varying terms that set a price according to formulas based on underlying chicken price markets, subject in many cases to minimum and maximum prices.

Prepared Chicken Overview. In 2012, $2,239.3 million, or 33.7%, of our U.S. chicken sales were in prepared chicken products to foodservice customers and retail distributors, as compared to $2,552.1 million, or 36.1%, in 2008. The production and sale in the U.S. of prepared chicken products reduce the impact of the costs of feed ingredients on our profitability. Feed ingredient costs are the single largest component of our U.S. cost of sales, representing approximately 46.1% of our U.S. cost of sales in 2012. The production of feed ingredients is positively or negatively affected primarily by the global level of supply inventories, demand for feed ingredients, the agricultural policies of the U.S. and foreign governments and weather patterns throughout the world. As further processing is performed, feed ingredient costs become a decreasing percentage of a product’s total production cost, thereby reducing their impact on our profitability. Products sold in this form enable us to charge a premium, reduce the impact of feed ingredient costs on our profitability and improve and stabilize our profit margins.

We establish prices for our prepared chicken products based primarily upon perceived value to the customer, production costs and prices of competing products. The majority of these products are sold pursuant to agreements with varying terms that either set a fixed price for short-term periods or set a price according to formulas based on an underlying commodity market such as corn and chicken price forecasts, subject in many cases to minimum and maximum prices. Many times, these prices are dependent upon the customer’s location, volume, product specifications and other factors.

Export and Other Chicken Products Overview. Our export and other products consist of whole chickens and chicken parts sold primarily in bulk, nonbranded form, either refrigerated to distributors in the U.S. or frozen for distribution to export markets, and branded and nonbranded prepared chicken products for distribution to export markets. In 2012, approximately $817.7 million, or 12.3%, of our total U.S. chicken sales were attributable to U.S. chicken export and other products, as compared to $933.2 million, or 13.2%, in 2008.

Markets for Other Products

Presently, this category includes chicken by-products, which we convert into protein products and sell primarily to manufacturers of pet foods. Until November 2011, this category also included products sold through our distribution centers. In 2011, we had regional distribution centers located in Arizona, Texas and Utah that were primarily focused on distributing our own chicken products. In November 2011, we sold the distribution centers to JBS Trading International, Inc., a wholly owned subsidiary of JBS USA. See “Note 16. Related Party Transactions” of our Consolidated Financial Statements included in this annual report for additional information on the sale of the distribution centers. In addition, we marketed fresh eggs under private labels, in various sizes of cartons and flats to U.S. retail grocery and institutional foodservice customers located primarily in Texas through August 2012. In August 2012, we sold our commercial egg operation to Cal-Maine Foods, Inc. Many of our U.S. feed mills produce and sell some livestock feeds to local dairy farmers and livestock producers.

Mexico

Background

Our Mexico operations generated approximately 10.7% of our net sales in 2012. We are the second-largest producer and seller of chicken in Mexico. We believe that we are one of the lower-cost producers of chicken in Mexico.

Product Types

While the market for chicken products in Mexico is less developed than in the U.S., with sales attributed to fewer, more basic products, we have been successful in differentiating our products through high-quality client service and product improvements. Additionally, we are an important player in the live market, which accounts for approximately 33% of the chicken sales in Mexico.

Markets

We sell our chicken products primarily to wholesalers, large restaurant chains, fast food accounts, supermarket chains and direct retail distribution in selected markets. Our largest presence is by far in the central states of the country where we have been able to gain market share. Our presence in Mexico reaches 76.5% of the population.

Foreign Operations Risks

Our foreign operations pose special risks to our business and operations. A discussion of foreign operations risks is included in “Item 1A. Risk Factors.”

General

Competitive Conditions

The chicken industry is highly competitive. We are the second-largest producer in the world and we believe our relationship with JBS USA enhances our competitive position. In the U.S. and Mexico, we compete principally with other vertically integrated poultry companies.

In general, the competitive factors in the U.S. chicken industry include price, product quality, product development, brand identification, breadth of product line and customer service. Competitive factors vary by major market. In the U.S. retail market, we believe that product quality, brand awareness, customer service and price are the primary bases of competition. In the foodservice market, competition is based on consistent quality, product development, service and price. There is some competition with non-vertically integrated further processors in the U.S. prepared chicken business. We believe vertical integration generally provides significant, long-term cost and quality advantages over non-vertically integrated further processors.

In Mexico, where product differentiation has traditionally been limited, we believe product quality and price have been the most critical competitive factors.

Restructuring Efforts

Since January 2010, we implemented significant operational changes to reduce costs and operate more efficiently, as well as realized substantial benefits through synergies following the JBS USA acquisition. We reduced our production footprint to mitigate capacity utilization and efficiency issues created by previously enacted across-the-board production cuts. In addition, we continue to evaluate our noncore businesses, which has resulted in the sale of certain noncore businesses. Exit and disposal activities from January 2010 to present have eliminated approximately 1,500 positions and recognized net pre-tax charges totaling $96.4 million.

We continue to review and evaluate various restructuring and other alternatives to streamline our operations, improve efficiencies and reduce costs. Such initiatives may include selling assets, consolidating operations and functions and voluntary and involuntary employee separation programs. Any such actions may require us to obtain the pre-approval of our lenders under our credit facilities. In addition, such actions will subject the Company to additional short-term costs, which may include asset impairment charges, lease commitment costs, employee retention and severance costs and other costs. Certain of these activities may have a disproportionate impact on our income relative to the cost savings in a particular period.

Key Customers

Our two largest customers accounted for approximately 15.7% of our net sales in 2012, and our largest customer, Wal-Mart Stores Inc., accounted for 9.7% of our net sales in 2012.

Regulation and Environmental Matters

The chicken industry is subject to government regulation, particularly in the health and environmental areas, including provisions relating to the discharge of materials into the environment, by the Centers for Disease Control, the USDA, the Food and Drug Administration (“FDA”) and the Environmental Protection Agency (“EPA”) in the U.S. and by similar governmental agencies in Mexico. Our chicken processing facilities in the U.S. are subject to on-site examination, inspection and regulation by the USDA. The FDA inspects the production of our feed mills in the U.S. Our Mexican food processing facilities and feed mills are subject to on-site examination, inspection and regulation by a Mexican governmental agency that performs functions similar to those performed by the USDA and FDA. We believe that we are in substantial compliance with all applicable laws and regulations relating to the operations of our facilities.

Our operations are subject to extensive regulation by the EPA and other state and local authorities relating to handling and discharge of waste water, storm water, air emissions, treatment, storage and disposal of wastes, handling of hazardous substances and remediation of contaminated soil, surface water and groundwater. Our Mexican operations also are subject to extensive regulation by Mexican environmental authorities. The EPA and/or other U.S. or Mexican state and local authorities may, from time to time, adopt revisions to environmental rules and regulations, and/or changes in the terms and conditions of our environmental permits, with which we must comply. Compliance with existing or new environmental requirements, including more stringent limitations imposed or expected in recently-renewed or soon-to be renewed environmental permits, may require capital expenditures and operating expenses which may be significant.

Some of our properties have been impacted by contamination from spills or other releases, and we have incurred costs to remediate such contamination. In addition, in the past we acquired businesses with operations such as pesticide and fertilizer production that involved greater use of hazardous materials and generation of more hazardous wastes than our current operations. While many of those operations have been sold or closed, some environmental laws impose strict and, in certain circumstances, joint and several liability for costs of investigation and remediation of contaminated sites on current and former owners and operators of the sites, and on persons who arranged for disposal of wastes at such sites. In addition, current owners or operators of such contaminated sites may seek to recover cleanup costs from us based on past operations or contractual indemnifications. See “Item 1A. Risk Factors” for risks associated with compliance with existing or changing environmental requirement.

We anticipate increased regulation by the USDA concerning food safety, by the FDA concerning the use of medications in feed and by the EPA and various other state agencies concerning discharges to the environment. Although we do not anticipate any regulations having a material adverse effect upon us, a material adverse effect may occur.

Employees

As of December 30, 2012, we employed approximately 33,000 persons in the U.S. and approximately 5,000 persons in Mexico. Approximately 36.3% of the Company’s employees were covered under collective bargaining agreements. Substantially all employees covered under collective bargaining agreements are covered under agreements that expired in 2011 or 2012 and remain open or will expire in 2013. We have not experienced any labor-related work stoppage at any location in over eight years. We believe our relationship with our employees and union leadership is satisfactory. At any given time, we will be in some stage of contract negotiations with various collective bargaining units. The Company is currently in negotiations with union locals in 11 locations, and there is no assurance that agreement will be reached. While unlikely, we may be subject to labor disruption at any of these locations.

Financial Information about Foreign Operations

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

Available Information

The Company’s Internet website is www.pilgrims.com. The Company makes available, free of charge, through its Internet website, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Directors and Officers Forms 3, 4 and 5, and amendments to those reports, as soon as reasonably practicable after electronically filing such materials with, or furnishing them to, the Securities and Exchange Commission. The public may read and copy any materials that the Company files with the Securities and Exchange Commission at its Public Reference Room at 100 F Street, NE, Washington, DC 20549 and may obtain information about the operation of the Public Information Room by calling the Securities and Exchange Commission at 1-800-SEC-0330.

In addition, the Company makes available, through its Internet website, the Company’s Business Code of Conduct and Ethics, Corporate Governance Guidelines and the written charter of the Audit Committee, each of which is available in print to any stockholder who requests it by contacting the Secretary of the Company at 1770 Promontory Circle, Greeley, Colorado 80634-9038. Information contained on the Company’s website is not included as part of, or incorporated by reference into, this annual report.

Executive Officers

Set forth below is certain information relating to our current executive officers:

Name	Age	Positions
Wesley Mendonça Batista	42	Chairman of the Board
William W. Lovette	53	President and Chief Executive Officer
Fabio Sandri	41	Chief Financial Officer

Wesley Mendonça Batista, 42, currently serves as Chairman of the Board of Pilgrim’s Pride Corporation. Mr. Batista became President and Chief Executive Officer of JBS S.A. in February 2011. Mr. Batista previously served as President and Chief Executive Officer of JBS USA for approximately four years. Mr. Batista also serves as Chairman of the Board of JBS USA and is the Vice President of JBS S.A.’s board of directors. Mr. Batista has served in various capacities at JBS S.A. since 1987. Mr. Batista is the brother of Joesley Mendonça Batista, Chairman of the Board of JBS S.A., and José Batista Júnior, a Director of the Company and a Director of JBS S.A., and is the son of José Batista Sobrinho, the founder of JBS S.A. and a member of its board of directors. Mr. Batista brings to our board significant senior leadership and industry experience. Mr. Batista has long been one of the most respected executives in Brazil’s protein industry, and his reputation is now firmly established worldwide. Mr. Batista grew up in the protein industry, and it is his strategic insight and entrepreneurial spirit that has facilitated the growth of JBS S.A. through numerous acquisitions, expanding its reach across the globe. As Chairman of the Board, Mr. Batista has direct responsibility for Pilgrim’s Pride’s strategy and operations.

William W. Lovette, 53, joined Pilgrim’s as President and Chief Executive Officer on January 3, 2011. He brings more than 30 years of industry leadership experience to Pilgrim’s. He previously served two years as President and Chief Operating Officer of Case Foods, Inc. Before joining Case Foods, Inc., Mr. Lovette spent 25 years with Tyson Foods in various roles in senior management, including President of its International Business Unit, President of its Foodservice Business Unit and Senior Group Vice President of Poultry and Prepared Foods. Mr. Lovette earned a B.S. degree from Texas A&M University. In addition, he is a graduate of Harvard Business School’s Advanced Management Program.

Fabio Sandri, 41, has served as the Chief Financial Officer for Pilgrim’s since June 2011. He previously served as the Chief Financial Officer of Estacio Participações, the private post-secondary educational institution in Brazil since April 2010. From November 2008 until April 2010, he was the Chief Financial Officer of Imbra SA, a provider of dental services based in Sao Paolo, Brazil. Commencing in 2005 through October 2008, he was employed by Braskem S.A., a New York Stock Exchange-listed petrochemical company headquartered in Camaçari, Brazil, first from 2005 to 2007 as its strategy director and from 2007 until his departure as its corporate controller. He earned his Masters in Business Administration in 2001 from the Wharton School at the University of Pennsylvania and a degree in electrical engineering in 1993 from Escola Politécnica da Universidade de São Paulo.

Item 1A. Risk Factors

Forward Looking Statements

Certain written and oral statements made by our Company and subsidiaries of our Company may constitute “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. This includes statements made herein, in our other filings with the SEC, in press releases, and in certain other oral and written presentations.

Statements of our intentions, beliefs, expectations or predictions for the future, denoted by the words “anticipate,” “believe,” “estimate,” “expect,” “plan,” “project,” “imply,” “intend,” “foresee” and similar expressions, are forward-looking statements that reflect our current views about future events and are subject to risks, uncertainties and assumptions. Such risks, uncertainties and assumptions include those described under “Risk Factors” below and elsewhere in this annual report.

Actual results could differ materially from those projected in these forward-looking statements as a result of these factors, among others, many of which are beyond our control.

In making these statements, we are not undertaking, and specifically decline to undertake, any obligation to address or update each or any factor in future filings or communications regarding our business or results, and we are not undertaking to address how any of these factors may have caused changes in information contained in previous filings or communications. The risks described below are not the only risks we face, and additional risks and uncertainties may also impair our business operations. The occurrence of any one or more of the following or other currently unknown factors could materially adversely affect our business and operating results.

Risk Factors

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

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

Profitability in the chicken industry is materially affected by the commodity prices of feed ingredients and chicken, which are determined by supply and demand factors. As a result, the chicken industry is subject to cyclical earnings fluctuations.

The production of feed ingredients is positively or negatively affected primarily by the global level of supply inventories and demand for feed ingredients, the agricultural policies of the U.S. and foreign governments and weather patterns throughout the world. In particular, weather patterns often change agricultural conditions in an unpredictable manner. A significant change in weather patterns could affect supplies of feed ingredients, as well as both the industry’s and our ability to obtain feed ingredients, grow chickens or deliver products. More recently, feed prices have been impacted by increased demand both domestically for ethanol and globally for protein production.

Market prices for feed ingredients remained at historically high levels throughout 2012. Market prices for feed ingredients remain volatile. Consequently, there can be no assurance that the price of corn or soybean meal will not continue to rise as a result of, among other things, increasing demand for these products around the world and alternative uses of these products, such as ethanol and biodiesel production.

High feed ingredient prices have had, and may continue to have, a materially adverse effect on our operating results, which has resulted in, and may continue to result in, additional noncash expenses due to impairment of the carrying amounts of certain of our assets. We periodically seek, to the extent available, to enter into advance purchase commitments or financial derivative contracts for the purchase of feed ingredients in an effort to manage our feed ingredient costs. The use of these instruments may not be successful. In addition, we have not designated the derivative financial instruments that we have purchased to mitigate commodity purchase exposures as cash flow hedges. Therefore, we recognize changes in the fair value of these derivative financial instruments immediately in earnings. Unexpected changes in the fair value of these instruments could adversely affect the results of our operations.

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

We take precautions designed to ensure that our flocks are healthy and that our processing plants and other facilities operate in a sanitary and environmentally-sound manner. However, events beyond our control, such as the outbreaks of disease, either in our own flocks or elsewhere, could significantly affect demand for our products or our ability to conduct our operations. Furthermore, an outbreak of disease could result in governmental restrictions on the import and export of our fresh chicken or other products to or from our suppliers, facilities or customers, or require us to destroy one or more of our flocks. This could also result in the cancellation of orders by our customers and create adverse publicity that may have a material adverse effect on our ability to market our products successfully and on our business, reputation and prospects.

During the first half of 2006, there was substantial publicity regarding a highly pathogenic strain of avian influenza, known as H5N1, which has been affecting Asia since 2002 and which has also been found in Europe and Africa. It is widely believed that H5N1 is being spread by migratory birds, such as ducks and geese. There have also been some cases where H5N1 is believed to have passed from birds to humans as humans came into contact with live birds that were infected with the disease.

Although highly pathogenic H5N1 has not been identified in North America, there have been outbreaks of low pathogenic strains of avian influenza in North America, and in Mexico outbreaks of both high and low-pathogenic strains of avian influenza are a fairly common occurrence. Historically, the outbreaks of low pathogenic avian influenza have not generated the same level of concern, or received the same level of publicity or been accompanied by the same reduction in demand for poultry products in certain countries as that associated with the highly pathogenic H5N1 strain. Accordingly, even if the highly pathogenic H5N1 strain does not spread to North or Central America, there can be no assurance that it will not materially adversely affect demand for North or Central American produced poultry internationally and/or domestically, and, if it were to spread to North or Central America, there can be no assurance that it would not significantly affect our ability to conduct our operations and/or demand for our products, in each case in a manner having a material adverse effect on our business, reputation and/or prospects.

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

Poultry products may be subject to contamination by disease-producing organisms, or pathogens, such as Listeria monocytogenes, Salmonella and generic E.coli. These pathogens are generally found in the environment, and, as a result, there is a risk that they, as a result of food processing, could be present in our processed poultry products. These pathogens can also be introduced as a result of improper handling at the further processing, foodservice or consumer level. These risks may be controlled, although not eliminated, by adherence to good manufacturing practices and finished product testing. We have little, if any, control over proper handling once the product has been shipped. Illness and death may result if the pathogens are not eliminated at the further processing, foodservice or consumer level. Even an inadvertent shipment of contaminated products is a violation of law and may lead to increased risk of exposure to product liability claims, product recalls and increased scrutiny by federal and state regulatory agencies and may have a material adverse effect on our business, reputation and prospects.

Product liability claims or product recalls can adversely affect our business reputation, expose us to increased scrutiny by federal and state regulators and may not be fully covered by insurance.

The packaging, marketing and distribution of food products entail an inherent risk of product liability and product recall and the resultant adverse publicity. We may be subject to significant liability if the consumption of any of our products causes injury, illness or death. We could be required to recall certain products in the event of contamination or damage to the products. In addition to the risks of product liability or product recall due to deficiencies caused by our production or processing operations, we may encounter the same risks if any third party tampers with our products. We cannot assure you that we will not be required to perform product recalls, or that product liability claims will not be asserted against us, in the future. Any claims that may be made may create adverse publicity that would have a material adverse effect on our ability to market our products successfully or on our business, reputation, prospects, financial condition and results of operations.

If our poultry products become contaminated, we may be subject to product liability claims and product recalls. There can be no assurance that any litigation or reputational injury associated with product recalls will not have a material adverse effect on our ability to market our products successfully or on our business, reputation, prospects, financial condition and results of operations.

We currently maintain insurance with respect to certain of these risks, including product liability insurance, property insurance, workers compensation insurance, business interruption insurance and general liability insurance, but in many cases such insurance is expensive, difficult to obtain and no assurance can be given that such insurance can be maintained in the future on acceptable terms, or in sufficient amounts to protect us against losses due to any such events, or at all. Moreover, even though our insurance coverage may be designed to protect us from losses attributable to certain events, it may not adequately protect us from liability and expenses we incur in connection with such events. Additionally, in the past, two of our insurers encountered financial difficulties and were unable to fulfill their obligations under the insurance policies as anticipated and, separately, two of our other insurers contested coverage with respect to claims covered under policies purchased, forcing us to litigate the issue of coverage before we were able to collect under these policies.

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

The chicken industry is highly competitive. In both the U.S. and Mexico, we primarily compete with other vertically integrated chicken companies.

In general, the competitive factors in the U.S. chicken industry include price, product quality, product development, brand identification, breadth of product line and customer service. Competitive factors vary by major market. In the foodservice market, competition is based on consistent quality, product development, service and price. In the U.S. retail market, we believe that competition is based on product quality, brand awareness, customer service and price. Further, there is some competition with non-vertically integrated further processors in the prepared chicken business. In Mexico, where product differentiation has traditionally been limited, we believe product quality and price have been the most critical competitive factors.

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

Our two largest customers accounted for approximately 15.7% of our net sales in 2012, and our largest customer, Wal-Mart Stores, Inc., accounted for 9.7% of our net sales in 2012. Our business could suffer significant setbacks in revenues and operating income if we lost one or more of our largest customers, or if our customers’ plans and/or markets should change significantly.

Our foreign operations pose special risks to our business and operations.

We have significant operations and assets located in Mexico and may participate in or acquire operations and assets in other foreign countries in the future. Foreign operations are subject to a number of special risks such as currency exchange rate fluctuations, trade barriers, exchange controls, expropriation and changes in laws and policies, including tax laws and laws governing foreign-owned operations.

Currency exchange rate fluctuations have adversely affected us in the past. Exchange rate fluctuations or one or more other risks may have a material adverse effect on our business or operations in the future.

Our operations in Mexico are conducted through subsidiaries organized under the laws of Mexico. Claims of creditors of our subsidiaries, including trade creditors, will generally have priority as to the assets of our subsidiaries over our claims. Additionally, the ability of our Mexican subsidiaries to make payments and distributions to us may be limited by the terms of our Mexico credit facility and will be subject to, among other things, Mexican law. In the past, these laws have not had a material adverse effect on the ability of our Mexican subsidiaries to make these payments and distributions. However, laws such as these may have a material adverse effect on the ability of our Mexican subsidiaries to make these payments and distributions in the future.

Disruptions in international markets and distribution channels could adversely affect our business.

Historically, we have targeted international markets to generate additional demand for our products. In particular, given U.S. customers’ general preference for white meat, we have targeted international markets for the sale of dark chicken meat, specifically leg quarters, which are a natural by-product of our U.S. operations’ concentration on prepared chicken products. As part of this initiative, we have created a significant international distribution network into several markets in Mexico, the Far East and countries within the CIS. Our success in these markets may be, and our success in recent periods has been, adversely affected by disruptions in chicken export markets. For example, China imposed anti-dumping and countervailing duties on the U.S. chicken producers in 2010 which can be expected to deter Chinese importers from purchases of U.S.-origin chicken products. Additionally, from time to time Russia has restricted the importation of U.S. poultry products for the protection of their domestic poultry producers and in cases of allegations of consumer health issues.

A significant risk is disruption due to import restrictions and tariffs, other trade protection measures, and import or export licensing requirements. In addition, disruptions may be caused by outbreaks of disease such as avian influenza, either in our flocks or elsewhere in the world, and resulting changes in consumer preferences.

One or more of these or other disruptions in the international markets and distribution channels could adversely affect our business.

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

Our operations will continue to be subject to federal, state and local governmental regulation, including in the health, safety and environmental areas. We anticipate increased regulation by various agencies concerning food safety, the use of medication in feed formulations and the disposal of chicken by-products and wastewater discharges. Also, changes in laws or regulations or the application thereof may lead to government enforcement actions and the resulting litigation by private litigants, such as various wage and hour and environmental issues.

On December 8, 2011, the USDA’s Grain Inspection, Packers and Stockyards Administration issued new regulations under the Packers and Stockyards Act that would apply to all stages of a live poultry dealer’s poultry grow-out. The new regulations significantly impact the relationship between integrated poultry processors, like us, and their independent growers. Among other things, the new regulations substantially limit our and our independent contract growers’ freedom of contract, and affect the way we pay our independent contract growers. Many of the new regulations are, in our view, unclear, vague and will likely require litigation to determine their scope and impact. Such litigation could be costly to our industry and us. The new regulations could also lead to increased enforcement activity and private litigation against integrated poultry producers that could have a material adverse effect on our operations and financial operating results. Additionally, the new regulations could increase the cost of doing business or change the way in which we do business.

In addition, unknown matters, new laws and regulations, or stricter interpretations of existing laws or regulations may also materially affect our business or operations in the future.

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

Immigration reform continues to attract significant attention in the public arena and the U.S. Congress. If new federal immigration legislation is enacted or if states in which we do business enact immigration laws, such laws may contain provisions that could make it more difficult or costly for us to hire U.S. citizens and/or legal immigrant workers. In such case, we may incur additional costs to run our business or may have to change the way we conduct our operations, either of which could have a material adverse effect on our business, operating results and financial condition. Also, despite our past and continuing efforts to hire only U.S. citizens and/or persons legally authorized to work in the U.S., we may be unable to ensure that all of our employees are U.S. citizens and/or persons legally authorized to work in the U.S. For example, U.S. Immigration and Customs Enforcement has investigated identity theft within our workforce. With our cooperation, during 2008 U.S. Immigration and Customs Enforcement arrested approximately 300 employees believed to have engaged in identity theft at five of our facilities. No assurances can be given that further enforcement efforts by governmental authorities will not disrupt a portion of our workforce or operations at one or more facilities, thereby negatively impacting our business. Also, no assurance can be given that further enforcement efforts by governmental authorities will not result in the assessment of fines that could adversely affect our financial position, operating results or cash flows.

Loss of essential employees could have a significant negative impact on our business.

Our success is largely dependent on the skills, experience, and efforts of our management and other employees. The loss of the services of one or more members of our senior management or of numerous employees with essential skills could have a negative effect on our business, financial condition and results of operations. If we are not able to retain or attract talented, committed individuals to fill vacant positions when needs arise, it may adversely affect our ability to achieve our business objectives.

Our performance depends on favorable labor relations with our employees and our compliance with labor laws. Any deterioration of those relations or increase in labor costs due to our compliance with labor laws could adversely affect our business.

As of December 30, 2012, we employed approximately 33,000 persons in the U.S. and approximately 5,000 persons in Mexico. Approximately 36.3% of the Company’s employees were covered under collective bargaining agreements. Substantially all employees covered under collective bargaining agreements are covered under agreements that expired in 2011 or 2012 and remain subject to ongoing negotiations or will expire in 2013. We have not experienced any labor-related work stoppage at any location in over eight years. We believe our relationship with our employees and union leadership is satisfactory. At any given time, we will be in some stage of contract negotiations with various collective bargaining units. The Company is currently in negotiations with union locals in 11 locations, and there is no assurance that agreement will be reached or, if reached, will be on the terms that are favorable to the Company. In the absence of an agreement, we may become subject to labor disruption at any of these locations, which could have an adverse effect on our financial results.

Extreme weather, natural disasters or other events beyond our control could negatively impact our business.

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

We may face significant costs for compliance with existing or changing environmental requirements and for potential environmental obligations relating to current or discontinued operations.

Compliance with existing or changing environmental requirements, including more stringent limitations imposed or expected to be imposed in recently-renewed or soon-to be renewed environmental permits, will require capital expenditures for installation of new or upgraded pollution control equipment at some of our facilities.

In the past, we have acquired businesses with operations such as pesticide and fertilizer production that involved greater use of hazardous materials and generation of more hazardous wastes than our current operations. While many of those operations have been sold or closed, some environmental laws impose strict and, in certain circumstances, joint and several liability for costs of investigation and remediation of contaminated sites on current and former owners and operators of the sites, and on persons who arranged for disposal of wastes at such sites. In addition, current owners or operators of such contaminated sites may seek to recover cleanup costs from us based on past operations or contractual indemnifications.

New environmental requirements, stricter interpretations of existing environmental requirements, or obligations related to the investigation or clean-up of contaminated sites, may materially affect our business or operations in the future.

JBS USA holds a majority of our common stock and has the ability to control the vote on most matters brought before the holders of our common stock.

JBS USA holds a majority of the shares and voting power of our common stock and is entitled to appoint a majority of the members of our board of directors. As a result, JBS USA will, subject to restrictions on its voting power and actions in a stockholders agreement between us and JBS USA and our organization documents, have the ability to control our management, policies and financing decisions, elect a majority of the members of our board of directors at the annual meeting and control the vote on most matters coming before the holders of our common stock.

Under the stockholders agreement between us and JBS USA, JBS USA has the ability to elect up to six members of our board of directors and the other holders of our common stock have the ability to elect up to two members of our board of directors. If the percentage of our outstanding common stock owned by JBS USA exceeds 80%, then JBS USA would have the ability to elect one additional member of our board of directors while the other holders of our common stock would have the ability to elect one less member of our board of directors.

Our operations are subject to general risks of litigation.

We are involved on an on-going basis in litigation with our independent contract growers or arising in the ordinary course of business or otherwise. Trends in litigation may include class actions involving consumers, shareholders, employees or injured persons, and claims relating to commercial, labor, employment, antitrust, securities or environmental matters. Litigation trends and the outcome of litigation cannot be predicted with certainty and adverse litigation trends and outcomes could adversely affect our financial results.

We depend on contract growers and independent producers to supply us with livestock.

We contract primarily with independent contract growers to raise the live chickens processed in our poultry operations. If we do not attract and maintain contracts with growers or maintain marketing and purchasing relationships with independent producers, our production operations could be negatively affected.

Changes in consumer preference could negatively impact our business.

The food industry in general is subject to changing consumer trends, demands and preferences. Trends within the food industry change often, and failure to identify and react to changes in these trends could lead to, among other things, reduced demand and price reductions for our products, and could have an adverse effect on our financial results.

The consolidation of customers could negatively impact our business.

Our customers, such as supermarkets, warehouse clubs and food distributors, have consolidated in recent years, and consolidation is expected to continue throughout the U.S. and in other major markets. These consolidations have produced large, sophisticated customers with increased buying power who are more capable of operating with reduced inventories, opposing price increases, and demanding lower pricing, increased promotional programs and specifically tailored products. These customers also may use shelf space currently used for our products for their own private label products. Because of these trends, our volume growth could slow or we may need to lower prices or increase promotional spending for our products, any of which would adversely affect our financial results.

Our future financial and operating flexibility may be adversely affected by our significant leverage.

We have substantial indebtedness, which could adversely affect our financial condition. On a consolidated basis, as of December 30, 2012, we had approximately $667.5 million in secured indebtedness, $497.3 million of unsecured indebtedness and had the ability to borrow approximately $529.9 million under our credit agreements. Significant amounts of cash flow will be necessary to make payments of interest and repay the principal amount of such indebtedness.

The degree to which we are leveraged could have important consequences because:

It could affect our ability to satisfy our obligations under our credit agreements;
A substantial portion of our cash flow from operations is required to be dedicated to interest and principal payments and may not be available for operations, working capital, capital expenditures, expansion, acquisitions or general corporate or other purposes;
Our ability to obtain additional financing and to fund working capital, capital expenditures and other general corporate requirements in the future may be impaired;
We may be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;
Our flexibility in planning for, or reacting to, changes in our business may be limited;
It may limit our ability to pursue acquisitions and sell assets; and
It may make us more vulnerable in the event of a continued or new downturn in our business or the economy in general.

Our ability to make payments on and to refinance our debt, including our credit facilities, will depend on our ability to generate cash in the future. This, to a certain extent, is subject to various business factors (including, among others, the commodity prices of feed ingredients and chicken) and general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control.

There can be no assurance that we will be able to generate sufficient cash flow from operations or that future borrowings will be available under our credit facilities in an amount sufficient to enable us to pay our debt obligations, including obligations under our credit facilities, or to fund our other liquidity needs. We may need to refinance all or a portion of their debt on or before maturity. There can be no assurance that we will be able to refinance any of their debt on commercially reasonable terms or at all.

Media campaigns related to food production present risks.

Individuals or organizations can use new social media platforms to publicize inappropriate or inaccurate stories or perceptions about the food production industry or our Company. Such practices could cause damage to the reputations of the Company and/or the food production industry in general. This damage could adversely affect our financial results.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Operating Facilities

Our main operating facilities are as follows:

				Average Capacity
	Operating	Idled	Capacity^(a)(b)	Utilization^(b)
U.S. Chicken Facilities
Fresh processing plants	25	4	32.8 million head	91.5%
Prepared foods cook plants	8	—	18.9 million pounds	94%
Feed mills	25	2	11.9 million tons	76.0%
Hatcheries	30	4	2,285.6 million eggs	83.5%
Rendering	6	1	9,000 tons	57.1%
Pet food processing	3	—	1,500 tons	56.0%
Puerto Rico Facilities
Fresh processing plant	1	—	350,000 head	94.3%
Feed mill	1	—	112,000 tons	71.5%
Hatcheries	1	—	27.0 million eggs	78.9%
Rendering	1	—	84 tons	79.1%
Distribution centers	1	—	N/A	N/A
Mexico Facilities
Processing plants	3	—	2.7 million head	85.2%
Feed mills	4	—	1.15 million tons	76.0%
Hatcheries	6	—	240.3 million eggs	94.0%
Rendering	2	—	26,000 tons	64.2%
Distribution centers	13	—	N/A	N/A

(a)	Capacity is based on a five day week.
(b)	Capacity and utilization numbers do not include idled facilities.

Other Facilities and Information

Our corporate offices share a building with JBS USA in Greeley, Colorado. We own a partially automated distribution freezer located outside of Pittsburg, Texas, which includes 125,000 square feet of storage area. We own a building in Richardson, Texas, which houses our computer data center; and an office building in Broadway, Virginia, which houses additional sales and marketing, research and development, and support activities. We own an office building in Mexico City, which houses our Mexican marketing office and we lease an office building in Querétaro, Mexico, which houses our Mexican administrative functions. In addition, we own administrative office buildings in Pittsburg, Texas and Atlanta, Georgia that we are currently marketing for sale.

Most of our domestic property, plant and equipment are pledged as collateral on our long-term debt and credit facilities. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 3. Legal Proceedings

Grower Claims and Proceedings

Ricky Arnold et al. v. Pilgrim’s Pride Corp., et al. On September 10, 2008, a lawsuit styled “Ricky Arnold, et al. v. Pilgrim’s Pride Corp., et al.” was filed against our Company and two of its representatives. In this lawsuit, filed in the Circuit Court of Van Buren County, Arkansas, nearly 100 contract poultry growers and their spouses assert claims of fraud and deceit, constructive fraud, fraud in the inducement, promissory estoppel, and violations of the Arkansas Livestock and Poultry Contract Protection Act relating to the idling of our Clinton, Arkansas processing plant. The total amount of damages sought by the contract poultry growers is unliquidated and unknown at this time. We filed a Notice of Suggestion of Bankruptcy. The Court has not issued an order in response to it. The plaintiffs filed proofs of claim in the Bankruptcy Court, and we filed objections to the proofs of claim. The plaintiffs in the Arnold case, and a number of other growers from the Clinton, Arkansas facility filed proofs of claim in the bankruptcy case. We anticipate that the Arnold case will be resolved as a part of the claim resolution process in the Bankruptcy Court. We express no opinion as to the likelihood of an unfavorable outcome or the amount or range of any possible loss to us.

Sheila Adams, et al. v. Pilgrim’s Pride Corporation. On June 1, 2009, approximately 555 former and current independent contract broiler growers, their spouses and poultry farms filed an adversary proceeding against us in the Bankruptcy Court styled “Sheila Adams, et al. v. Pilgrim’s Pride Corporation.” In the adversary proceeding, the plaintiffs assert claims against us for: (i) violations of Sections 202(a), (b) and (e), 7 US C. § 192 of the Packers and Stockyards Act of 1921 (the “PSA”); (ii) intentional infliction of emotional distress; (iii) violations of the Texas Deceptive Trade Practices Act (“DTPA”); (iv) promissory estoppel; (v) simple fraud; and (vi) fraud by nondisclosure. The case relates to our Farmerville, Louisiana; Nacogdoches, Texas; and the De Queen and Batesville, Arkansas complexes. The plaintiffs also filed a motion to withdraw the reference of the adversary proceeding from the Bankruptcy Court to the U.S District for the Eastern Court of Texas (“Marshall Court”). The motion was filed with the U.S. District Court for the Northern District of Texas-Fort Worth Division (the “Fort Worth Court”). The Bankruptcy Court recommended the reference be withdrawn, but that the Fort Worth Court retain venue over the action to ensure against forum shopping. The Fort Worth Court granted the motion to withdraw the reference and consolidated this action with the City of Clinton proceeding described below. We filed a motion to dismiss the plaintiffs’ claims. The Fort Worth Court granted in part and denied in part our motion, dismissing the following claims and ordering the plaintiffs to file a motion to amend their lawsuit and re-plead their claims with further specificity or the claims would be dismissed with prejudice: (i) intentional infliction of emotional distress; (ii) promissory estoppel; (iii) simple fraud and fraudulent nondisclosure; and (iv) DTPA claims with respect to growers from Oklahoma, Arkansas, and Louisiana. The plaintiffs filed a motion for leave to amend on October 7, 2009. Plaintiffs’ motion for leave was granted and the plaintiffs filed their Amended Complaint on December 7, 2009. Subsequent to the Fort Worth Court granting in part and denying in part our motion to dismiss, the plaintiffs filed a motion to transfer venue of the proceeding from the Fort Worth Court to the Marshall Court. We filed a response to the motion, but the motion to transfer was granted on December 17, 2009. On December 29, 2009, we filed our answer to plaintiffs’ Amended Complaint with the Marshall Court. A bench trial commenced on June 16, 2011. The trial concluded as to the El Dorado growers on August 25, 2011. On September 30, 2011, the Marshall Court issued its Findings of Facts and Conclusions of Law and Judgment finding in favor of the Company on each of the grower claims with exception of claims under 7 U.S.C. §192(e), and awarding damages to plaintiffs in the aggregate of approximately $25.8 million. Afterward, the Company filed post-judgment motions attacking the trial court’s findings of fact and conclusions of law, which, on December 28, 2011, were granted in part and resulted in a reduction of the damages award from $25.8 million to $25.6 million. On January 19, 2012, the Company appealed the findings of fact and conclusions of law and decision concerning the post-judgment motions to the United States Fifth Circuit Court of Appeals. Oral argument occurred on December 3, 2012. The appeal has been submitted for a decision, but there is no deadline set for the Fifth Circuit Court of Appeals to issue a decision. As for the remaining claims, the bench trials relating to the allegations asserted by the plaintiffs from the Farmerville, Louisiana complex began on July 16, 2012. That bench trial concluded on August 2, 2012. The Marshall Court has not issued a decision. Additionally, the bench trials relating to the claims asserted by the plaintiffs from the Nacogdoches, Texas complex began on September 12, 2012. The trial has not concluded. However, at this time, the Nacogdoches, Texas bench trial is scheduled to resume on April 22, 2013. The remaining bench trial for the plaintiffs from the De Queen and Batesville, Arkansas complexes was scheduled for October 29, 2012, but that trial date was canceled. The Marshall Court has not scheduled new dates for that bench trial. The Company intends to vigorously pursue its appellate rights and defend against the underlying judgment. While the outstanding judgment is reasonably possible, the Company has recorded an estimated probable loss that is less than the outstanding judgment. The Company intends to vigorously defend against these claims. Although the likelihood of financial loss related to the remaining growers’ claims is reasonably possible, an estimate of potential loss cannot be determined at this time because of now conflicting legal authority, the factual nature of the various growers’ individual claims, and a new judge who will preside over the remaining bench trials. There can be no assurances that other similar claims may not be brought against the Company.

Grower Proofs of Claim. Approximately 161 former independent contract broiler growers, their spouses and poultry farms filed proofs of claim against us relating to the idling of the Company’s El Dorado, Arkansas; Douglas, Georgia; Siler City and Sanford, North Carolina; and Athens, Alabama processing facilities. Eight of the growers also filed administrative claims against us. The growers’ claims include: (i) fraud; (ii) fraudulent inducement; (iii) violations of the Packers & Stockyards Act; (iv) breach of fiduciary duty; (v) promissory estoppel; (vi) equitable estoppel; (vii) restitution; and (viii) deceptive trade practices. The claims relate to the growers’ allegations that they were required to spend significant amounts improving their poultry farms in order to continue their contractual relationship with our Company and predecessor companies. On December 17, 2009, we filed objections to the proofs of claim and administrative claims. The parties have engaged in discovery. Since discovery commenced, we announced that we are reopening the Douglas, Georgia complex. Consequently, we circulated new poultry grower contracts with releases to those growers that own and/or operate poultry farms within or near Douglas, Georgia. Because numerous growers signed the poultry grower agreement that contained the release of their claims, approximately 133 of the 161 growers in this consolidated claims administration proceeding withdrew their proofs of claim and motions for administrative expense claims. There are currently approximately 48 growers in this proceeding. After engaging in discovery motion practice and a trial, the majority of the 48 growers’ claims were dismissed. The Company subsequently settled the remaining claims.

Numerous former independent contract growers located in our Clinton, Arkansas complex filed proofs of claim against us relating to the Arnold litigation referenced above. The claims include: (i) fraud and deceit; (ii) constructive fraud; (iii) fraud in the inducement; (iv) promissory estoppel; (v) a request for declaratory relief; and (vi) violations of the Arkansas Livestock and Poultry Contract Protection Act, and relate to the growers’ allegations that they were required to spend significant amounts improving their poultry farms in order to continue their contractual relationship with our Company and predecessor companies prior to us idling our Clinton processing facility. Most of the growers in this consolidated claims administration proceeding were named plaintiffs in the case styled, “Ricky Arnold, et al. v. Pilgrim’s Pride Corporation, et al.” discussed above. On November 30, 2009, we filed objections to the proofs of claim. On August 2, 2010, we filed numerous motions for summary judgment requesting the Bankruptcy Court to dismiss each grower’s causes of action against our Company. In response to the dispositive motions, the growers conceded that their numerous fraud and statutory claims lacked merit; consequently, the parties recently submitted agreed orders dismissing these claims with prejudice. The sole remaining cause of action alleged by the growers against us is promissory estoppel. The hearing on our motions for summary judgment with respect to the promissory estoppel claims occurred on October 19, 2010. On December 15, 2010, the Bankruptcy Court granted the Company’s summary judgment motion on 106 of the 107 growers’ promissory estoppel claims. The Company settled with the grower whose claims were not dismissed for an immaterial amount. The growers whose claims were dismissed appealed the decision to the District Court, which, on December 19, 2011, affirmed the Bankruptcy Court’s decision. On January 17, 2012, the growers appealed the District Court’s decision to the United States Fifth Circuit of Court of Appeals. The parties submitted appellate briefs and are awaiting a decision. The appeal has been submitted for a decision without oral argument, but there is no deadline set for the Fifth Circuit Court of Appeals to issue a decision. The Company intends to defend vigorously against the merits of the growers’ appeal. We express no opinion as to the likelihood of an unfavorable outcome or the amount or range of any possible loss to us.

Securities Litigation

On October 29, 2008, Ronald Acaldo filed suit in the U.S. District Court for the Eastern District of Texas, Marshall Division, against us and individual defendants Lonnie “Bo” Pilgrim, Lonnie Ken Pilgrim, J. Clinton Rivers, Richard A. Cogdill and Clifford E. Butler. The Complaint alleged that our Company and the individual defendants violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder.

On November 13, 2008, Chad Howes filed suit in the U.S. District Court for the Eastern District of Texas, Marshall Division, against us and individual defendants Lonnie “Bo” Pilgrim, Lonnie Ken Pilgrim, J. Clinton Rivers, Richard A. Cogdill and Clifford E. Butler. The allegations in the Howes Complaint are identical to those in the Acaldo Complaint, as are the class allegations and relief sought. The defendants were never served with the Howes Complaint.

On May 14, 2009, the Court consolidated the Acaldo and Howes cases and renamed the style of the case, “In re: Pilgrim’s Pride Corporation Securities Litigation.” On May 21, 2009, the Court granted the Pennsylvania Public Fund Group’s Motion for Appointment of Lead Plaintiff. Thereafter, on June 26, 2009, the lead plaintiff filed a Consolidated (and amended) Complaint. The Consolidated Complaint dismissed the Company and Clifford E. Butler as Defendants. In addition, the Consolidated Complaint added the following directors as Defendants: Charles L. Black, Key Coker, Blake D. Lovette, Vance C. Miller, James G. Vetter, Jr., Donald L. Wass, Linda Chavez, and Keith W. Hughes. The Consolidated Complaint alleges four causes of action: violations of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder solely against Lonnie “Bo” Pilgrim, Clint Rivers, and Richard A. Cogdill (the “Officer Defendants”). Those claims assert that, during the Class Period of May 5, 2008 through October 28, 2008, the defendants, through various financial statements, press releases and conference calls, made material misstatements of fact and/or omitted to disclose material facts by purportedly failing to completely impair the goodwill associated with the Gold Kist acquisition. The Consolidated Complaint also asserts claims under Section 11 of the Securities Act of 1933 against all defendants, asserting that, statements made in a registration statement in connection with the May 14, 2008 secondary offering of our common stock were materially false and misleading for their failure to completely impair the goodwill associated with the Gold Kist acquisition. Finally, the Consolidated Complaint asserts a violation of Section 15 of the Securities Act of 1933 against the Officer Defendants only, claiming that the Officer Defendants were controlling persons of the Company and the other defendants in connection with the Section 11 violation. By the Consolidated Complaint, the lead plaintiff seeks certification of the Class, undisclosed damages, and costs and attorneys’ fees.

On July 27, 2009, defendants filed a Motion to Dismiss the Consolidated Complaint for its failure to adequately plead, as to the Sections 10(b) and 20(a) claims, scienter and loss causation and, as to the Sections 11 and 15 claims, for its failure to adequately plead misrepresentations and omissions. Defendants requested that the Consolidated Complaint be dismissed with prejudice.

On August 17, 2010, the Court issued its Memorandum Opinion and Order on the motion to dismiss, granting in part and denying in part, the defendants’ motion. The Court dismissed without prejudice the plaintiffs’ claims alleging securities fraud under Section 10(b) of the Exchange Act and Rule 10b-5 and for controlling person liability under Section 20(a) of the Exchange Act. The Court denied defendants’ motion to dismiss with respect to the plaintiffs’ claim for negligent misrepresentation under Section 11 of the Securities Act and for controlling person liability under Section 15 of the Securities Act. The plaintiffs were granted leave to amend their complaint but elected not to do so. The defendants filed their Original Answer to the Complaint on November 15, 2010.

On May 9, 2011, the Court issued an Order setting a class certification hearing for February 7, 2012 and ordering the parties to confer and file a Docket Control Order by May 26, 2011. Thereafter, as per the Court’s Order, the parties negotiated a proposed Docket Control Order, which was signed by the Court on May 31, 2011.

The parties reached an agreement to settle this matter for $1.5 million, subject to Court approval. A Stipulation of Settlement was filed on November 14, 2011. On January 23, 2012, the Court issued an order Preliminarily Approving Settlement, in which the Court set a hearing date for the final approval of settlement for May 1, 2012. On May 2, 2012 the Court issued an order of final approval of the settlement and dismissed the case with prejudice in accordance with the terms of the settlement agreement.

ERISA Claims and Proceedings

On December 17, 2008, Kenneth Patterson filed suit in the U.S. District Court for the Eastern District of Texas, Marshall Division, against Lonnie “Bo” Pilgrim, Lonnie Ken Pilgrim, Clifford E. Butler, J. Clinton Rivers, Richard A. Cogdill, Renee N. DeBar, our Compensation Committee and other unnamed defendants (the “Patterson action”). On January 2, 2009, a nearly identical suit was filed by Denise M. Smalls in the same court against the same defendants (the “Smalls action”). The complaints in both actions, brought pursuant to section 502 of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 US C. § 1132, alleged that the individual defendants breached fiduciary duties to participants and beneficiaries of the Pilgrim’s Pride Stock Investment Plan (the “Stock Plan”), as administered through the Pilgrim’s Pride Retirement Savings Plan (the “RSP”), and the To-Ricos, Inc. Employee Savings and Retirement Plan (the “To-Ricos Plan”) (collectively, the “Plans”) by failing to sell the common stock held by the Plans before it declined in value in late 2008, based on factual allegations similar to the allegation made in the Acaldo securities case discussed above. Patterson and Smalls further alleged that they purported to represent a class of all persons or entities who were participants in or beneficiaries of the Plans at any time between May 5, 2008 through the present and whose accounts held our common stock or units in our common stock. Both complaints sought actual damages in the amount of any losses the Plans suffered, to be allocated among the participants’ individual accounts as benefits due in proportion to the accounts’ diminution in value, attorneys’ fees, an order for equitable restitution and the imposition of constructive trust, and a declaration that each of the defendants have breached their fiduciary duties to the Plans’ participants.

On July 20, 2009, the Court entered an order consolidating the Smalls and Patterson actions. On August 12, 2009, the Court ordered that the consolidated case will proceed under the caption “In re Pilgrim’s Pride Stock Investment Plan ERISA Litigation, No. 2:08-cv-472-TJW.”

Patterson and Smalls filed a consolidated amended complaint (“Amended Complaint”) on March 2, 2010. The Amended Complaint names as defendants the Pilgrim’s Pride Board of Directors, Lonnie “Bo” Pilgrim, Lonnie Ken Pilgrim, Charles L. Black, Linda Chavez, S. Key Coker, Keith W. Hughes, Blake D. Lovette, Vance C. Miller, James G. Vetter, Jr., Donald L. Wass, J. Clinton Rivers, Richard A. Cogdill, the Pilgrim’s Pride Pension Committee, Robert A. Wright, Jane Brookshire, Renee N. DeBar, the Pilgrim’s Pride Administrative Committee, Gerry Evenwel, Stacey Evans, Evelyn Boyden, and “John Does 1-10.” The Amended Complaint purports to assert claims on behalf of persons who were participants in or beneficiaries of the RSP or the To-Ricos Plan at any time between January 29, 2008 through December 1, 2008 (“the alleged class period”), and whose accounts included investments in the Company’s common stock.

Like the original Patterson and Smalls complaints, the Amended Complaint alleges that the defendants breached ERISA fiduciary duties to participants and beneficiaries of the RSP and To-Ricos Plan by permitting both Plans to continue investing in the Company’s common stock during the alleged class period. The Amended Complaint also alleges that certain defendants were “appointing” fiduciaries who failed to monitor the performance of the defendant-fiduciaries they appointed. Further, the Amended Complaint alleges that all defendants are liable as co-fiduciaries for one another’s alleged breaches. Plaintiffs seek actual damages in the amount of any losses the RSP and To-Ricos Plan attributable to the decline in the value of the common stock held by the Plans, to be allocated among the participants’ individual accounts as benefits due in proportion to the accounts’ alleged diminution in value, costs and attorneys’ fees, an order for equitable restitution and the imposition of constructive trust, and a declaration that each of the defendants have breached their ERISA fiduciary duties to the RSP and To-Ricos Plan’s participants.

The defendants filed a motion to dismiss the Amended Complaint on May 3, 2010. The plaintiffs responded to that motion on July 2, 2010, dropping plaintiff Smalls from the case and adding an additional plaintiff, Stanley Sylvestros. On December 20, 2011, the case was reassigned to Judge Rodney Gilstrap, and on January 25, 2012, Judge Gilstrap referred the proceedings to Magistrate Roy S. Payne. The court has not yet ruled on the motion to dismiss. The was subsequently reassigned to District Judge Folsom, but remained assigned to Magistrate Payne for pretrial proceedings. On August 9, 2012, the Magistrate issued a Report and Recommendation denying the motion to dismiss without ruling on the merits. The Report and Recommendation was subsequently adopted by the District Court. The Magistrate scheduled briefing on class certification, which has been completed, and a hearing is scheduled for February 28, 2013. Defendants oppose class certification.

Tax Claims and Proceedings

The United States Department of Treasury, Internal Revenue Service (“IRS”) filed an amended proof of claim in the Bankruptcy Court pursuant to which the IRS asserted claims that total $74.7 million. We filed in the Bankruptcy Court (i) an objection to the IRS’ amended proof of claim and (ii) a motion requesting the Bankruptcy Court to determine our U.S. federal tax liability pursuant to Sections 105 and 505 of the Bankruptcy Code. The objection and motion asserted that the Company has no liability for the additional U.S. federal taxes that have been asserted for pre-petition periods by the IRS. The IRS responded in opposition to our objection and motion. On July 8, 2010, the Bankruptcy Court granted our unopposed motion requesting that the Bankruptcy Court abstain from determining our federal tax liability. As a result, we have worked with the IRS through the normal processes and procedures that are available to all taxpayers outside of bankruptcy (including the United States Tax Court (“Tax Court”) proceedings discussed below) to resolve the IRS’ amended proof of claim. On December 12, 2012 we entered into two Stipulation of Settled Issues (“Stipulation” or “Stipulations”) with the IRS. The first Stipulation relates to the Company’s 2003, 2005, and 2007 tax years and resolves all of the material issues in the case. The second Stipulation relates to the Company as the successor in interest to Gold Kist’s for the tax years ended June 30, 2005 and September 30, 2005, and resolves all substantive issues in the case. These Stipulations account for approximately $29.3 million of the amended proof of claim and should result in no additional tax due.

In connection with the amended proof of claim, on May 26, 2010, we filed a petition in Tax Court in response to a Notice of Deficiency that was issued to the Company as the successor in interest to Gold Kist. The Notice of Deficiency and the Tax Court proceeding relate to a loss that Gold Kist claimed for its tax year ended June 30, 2004. This proceeding accounts for approximately $45.4 million of the amended proof of claim and the Company is still working with the IRS through the normal processes and procedures to resolve this portion of the IRS’ amended proof of claim.

We express no opinion as to the likelihood of an unfavorable outcome or the amount or range of any possible loss to us related to the above Tax Court case related to Gold Kist’s tax year ended June 30, 2004. If adversely determined, the outcome could have a material effect on the Company’s operating results and financial position.

Other Claims and Proceedings

We are subject to various other legal proceedings and claims, which arise in the ordinary course of our business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect our financial condition, results of operations or cash flows.

Item 4. Mine Safety Disclosures

None.

PART II

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

Market Information

Our common stock is listed on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “PPC.” Until December 27, 2012, our common stock was listed on the New York Stock Exchange, Inc. (“NYSE”) under the symbol “PPC.” High and low prices of the Company’s common stock for 2012 and 2011 are as follows:

	2012 Prices				2011 Prices
Quarter	High		Low		High		Low
First	$	7.49	$	4.28	$	8.40	$	6.59
Second	$	7.52	$	4.54	$	7.71	$	4.05
Third	$	8.56	$	6.59	$	5.46	$	2.96
Fourth	$	7.73	$	5.17	$	6.30	$	3.69

Holders

The Company estimates there were approximately 26,000 holders (including individual participants in security position listings) of the Company’s common stock as of February 15, 2013.

Dividends

The Company did not pay dividends in 2012 or 2011. Our U.S. credit facility prohibits us from paying dividends on our common stock. Further, the indenture governing our 7 ⅞% senior notes due 2018 (the “2018 Notes”) restricts, but does not prohibit, the Company from declaring dividends.

Issuer Purchases of Equity Securities in 2012

The Company did not repurchase any of its equity securities in 2012.

Equity Compensation Plan Information

The following table provides certain information about our common stock that may be issued under the Long Term Incentive Plan (the “LTIP”), as of December 30, 2012. For additional information concerning terms of the LTIP, see “Note 18. Incentive Compensation” of our Consolidated Financial Statements included in this annual report.

			Number of Securities
			Remaining Available for
			Future Issuance Under
	Number of Securities to Be	Weighted-Average Exercise	Equity Compensation Plans
	Issued Upon Exercise of	Price of Outstanding	(Excluding Securities
	Outstanding Options,	Option, Warrants and	Reflected in the First
Plan Category	Warrants and Rights	Rights	Column)
Equity compensation plans approved by securities
holders	—	—	6,615,393
Equity compensation plans not approved by securities
holders	—	—	—
Total	—	—	6,615,393

Total Return on Registrant’s Common Equity

The following graph compares the performance of the Company with that of the Russell 2000 composite index and a peer group of companies for the period from December 29, 2009 to December 30, 2012, with the investment weighted on market capitalization. Data for periods prior to December 29, 2009 is not shown because we were in bankruptcy prior to that date and financial results before and after December 29, 2009 are not comparable. The total cumulative return on investment (change in the year-end stock price plus reinvested dividends) for each of the periods for the Company, the Russell 2000 composite index and the peer group is based on the stock price or composite index at the beginning of the applicable period. Companies in the peer group index include Sanderson Farms Inc., Hormel Foods Corp., Smithfield Foods Inc. and Tyson Foods Inc.

The graph covers the period from December 29, 2009 to December 30, 2012, and reflects the performance of the Company’s single class of common stock. The stock price performance represented by this graph is not necessarily indicative of future stock performance.

	12/29/09		12/31/09		01/31/10		02/28/10		03/31/10		04/30/10		05/31/10		06/30/10		07/31/10		08/31/10		09/30/10		10/31/10		11/30/10		12/31/10
PPC	$	100.00	$	95.50	$	95.17	$	96.78	$	114.17	$	125.11	$	85.62	$	70.49	$	73.50	$	67.17	$	60.30	$	65.45	$	71.25	$	76.07
Russell
2000		100.00		98.78		95.14		99.43		107.52		113.60		104.99		96.85		103.51		95.84		107.78		112.20		116.09		125.30
Peer Group		100.00		97.72		102.59		116.36		127.94		125.81		117.67		111.67		115.76		115.11		116.75		116.88		122.79		131.48

	01/31/11		02/28/11		03/31/11		04/30/11		05/31/11		06/30/11		07/31/11		08/31/11		09/30/11		10/31/11		11/30/11		12/25/11
PPC	$	74.89	$	82.73	$	82.73	$	63.09	$	53.33	$	58.05	$	51.50	$	37.34	$	45.82	$	54.08	$	61.59	$	64.27
Russell 2000		124.98		131.83		135.25		138.82		136.22		133.08		128.27		117.11		103.98		119.72		119.28		121.13
Peer Group		127.24		142.75		147.10		152.11		145.73		149.62		143.40		139.00		135.90		150.85		156.85		157.13

	01/31/12		02/29/12		03/31/12		04/30/12		05/31/12		06/30/12		07/31/12		08/31/12		09/30/12		10/31/12		11/30/12		12/30/12
PPC	$	60.25	$	70.21	$	83.54	$	79.96	$	91.94	$	80.07	$	52.07	$	59.57	$	57.22	$	63.05	$	79.96	$	80.52
Russell 2000		128.55		131.63		135.00		132.92		124.12		130.31		128.51		132.80		137.16		134.18		134.90		136.86
Peer Group		147.80		149.05		150.80		146.22		149.88		150.56		130.10		136.09		138.67		142.83		155.33		152.67

Item 6. Selected Financial Data

										Three Months Ended
(In thousands, except ratios and per share data)	2012			2011(a)			2010(a)			Dec 27, 2009(a)			Dec 27, 2008			2009(a)(b)			2008(a)(b)
Income Statement Data:
Net sales	$	8,121,382		$	7,535,698		$	6,881,629		$	1,602,734		$	1,876,991		$	7,088,055		$	8,518,757
Gross profit (loss)^(c)		435,832			(141,537	)		460,993			68,753			(100,142	)		310,803			(247,359	)
Goodwill impairment		—			—			—			—			—			—			501,446
Operating income (loss)^(c)		250,342			(373,591	)		185,427			7,589			(178,241	)		67,327			(1,057,696	)
Interest expense, net		103,529			110,067			101,748			44,193			39,569			157,543			131,627
Loss on early extinguishment of debt		—			—			11,726			—			—			—			—
Reorganization items, net		—			—			18,541			32,726			13,250			87,275			—
Income (loss) from continuing operations before
income taxes^(c)		153,062			(487,126	)		66,488			(68,446	)		(229,091	)		(173,849	)		(1,185,909	)
Income tax expense (benefit)^(d)		(20,980	)		8,564			(23,838	)		(102,371	)		278			(21,586	)		(194,921	)
Income (loss) from continuing operations^(c)		174,042			(495,690	)		90,326			33,925			(229,369	)		(152,263	)		(990,988	)
Net income (loss) attributable to
noncontrolling interest		(192	)		1,082			3,185			312			(13	)		(82	)		1,184
Net income (loss)^(c)		174,234			(496,772	)		87,141			33,613			(228,782	)		(151,582	)		(998,581	)
Ratio of earnings to fixed charges^(e)		2.34	x			(h)		1.49	x			(h)			(h)			(h)			(h)
Per Common Diluted Share Data:
Income (loss) from continuing operations	$	0.70		$	(2.20	)	$	0.40		$	0.15		$	(1.02	)	$	(0.68	)	$	(4.40	)
Net income (loss)		0.70			(2.21	)		0.39			0.15			(1.02	)		(0.67	)		(4.44	)
Cash dividends		—			—			—			—			—			—			0.09
Book value		3.50			2.59			5.01			2.58			1.75			2.04			5.07
Balance Sheet Summary:
Working capital surplus (deficit)^(f)		812,551			747,020			971,830			675,256			757,862			858,030			(1,262,242	)
Total assets		2,913,869			2,879,545			3,218,898			3,209,463			3,215,135			3,060,504			3,298,709
Notes payable and current maturities of
long-term debt^(g)		15,886			15,611			58,144			221,195			—			—			1,874,469
Long-term debt, less current maturities^(g)		1,148,870			1,408,001			1,281,160			1,876,277			41,521			41,062			67,514
Total stockholders’ equity		908,997			558,430			1,072,663			191,952			129,420			150,920			351,741
Cash Flow Summary:
Cash flows from operating activities	$	199,624		$	(128,991	)	$	14,605		$	(4,057	)	$	(168,674	)	$	64,934		$	(680,852	)
Depreciation and amortization^(h)		147,414			209,061			231,045			56,705			60,158			236,005			240,305
Impairment of goodwill and other assets		2,770			22,895			26,484			—			—			5,409			514,630
Purchases of investment securities		(162	)		(4,596	)		(17,201	)		(6,024	)		(5,629	)		(19,958	)		(38,043	)
Proceeds from sale or maturity of investment
securities		688			15,852			68,100			4,511			4,591			18,946			27,545
Acquisitions of property, plant and equipment		(90,327	)		(135,968	)		(179,332	)		(30,463	)		(29,028	)		(88,193	)		(152,501	)
Cash flows from financing activities		(111,029	)		126,850			(29,480	)		48,250			223,595			101,153			797,743
Other Data:
EBITDA⁽ⁱ⁾	$	393,942		$	(174,801	)	$	384,484		$	31,015		$	(130,906	)	$	212,911		$	(818,924	)
Adjusted EBITDA⁽ⁱ⁾		402,583			(147,014	)		481,906			64,947			(115,221	)		314,719			(274,516	)
Key Indicators (as a percent of net sales):
Gross profit (loss)^(c)		5.4	%		(1.9	)%		6.7	%		4.3	%		(5.3	)%		4.4	%		(2.9	)%
Selling, general and administrative expenses		2.2	%		2.7	%		3.0	%		3.9	%		3.9	%		3.4	%		3.4	%
Operating income (loss)^(c)		3.1	%		(5.0	)%		2.7	%		0.5	%		(9.5	)%		0.9	%		(12.4	)%
Interest expense, net		1.3	%		1.5	%		1.5	%		2.8	%		2.1	%		2.2	%		1.5	%
Income (loss) from continuing operations^(c)		2.1	%		(6.6	)%		1.3	%		2.1	%		(12.2	)%		(2.1	)%		(11.6	)%
Net income (loss)^(c)		2.1	%		(6.6	)%		1.3	%		2.1	%		(12.2	)%		(2.1	)%		(11.7	)%

(a)		In December 2009, we changed our fiscal year end from the Saturday nearest September 30 of each year to the last Sunday in December of each year. The change was effective for our 2010 fiscal year, which began December 28, 2009 and ended December 26, 2010 and resulted in an approximate three-month transition period which began September 27, 2009 and ended December 27, 2009, which we sometimes refer to as the Transition Period. The reader should assume any reference we make to a particular year (for example, 2012) in this annual report applies to our fiscal year and not the calendar year.
(b)		In March 2008, the Company sold certain assets of its turkey business. We are reporting our operations with respect to this business as a discontinued operation for all periods presented.
(c)		Gross profit, operating income and net income include the following nonrecurring recoveries, restructuring charges and other unusual items for each of the years presented:

										Three Months Ended
	2012			2011			2010			Dec 27, 2009			Dec 27, 2008			2009			2008
Effect on gross profit and operating income:										(In millions)
Operational restructuring charges	$	—		$	(2.0	)	$	(4.3	)	$	(2.9	)	$	—		$	(12.5	)	$	(28.0	)
Additional effect on operating income:
Goodwill impairment		—			—			—			—			—			—			(501.4	)
Administrative restructuring charges		(8.4	)		(26.9	)		(66.0	)		1.4			(2.4	)		(2.0	)		(16.2	)

(d)	Income tax benefit in 2012 resulted primarily from a decrease in valuation allowance and a decrease in reserves for unrecognized tax benefits. Income tax expense in 2011 resulted primarily from an increase in valuation allowance and an increase in reserves for unrecognized tax benefits. Income tax benefit in 2010 resulted primarily from the benefit on the deconsolidation for tax purposes of the Mexico operations and a decrease in valuation allowance. The deconsolidation for tax purposes of the Mexico operations was in response to changes in the Mexican tax laws that became effective January 1, 2010. The deconsolidation reduces the accrued taxes that had been previously recognized under the consolidated filing status as it eliminates recapturing certain taxes required under the new consolidation laws. Income tax benefit for the Transition Period resulted primarily from the release of valuation allowance because of new provisions that increased U.S. federal net operating loss carry backs net of tax expense for new Mexico tax legislation. Income tax expense for the thirteen weeks ended December 27, 2008 resulted primarily from an increase in valuation allowance. Income tax benefit in 2009 resulted primarily from a decrease in reserves for unrecognized tax benefits. Income tax benefit in 2008 resulted primarily from significant net operating losses incurred in 2008.
(e)	For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes plus fixed charges (excluding capitalized interest). Fixed charges consist of interest (including capitalized interest) on all indebtedness, amortization of capitalized financing costs and that portion of rental expense that we believe to be representative of interest. Earnings were inadequate to cover fixed charges by $490.6 million, $69.5 million, $229.8 million, $176.5 million, and $1,191.2 million in 2011, the Transition Period, the three months ended December 27, 2008, 2009, and 2008, respectively.
(f)	We experienced a working capital deficit in 2008. Upon the filing of the Chapter 11 petitions, certain of our debt obligations became automatically and immediately due and payable, subject to an automatic stay of any action to collect, assert, or recover a claim against the Company and the application of applicable bankruptcy law. As a result, the accompanying Consolidated Balance Sheet as of September 27, 2008, included reclassifications of $1,872.1 million to reflect as current certain long-term debt under the Company’s credit facilities that was accelerated.
(g)	The Company had current maturities of pre-petition long-term debt totaling $4.2 million and pre-petition long-term debt totaling $1,999.8 million at September 26, 2009, that were included in Liabilities subject to compromise.
(h)	Includes amortization of capitalized financing costs of approximately $10.1 million, $9.5 million, $14.8 million, $1.4 million, $1.5 million, $6.8 million and $4.9 million in 2012, 2011, 2010, the Transition Period, the three months ended December 27, 2008, 2009 and 2008, respectively.
(i)	“EBITDA” is defined as the sum of income (loss) from continuing operations plus interest, taxes, depreciation and amortization. “Adjusted EBITDA” is calculated by adding to EBITDA certain items of expense and deducting from EBITDA certain items of income that we believe are not indicative of our ongoing operating performance consisting of: (i) income (loss) attributable to noncontrolling interests in the period from 2008 through 2012 and the Transition Period, (ii) goodwill impairment in 2008, (iii) restructuring charges in 2012, 2011, 2010, 2009 and 2008, (iv) reorganization items in 2010 and 2009 and (v) losses on early extinguishment of debt in 2010. EBITDA is presented because it is used by us and we believe it is frequently used by securities analysts, investors and other interested parties, in addition to and not in lieu of results prepared in conformity with GAAP, to compare the performance of companies. We believe investors would be interested in our Adjusted EBITDA because this is how our management analyzes EBITDA from continuing operations. We also believe that Adjusted EBITDA, in combination with our financial results calculated in accordance with GAAP, provides investors with additional perspective regarding the impact of certain significant items on EBITDA and facilitates a more direct comparison of its performance with its competitors. EBITDA and Adjusted EBITDA are not measurements of financial performance under GAAP. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under GAAP. Some of the limitations of these measures are:
	They do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments; They do not reflect changes in, or cash requirements for, our working capital needs; They do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt; Although depreciation and amortization are noncash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; They are not adjusted for all noncash income or expense items that are reflected in our statements of cash flows; EBITDA does not reflect the impact of earnings or charges attributable to noncontrolling interests; They do not reflect the impact of earnings or charges resulting from matters we consider to not be indicative of our ongoing operations; and They do not reflect limitations on or costs related to transferring earnings from our subsidiaries to us.

	In addition, other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with GAAP. You should compensate for these limitations by relying primarily on our GAAP results and using EBITDA and Adjusted EBITDA only supplementally.

A reconciliation of income (loss) from continuing operations to EBITDA and Adjusted EBITDA is as follows:

										Three Months Ended
	2012			2011			2010			Dec 27, 2009			Dec 27, 2008			2009			2008
										(In thousands)
Income (loss) from continuing
operations	$	174,042			(495,690	)	$	90,326		$	33,925		$	(229,367	)	$	(152,263	)	$	(990,988	)
Add:
Interest expense, net ^(a)		103,529			110,067			101,748			44,193			39,569			157,543			131,627
Income tax expense (benefit)		(20,980	)		8,564			(23,838	)		(102,371	)		278			(21,586	)		(194,921	)
Depreciation and amortization
of continuing operations^(b)		147,414			211,780			231,045			56,705			60,158			236,005			240,305
Minus:
Amortization of capitalized
financing costs^(c)		10,063			9,522			14,797			1,437			1,544			6,788			4,947
EBITDA		393,942			(174,801	)		384,484			31,015			(130,906	)		212,911			(818,924	)
Add:
Goodwill impairment ^(d)		—			—			—			—			—			—			501,446
Restructuring charges ^(e)		8,449			28,869			70,340			1,518			2,422			14,451			44,146
Reorganization items, net ^(f)		—			—			18,541			32,726			13,250			87,275			—
Loss on early extinguishment
of debt^(g)		—			—			11,726			—			—			—			—
Minus:
Net income (loss) attributable
to noncontrolling interest		(192	)		1,082			3,185			312			(13	)		(82	)		1,184
Adjusted EBITDA	$	402,583		$	(147,014	)	$	481,906		$	64,947		$	(115,221	)	$	314,719		$	(274,516	)

(a)		Interest expense, net, consists of interest expense less interest income.
(b)		2011 includes $2.7 million of asset impairments not included in restructuring charges.
(c)		Amortization of capitalized financing costs is included in both interest expense, net and depreciation and amortization above.
(d)		Goodwill impairment includes costs recognized to write off the carrying amount of goodwill recognized in our acquisition of Gold Kist Inc.
(e)		Restructuring charges includes tangible asset impairment, severance and change-in-control compensation costs, and losses incurred on both the sale of unneeded broiler eggs and flock depletion.
(f)		Reorganization items, net, includes professional fees directly related to our reorganization, the elimination of unamortized loan costs associated with certain of our terminated borrowing arrangements, the recognition in earnings of a previously unrealized gain on a derivative instrument purchased to hedge interest rate risk related to certain of our terminated borrowing arrangements, expenses related to the execution of a borrowing arrangement during our reorganization, costs related to post-petition facility closures, gains recognized on the sales of a processing facility and undeveloped land and a loss recognized on the sale of our interest in a hog farming joint venture.
(g)		Loss on early extinguishment of debt includes premiums paid and the elimination of unamortized loan costs related to the pre-petition retirement of certain of our unsecured notes.

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

Description of the Company

We are the second-largest chicken producer in the world with operations in the U.S., Mexico and Puerto Rico. We are primarily engaged in the production, processing, marketing and distribution of fresh, frozen and value-added chicken products to retailers, distributors and foodservice operators. Our primary product types are fresh chicken products, prepared chicken products and export chicken products. We sell our fresh chicken products to the foodservice and retail markets. We sell our prepared food products to foodservice customers and retail distributors. We also export products to customers in approximately 100 countries, including Mexico. As a vertically integrated company, we control every phase of the production of our products. We operate feed mills, hatcheries, processing plants and distribution centers in 12 U.S. states, Puerto Rico and Mexico. We operate in one reportable business segment, as a producer and seller of chicken products we either produce or purchase for resale. Our fresh chicken products consist of refrigerated (nonfrozen) whole or cut-up chicken, either pre-marinated or non-marinated, and prepackaged chicken in various combinations of freshly refrigerated, whole chickens and chicken parts. Our prepared chicken products include portion-controlled breast fillets, tenderloins and strips, delicatessen products, salads, formed nuggets and patties and bone-in chicken parts. These products are sold either refrigerated or frozen and may be fully cooked, partially cooked or raw. In addition, these products are breaded or non-breaded and either pre-marinated or non-marinated.

We have a broad geographic reach and we offer our diverse customer base a balanced portfolio of fresh and prepared chicken products. We have consistently provided our customers with high quality products and service with a focus on delivering higher-value, higher-quality products. As such, we have become a valuable partner to our customers and a recognized industry leader. Our sales efforts are largely targeted towards the foodservice industry, principally chain restaurants, food processors and broad-line distributors. In 2012, we sold 7.6 billion pounds of dressed chicken and generated net sales of $8.1 billion. Our U.S. operations, including Puerto Rico, accounted for 89.3% of our net sales in 2012. Our Mexico operations generated the remaining 10.7% of our net sales in 2012.

We operate on the basis of a 52/53-week fiscal year that ends on the Sunday falling on or before December 31. The reader should assume any reference we make to a particular year (for example, 2012) in this annual report applies to our fiscal year and not the calendar year.

Executive Summary

We reported net income attributable to Pilgrim’s Pride Corporation of $174.2 million, or $0.70 per common share, for 2012. These operating results included a gross profit of $435.8 million. During 2012, we generated $199.6 million of cash from operations. At December 30, 2012, we had cash and cash equivalents totaling $68.2 million.

Market prices for feed ingredients remained at historically high levels throughout the third and fourth quarter of 2012 as a direct result of low supply caused by a drought across North America. Market prices for feed ingredients remain volatile. Consequently, there can be no assurance that our feed ingredient prices will not continue to increase materially. The following table compares the highest and lowest prices reached on nearby futures for one bushel of corn and one ton of soybean meal during the current year and previous two years:

	Corn				Soybean Meal
	Highest		Lowest		Highest		Lowest
	Price		Price		Price		Price
2012:
Fourth Quarter	$	8.46	$	6.88	$	518.00	$	393.00
Third Quarter		8.49		5.70		541.80		407.50
Second Quarter		6.77		5.51		437.50		374.30
First Quarter		6.79		5.93		374.50		299.00
2011:
Fourth Quarter		6.66		5.72		332.20		273.50
Third Quarter		7.65		6.17		382.20		325.80
Second Quarter		7.99		6.40		378.50		338.00
First Quarter		7.35		5.95		391.00		340.00
2010:
Fourth Quarter		6.15		4.56		364.90		283.20
Third Quarter		5.24		3.25		321.50		293.00
Second Quarter		3.79		3.36		296.50		260.60
First Quarter		4.26		3.44		321.00		249.60

Market prices for chicken products are currently at levels sufficient to offset the higher costs of feed ingredients. Many producers within the industry, including Pilgrim’s Pride, cut production in 2011 in an effort to correct the general oversupply of chicken in the U.S. market. Production has generally remained at these reduced levels throughout 2012. Despite these production cuts, there can be no assurance that chicken prices will not decrease due to such factors as weakening demand for breast meat from food service providers and lower prices for chicken leg quarters in the export market as a result of weakness in world economies and restrictive credit markets.

We purchase derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to our anticipated consumption of commodity inputs such as corn, soybean meal, sorghum and natural gas. In addition, our Mexico operations will sometimes purchase foreign currency derivative financial instruments to mitigate foreign currency transaction exposure on U.S. dollar-denominated purchases. At December 30, 2012, the fair values of commodity derivative assets and commodity derivative liabilities totaled $1.8 million and $1.5 million, respectively. Our counterparties require that we post cash collateral for changes in the net fair value of the derivative contracts. At December 30, 2012, we owed $0.2 million of cash collateral to our counterparties to secure our open positions. We do not designate derivative financial instruments that we purchase to mitigate commodity purchase exposures as cash flow hedges; therefore, we recognize changes in the fair value of these derivative financial instruments immediately in earnings. We recognized $8.3 million, $63.8 million and $69.2 million in net gains related to changes in the fair value of its derivative financial instruments during 2012, 2011 and 2010, respectively. At December 30, 2012, we held short positions on 584 corn contracts and 269 soybean meal contracts with an aggregate fair value of $1.5 million.

From time to time, we incur costs to implement exit or disposal efforts for specific operations. These exit or disposal plans focus on various aspects of operations, including closing and consolidating certain processing facilities, rationalizing headcount and aligning operations in the most strategic and cost-efficient structure. During 2012, we recognized total costs of $8.7 million, which included asset impairment costs of $2.8 million, inventory valuation costs of $0.1 million, employee-related costs of $0.1 million and other costs of $5.7 million, related to exit or disposal efforts. During 2011, we recognized total costs of $29.2 million, which included asset impairment costs of $22.9 million, employee-related costs of $1.1 million and other costs of $5.2 million, related to exit or disposal efforts. We expect to incur additional costs related to ongoing exit or disposal efforts, which we estimate will be approximately $3.0 million.

We continue to review and evaluate various restructuring and other alternatives to streamline our operations, improve efficiencies and reduce costs. Such initiatives may include selling assets, consolidating operations and functions, employee relocation and voluntary and involuntary employee separation programs. Any such actions may require us to obtain the pre-approval of the lenders under our credit facilities. In addition, such actions will subject us to additional short-term costs, which may include asset impairment charges, lease commitment costs, employee retention and severance costs and other costs. Certain of these activities may have a disproportionate impact on our income relative to the cost savings.

Trade authorities in Mexico, the top international market for U.S. chicken in recent years, recently completed the investigation of U.S. producers over dumping complaints lodged by certain Mexican chicken processors. These Mexican chicken processors alleged U.S. producers sold chicken legs and thighs on the Mexican market below their cost of production in 2010. On August 6, 2012, the Mexican government issued final resolutions imposing duties on Pilgrim’s and certain other U.S. chicken producers. Mexico will impose a duty of approximately 25% on chicken legs and thighs exported by Pilgrim’s and three other U.S. exporters and duties of approximately 127% on chicken legs and thighs exported by all other U.S. companies from the U.S. to Mexico. However, the Mexican government has postponed the imposition of these duties until conditions in Mexico’s domestic chicken market resulting from the outbreak of H7N3 avian influenza in the Mexican state of Jalisco are normalized. On September 3, 2012, Pilgrim’s and certain other U.S. producers filed a request with the NAFTA Secretariat for a panel review of Mexico’s decision. Management does not believe that these duties, when imposed, will materially impact Pilgrim’s financial position, results of operations or cash flow.

Business Segment and Geographic Reporting

We operate in one reportable business segment, as a producer and seller of chicken products we either produce or purchase for resale in the U.S., Puerto Rico and Mexico. We conduct separate operations in the U.S., Puerto Rico and Mexico; however, for geographic reporting purposes, we include Puerto Rico with our U.S. operations. Corporate expenses are allocated to Mexico based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the U.S.

Results of Operations

2012 Compared to 2011

Net sales. Net sales for 2012 increased $585.7 million, or 7.8%, from 2011. The following table provides additional information regarding net sales:

			Change from 2011
Source of net sales	2012		Amount		Percent
	(In thousands, except percent data)
United States	$	7,249,485	$	470,758	6.9	%	(a)
Mexico		871,897		114,926	15.2	%	(b)
Total net sales	$	8,121,382	$	585,684	7.8	%

(a)		U.S. sales generated in 2012 increased $470.8 million, or 6.9%, from U.S. sales generated in 2011, primarily because of an increase in the net revenue per pound sold partially offset by a decrease in pounds sold. Increased net revenue per pound sold, which resulted primarily from an increase in market prices, contributed $499.6 million, or 7.4 percentage points, to the revenue increase. The decrease in pounds sold, which resulted in part from the fourth quarter 2011 disposals of our distribution and pork businesses, partially offset the increase in revenue per pound sold by $28.8 million, or 0.4 percentage points. The disposed distribution and pork businesses generated net sales of $332.4 million during 2011. Included in U.S. sales generated during 2012 and 2011 were sales to JBS USA, LLC totaling $206.7 million and $117.9 million, respectively.
(b)		Mexico sales generated in 2012 increased $114.9 million, or 15.2%, from Mexico sales generated in 2011. An increase in unit sales volume, which resulted primarily from higher customer demand, contributed $60.0 million, or 7.9 percentage points, to the revenue increase. The increase in sales price, due to reduced supply resulting from production cuts, contributed $54.9 million, or 7.3 percentage points.

Gross profit. Gross profit increased by $577.4 million, or 407.9%, in 2012 from a gross loss of $141.5 million incurred in 2011 to a gross profit of $435.8 million generated in 2012. The following tables provide gross profit information:

			Change from 2011					Percent of Net Sales
Components of gross profit	2012		Amount			Percent		2012		2011
	(In thousands, except percent data)
Net sales	$	8,121,382	$	585,684		7.8	%	100.0	%	100.0	%
Cost of sales		7,685,550		10,273		0.1	%	94.6	%	101.9	%	(a) (b)
Operational restructuring charges		—		(1,958	)	(100.0	)%	—		—		(c)
Gross profit	$	435,832	$	577,369		407.9	%	5.4	%	(1.9	)%

			Change from 2011
Sources of gross profit	2012		Amount			Percent
	(In thousands, except percent data)
United States	$	332,611	$	492,811		307.6	%
Mexico		103,221		84,558		453.1	%
Total gross profit	$	435,832	$	577,369		407.9	%

			Change from 2011
Sources of cost of sales	2012		Amount			Percent
	(In thousands, except percent data)
United States	$	6,916,874	$	(20,096	)	(0.3	)%	(a)
Mexico		768,676		30,369		4.1	%	(b)
Total cost of sales	$	7,685,550	$	10,273		0.1	%

			Change from 2011
Sources of operational restructuring charges	2012		Amount			Percent
	(In thousands, except percent data)
United States	$	—	$	(1,958	)	(100.0	)%	(c)
Total operational restructuring charges	$	—	$	(1,958	)	(100.0	)%

(a)		Cost of sales incurred by the U.S. operations during 2012 decreased $20.1 million, or 0.3%, from cost of sales incurred by the U.S. operations during 2011. The disposal of the distribution and pork businesses contributed $295.2 million, or 4.3 percentage points, to the decrease in cost of sales. The closing of our Dallas, Texas plant contributed $62.0 million, or 0.9 percentage points, to the decrease in cost of sales. Decreased depreciation contributed $59.2 million, or 0.9 percentage points, to the decrease in cost of sales. The disposal of the commercial egg business contributed $12.0 million, or 0.2 percentage points, to the decrease in cost of sales. Decreased fleet expenses contributed $11.0 million, or 0.2 percentage points, to the decrease in cost of sales. The decrease in cost of sales was partially offset by higher live production costs, which increased primarily because of higher feed ingredient costs, derivative net gain and packaging and ingredients costs. Feed ingredients costs contributed $365.0 million, or 5.3 percentage points, to the increase in cost of sales. Net gains recognized on both settled and outstanding derivative instruments contributed $54.0 million, or 0.8 percentage points, to the increase in cost of sales. Packaging and ingredients costs contributed $4.0 million, or 0.1 percentage points, to the increase in cost of sales. Other factors affecting cost of sales were immaterial.
(b)		Cost of sales incurred by the Mexico operations during 2012 increased $30.4 million, or 4.1%, from cost of sales incurred by the Mexico operations during 2011. Increased feed costs contributed $108.7 million, or 14.7 percentage points and increased sales volume contributed $48.3 million, or 6.5 percentage points, to the increase in cost of sales. Decreased overhead costs and foreign currency translation partially offset the increase by $81.6 million and $44.9 million, respectively. Other factors affecting cost of sales were immaterial.
(c)		Operational restructuring charges incurred by the U.S. operations during 2012 decreased $2.0 million, or 100.0%, from operational restructuring charges incurred by the U.S. operations during 2011. Operational restructuring charges for 2011 of $2.0 million represented impairment expense recognized to reduce the carrying amount of certain assets located at our commercial egg operations in Texas to fair value.

Operating income. Operating income increased $623.9 million, or 167.0%, in 2012 from an operating loss of $373.6 million incurred for 2011 to operating income of $250.3 million generated for 2012. The following tables provide operating income information:

			Change from 2011					Percent of Net Sales
Components of operating income	2012		Amount			Percent		2012		2011
	(In thousands, except percent data)
Gross profit	$	435,832	$	577,369		407.9	%	5.4	%	(1.9	)%
SG&A expenses		177,041		(28,102	)	(13.7	)%	2.2	%	2.7	%	(a)(b)
Administrative restructuring charges		8,449		(18,462	)	(68.6	)%	0.1	%	0.4	%	(c)
Operating income	$	250,342	$	623,933		167.0	%	3.1	%	(5.0	)%

			Change from 2011
Source of operating income	2012		Amount		Percent
	(In thousands, except percent data)
United States	$	164,750	$	538,018	144.1	%
Mexico		85,592		85,915	26,599.1	%
Total operating income	$	250,342	$	623,933	167.0	%

			Change from 2011
Sources of SG&A expenses	2012		Amount			Percent
	(In thousands, except percent data)
United States	$	159,412	$	(26,745	)	(14.4	)%	(a)
Mexico		17,629		(1,357	)	(7.1	)%	(b)
Total SG&A expense	$	177,041	$	(28,102	)	(13.7	)%

			Change from 2011
Sources of administrative restructuring charges	2012		Amount			Percent
	(In thousands, except percent data)
United States	$	8,449	$	(18,462	)	(68.6	)%	(c)
Total administrative restructuring charges	$	8,449	$	(18,462	)	(68.6	)%

(a)		SG&A expenses incurred by the U.S. operations during 2012 decreased $26.7 million, or 14.4%, from SG&A expenses incurred by the U.S. operations during 2011 primarily because of (i) a decrease in outside services and professional fees of $7.1 million, (ii) a decrease in transactional tax expenses of $3.1 million , (iii) a decrease in brokerage expenses of $3.0 million , (iv) a decrease in depreciation and amortization of $2.4 million, (v) a decrease in marketing and development expenses of $2.2 million and (vi) a decrease in payroll and related benefit expenses $1.5 million. Other factors affecting SG&A expense were immaterial.
(b)		SG&A expense incurred by the Mexico operations during 2012 decreased $1.4 million, or 7.1%, from SG&A expense incurred by the Mexico operations during 2011. Foreign exchange translation accounted for a decrease of $1.1 million of the decrease in SG&A expense. Other factors affecting SG&A expense were immaterial.
(c)		Administrative restructuring charges incurred during 2012 decreased $18.5 million, or 68.6%, from administrative restructuring charges incurred during 2011. During 2012, we incurred administrative restructuring charges composed of (i) flock rationalization costs of $3.7 million related to our Dallas, Texas plant closure, (ii) impairment costs of $2.8 million and (iii) a loss resulting from the disposal of certain unused assets of $2.0 million. During 2011, the Company incurred administrative restructuring charges composed of (i) impairment charges of $20.9 million, (ii) flock rationalization costs of $5.2 million related to the closure of the Dallas, Texas plant and (iii) severance costs of $0.7 million.

Interest expense. Consolidated interest expense decreased 5.9% to $104.9 million in 2012 from $111.5 million in 2011 primarily because of decreased average borrowings of $1,242.2 million in 2012 compared to $1,483.0 million in 2011 partially offset by an increase in the weighted average interest rate to 7.0% in 2012 from 6.7% in 2011. As a percent of net sales, interest expense in 2012 and 2011 was 1.3% and 1.5%, respectively.

Income taxes. The Company’s consolidated income tax benefit in 2012 was $21.0 million, compared to a tax expense of $8.6 million in 2011. The income tax benefit in 2012 resulted primarily from a decrease in valuation allowance and a decrease in reserves for unrecognized tax benefits. The income tax expense in 2011 resulted primarily from an increase in valuation allowance and an increase in reserves for unrecognized tax benefits. See “Note 13. Income Taxes” to the Consolidated Financial Statements.

2011 Compared to 2010

Net sales. Net sales for 2011 increased $654.1 million, or 9.5%, from 2010. The following table provides additional information regarding net sales:

			Change from 2010
Source of net sales	2011		Amount		Percent
	(In thousands, except percent data)
United States	$	6,778,727	$	541,670	8.7	%	(a)
Mexico		756,971		112,399	17.4	%	(b)
Total net sales	$	7,535,698	$	654,069	9.5	%

(a)		U.S. sales generated in 2011 increased $541.7 million, or 8.7%, from U.S. sales generated in 2010, which resulted from higher domestic sales of $5,986.4 million compared to $5,671.3 million in 2010 and higher export sales of $792.3 million compared to $565.7 million in 2010. An increase in unit sales volume, which resulted primarily from higher demand and the Company’s focused inventory reduction efforts during 2011 contributed $596.4 million, or 9.6 percentage points, to the period’s revenue increase. A decrease in net revenue per pound sold, which resulted primarily from a less favorable product mix sold in 2011 as compared to 2010, partially offset the positive impact that increased unit sales volume had on the period’s revenue comparison by $54.7 million, or 0.9 percentage points. Included in U.S. sales generated during 2011 and 2010 were sales to JBS USA, LLC totaling $117.9 million and $5.4 million, respectively.
(b)		Mexico sales generated in 2011 increased 17.4% from Mexico sales generated in 2010. Sales volume in 2011 increased $92.6 million, or 14.3 percentage points, from 2010 because of increased demand. Net revenue per pound sold in 2011 increased $19.8 million, or 3.1 percentage points, from 2010 primarily because of fluctuations in the Mexican peso against the U.S. dollar in 2011 and an increase in live chicken market prices.

Gross profit (loss). Gross profit decreased by $602.5 million, or 130.7%, in 2011 from a gross profit of $461.0 million generated in 2010 to a gross loss of $141.5 million incurred in 2011. The following tables provide gross loss information:

				Change from 2010					Percent of Net Sales
Components of gross profit (loss)	2011			Amount			Percent		2011		2010
	(In thousands, except percent data)
Net sales	$	7,535,698		$	654,069		9.5	%	100.0	%	100.0	%
Cost of sales		7,675,277			1,258,959		19.6	%	101.9	%	93.2	%	(a)(b)
Operational restructuring charges		1,958			(2,360	)	(54.7	)%	—		0.1	%	(c)
Gross profit (loss)	$	(141,537	)	$	(602,530	)	(130.7	)%	(1.9	)%	6.7	%

				Change from 2010
Sources of gross profit (loss)	2011			Amount			Percent
	(In thousands, except percent data)
United States	$	(160,200	)	$	(527,583	)	(143.6	)%
Mexico		18,663			(74,947	)	(80.1	)%
Total gross profit (loss)	$	(141,537	)	$	(602,530	)	(130.7	)%

				Change from 2010
Sources of cost of sales	2011			Amount			Percent
	(In thousands, except percent data)
United States	$	6,936,970		$	1,071,614		18.3	%	(a)
Mexico		738,307			187,345		34.0	%	(b)
Total cost of sales	$	7,675,277		$	1,258,959		19.6	%

				Change from 2010
Sources of operational restructuring charges	2011			Amount			Percent
	(In thousands, except percent data)
United States	$	1,958		$	(2,360	)	(54.7	)%	(c)
Total operational restructuring charges	$	1,958		$	(2,360	)	(54.7	)%

(a)		Cost of sales incurred by the U.S. operations during 2011 increased $1,071.6 million from cost of sales incurred by the U.S. operations during 2010. Live production costs, which increased primarily because of higher feed ingredient costs, contributed $773.1 million, or 11.1 percentage points, to the increase in cost of sales. The Company’s focused inventory reduction efforts during 2011, which resulted in increased sales, contributed $215.2 million, or 3.1 percentage points, to the increase in costs of sales. Higher freight, storage and handling costs contributed $29.9 million, or 0.4 percentage points, to the increase in cost of sales. Cost of sales incurred by our distribution, protein conversion and other operations, which increased due to higher unit sales volume, contributed $72.8 million, or 1.1 percentage points to the increase in cost of sales. The contribution to the increase in cost of sales resulting from a decrease in the amount of net gains recognized on both settled and outstanding derivative instruments of $5.4 million, or 0.1 percentage points. A decrease in utility, maintenance and other complex costs of $27.6 million or 0.4 percentage points, partially offset the increase in cost of sales. Included in the costs listed above are losses on egg sales and flock depletion expense of $18.5 million, product recall expenses of $7.9 million, and uninsured loss related to the Marshville, North Carolina facility of $1.9 million. Other factors affecting cost of sales were immaterial.
(b)		Cost of sales incurred by the Mexico operations during 2011 increased $187.3 million, or 34.0%, from cost of sales incurred by the Mexico operations during 2010. Increased sales volume contributed $79.2 million, or 14.4 percentage points, and foreign currency translation contributed $35.5 million, or 6.4 percentage points, to the increase in cost of sales. The remaining $72.6 million, or 13.2 percentage points, of the increase in cost of sales resulted primarily from higher feed ingredient costs.
(c)		Operational restructuring charges incurred by the U.S. operations during 2011 decreased $2.4 million, or 54.7%, from operational restructuring charges incurred by the U.S. operations during 2010. Operational restructuring charges for 2011 of $2.0 million represented impairment expense recognized to reduce the carrying amount of certain assets located at our commercial egg operations in Texas to fair value. Operational restructuring charges for 2010 represented impairment expense of $1.0 million recognized to reduce the carrying amount of certain assets located in our closed processing facility in Georgia and hatchery in North Carolina to fair value and relocation expenses of $3.3 million related to the integration with JBS USA.

Operating income (loss). Operating income decreased $559.0 million, or 301.5%, in 2011 from operating income of $185.4 million generated for 2010 to an operating loss of $373.6 million incurred for 2011. The following tables provide operating income(loss) information:

				Change from 2010					Percent of Net Sales
Components of operating income (loss)	2011			Amount			Percent		2011		2010
	(In thousands, except percent data)
Gross profit	$	(141,537	)	$	(602,530	)	(130.7	)%	(1.9	)%	6.7	%
SG&A expenses		205,143			(4,401	)	(2.1	)%	2.7	%	3.0	%	(a)(b)
Administrative restructuring charges		26,911			(39,111	)	(59.2	)%	0.4	%	0.1	%	(c)
Operating income (loss)	$	(373,591	)	$	(559,018	)	(301.5	)%	(5.0	)%	2.7	%

				Change from 2010
Source of operating income (loss)	2011			Amount			Percent
	(In thousands, except percent data)
United States	$	(373,268	)	$	(485,414	)	(432.8	)%
Mexico		(323	)		(73,604	)	(100.4	)%
Total operating income (loss)	$	(373,591	)	$	(559,018	)	(301.5	)%


			Change from 2010
Sources of SG&A expenses	2011		Amount			Percent
	(In thousands, except percent data)
United States	$	186,157	$	(3,058	)	(1.6	)%	(a)
Mexico		18,986		(1,343	)	(6.6	)%	(b)
Total SG&A expense	$	205,143	$	(4,401	)	(2.1	)%

			Change from 2010
Sources of administrative restructuring charges	2011		Amount			Percent
	(In thousands, except percent data)
United States	$	26,911	$	(39,111	)	(59.2	)%	(c)
Total administrative restructuring charges	$	26,911	$	(39,111	)	(59.2	)%

(a)

SG&A expenses incurred by the U.S. operations during 2011 decreased $3.1 million, or 1.6%, from SG&A expenses incurred by the U.S. operations during 2010 primarily because of (i) a $3.0 million decrease from the prior period in payroll and related benefit expenses, (ii) a decrease of $3.4 million in depreciation and losses on asset disposals, (iii) a decrease of $2.2 million related to sales programs and (iv) a decrease of $1.3 million in lease expenses. These decreases were partially offset by (i) a $3.7 million increase in expenses related to the Company’s insurance costs, (ii) a $1.7 million increase in property tax expense and (iii) a $1.5 million increase in outside services. Other factors affecting SG&A expense were immaterial.

(b)		SG&A expense incurred by the Mexico operations during 2011 decreased $1.3 million, or 6.6%, from SG&A expense incurred by the Mexico operations during 2010 primarily because of increased freight and storage costs of $1.0 million that were partially offset by a $0.9 million decrease in costs related to employee relations and a $1.4 million decrease in outside services related expenses.
(c)		During 2011, the Company incurred administrative restructuring charges composed of (i) impairment charges of $20.9 million, (ii) flock rationalization costs of $5.2 million related to the closure of the Dallas, Texas plant and (iv) severance costs of $0.7 million. During 2010, the Company incurred administrative restructuring charges composed of (i) impairment charges of $25.5 million, (ii) change-in-control compensation costs of $18.2 million, (iii) severance costs of $13.0 million, (iv) relocation charges of $7.2 million related to the integration with JBS USA and (v) other facility closure costs of $2.1 million.

Interest expense. Consolidated interest expense increased 5.7% to $111.5 million in 2011 from $105.6 million in 2010 primarily because of increased average borrowings of $1,483.0 million in 2011 compared to $1,215.7 million in 2010. In addition, the weighted average interest rate increased to 6.7% in 2011 from 6.4% in 2010. As a percent of net sales, interest expense in 2011 and 2010 remained the same at 1.5%.

Early extinguishment of debt. The Company did not recognize any expense related to the early extinguishment of debt in 2011. The Company incurred expenses of $11.7 million related to the early extinguishment of debt in 2010. These expenses included costs associated with the elimination of unamortized capitalized finance charges related to the Term A loan and a portion of the Term B loan of the U.S. Credit Facility.

Reorganization items. The Company did not recognize any reorganization costs in 2011. The Company incurred reorganization costs of $18.5 million in 2010. These expenses included (i) costs associated with the elimination of unamortized capitalized finance charges related to our pre-petition secured credit facilities, the 7 ⅝% senior notes due 2015 and the 8 ⅜% senior subordinated notes due 2017, (ii) professional fees charged for post-petition reorganization services and (iii) severance and other costs related to post-petition facility closures and reduction-in-force actions. These reorganization costs were partially offset by the recognition during the three months ended March 28, 2010 of a previously unrealized gain totaling $4.1 million on a derivative financial instrument designated as a cash flow hedge related to public debt extinguished on December 28, 2009.

Income taxes. The Company’s consolidated income tax expense in 2011 was $8.6 million, compared to a tax benefit of $23.8 million in 2010. The income tax expense in 2011 resulted primarily from an increase in valuation allowance and an increase in reserves for unrecognized tax benefits. The income tax benefit in 2010 resulted primarily from the deconsolidation for tax purposes of the Mexico operations and a decrease in the valuation allowance, offset by an increase in reserves for unrecognized tax benefits. See “Note 13. Income Taxes” to the Consolidated Financial Statements.

Liquidity and Capital Resources

The following table presents our available sources of liquidity as of December 30, 2012:

	Facility		Amount
Source of Liquidity	Amount		Outstanding		Available
	(In millions)
Cash and cash equivalents	$	—	$	—	$	68.2
Debt facilities:
U.S. Credit Facility		700.0		103.6		529.9	(a)
Mexico Credit Facility		42.8		—		42.8	(b)

(a)		Actual borrowings by the Company under the U.S. Credit Facility (as defined below) are subject to a borrowing base, which is a formula based on certain eligible inventory and eligible receivables. The borrowing base in effect on December 30, 2012 was $658.1 million. Availability under the U.S. Credit Facility is also reduced by the Company’s outstanding standby letters of credit. Standby letters of credit outstanding at December 30, 2012 totaled $24.6 million.
(b)		Under the Mexico Credit Facility (as defined below), if (i) any default or event of default has occurred and is continuing or (ii) the quotient of the borrowing base divided by the outstanding loans and letters of credit (the “Collateral Coverage Ratio”) under the Mexico Credit Facility is less than 1.25 to 1.00, the loans and letters of credit under the Mexico Credit Facility will be subject to, and cannot exceed, a borrowing base. The borrowing base is a formula based on accounts receivable, inventory, prepaid assets, net cash under the control of the administrative agent and up to 150.0 million Mexican pesos of fixed assets of the loan parties. The borrowing base formula will be reduced by trade payables of the loan parties. If the Collateral Coverage Ratio falls below 1.25 to 1.00, the borrowing base requirement would terminate upon the earlier of (i) the Collateral Coverage Ratio exceeding 1.25 to 1.00 as of the latest measurement period for 60 consecutive days or (ii) the borrowing availability under the Mexico Credit Facility being equal to or greater than the greater of 20% of the revolving commitments under the Mexico Credit Facility and 100.0 million Mexican pesos for a period of 60 consecutive days.

Debt Obligations

Senior and Subordinated Notes. At December 30, 2012, the Company had an aggregate principal balance of $500.0 million of 7 ⅞% senior notes due 2018 (the “2018 Notes”) outstanding that are registered under the Securities Act of 1933. The 2018 Notes are unsecured obligations of the Company and are guaranteed by one of the Company’s subsidiaries. Interest is payable on December 15 and June 15 of each year, commencing on June 15, 2011. The indenture governing the 2018 Notes contains various covenants that may adversely affect our ability, among other things, to incur additional indebtedness, incur liens, pay dividends or make certain restricted payments, consummate certain asset sales, enter into certain transactions with JBS USA and our other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of our assets. Additionally, we have an aggregate principal balance of $3.9 million of 7 ⅝% senior unsecured notes, 8 ⅜% senior subordinated unsecured notes and 9 ¼% senior unsecured notes outstanding at December 30, 2012.

JBS Subordinated Loan Agreement. On June 23, 2011, the Company entered into a Subordinated Loan Agreement with JBS USA (the “Subordinated Loan Agreement”), which provided an aggregate commitment of $100.0 million. On June 23, 2011, JBS USA made a term loan to the Company in the principal amount of $50.0 million. Pursuant to the terms of the Subordinated Loan Agreement, we also agreed to reimburse JBS USA up to $56.5 million for draws upon any letters of credit issued for JBS USA’s account that support certain obligations of the Company or its subsidiaries. On December 16, 2011, the Company and JBS USA executed an amendment to the Subordinated Loan Agreement that, among other things, provided that if the Company consummated a stock rights offering (the “Rights Offering”) that allowed stockholders of record as of January 17, 2012 to purchase an aggregate 44,444,444 shares of the Company’s common stock on or before March 24, 2012, the loan commitment under the Subordinated Loan Agreement would be terminated. The Company consummated the Rights Offering on February 29, 2012. Further, under the U.S. Credit Facility (as defined below), following the consummation of the Rights Offering, (i) the Company, at its option, was permitted to prepay the outstanding $50.0 million term loan under the Subordinated Loan Agreement and (ii) the existing commitment of JBS USA to make an additional $50.0 million term loan to the Company under the Subordinated Loan Agreement would be terminated. On March 7, 2012, the Company repaid the outstanding $50.0 million term loan under the Subordinated Loan Agreement, plus accrued interest, with proceeds received from the Rights Offering and the remaining commitment of JBS USA to make loans under the Subordinated Loan Agreement was terminated.

JBS USA agreed to arrange for letters of credit to be issued on its account in the amount of $56.5 million to an insurance company serving the Company in order to allow that insurance company to return cash it held as collateral against potential workers compensation, auto and general liability claims. In return for providing this letter of credit, the Company has agreed to reimburse JBS USA for the letter of credit costs the Company would otherwise incur under its U.S. Credit Facility. The total amounts paid by the Company in 2012 and 2011 to reimburse JBS USA for letter of credit costs, were $2.2 million and $0.4 million, respectively. As of December 30, 2012, the Company has accrued an obligation of $0.2 million to reimburse JBS USA for letter of credit costs incurred on its behalf.

U.S. Credit Facility. Pilgrim’s and certain of its subsidiaries have entered into a credit agreement (the “U.S. Credit Facility”) with CoBank ACB, as administrative agent and collateral agent, and other lenders party thereto, which currently provides a $700.0 million revolving credit facility and a Term B facility. The U.S. Credit Facility also includes an accordion feature that allows us, at any time, to increase the aggregate revolving loan commitment by up to an additional $100.0 million and to increase the aggregate Term B loans commitment by up to an additional $400.0 million, in each case subject to the satisfaction of certain conditions, including obtaining the lenders’ agreement to participate in the increase and an aggregate limit on all commitments under the U.S. Credit Facility of $1.85 billion. On April 22, 2011, we increased the amount of the sub-limit for swingline loans under the U.S. Credit Facility to $100.0 million. The revolving loan commitment and the Term B loans will mature on December 28, 2014.

On December 28, 2009, the Company paid loan costs totaling $50.0 million related to the U.S. Credit Facility that it recognized as an asset on its balance sheet. The Company amortizes these capitalized costs to interest expense over the life of the U.S. Credit Facility.

Subsequent to the end of each fiscal year, a portion of our cash flow must be used to repay outstanding principal amounts under the Term B loans. With respect to 2012, the Company estimates that it will be required to pay approximately $141.0 million of its cash flow toward the outstanding principal under the Term B loans, which the Company expects to pay on April 29, 2013. The Company did not have excess cash flow from 2011 to be applied toward the outstanding principal under the Term B loans. In April 2011, the Company paid approximately $46.3 million of its excess cash flow from 2010 toward the outstanding principal under the Term B loans. The excess cash flow payments have been and will continue to be applied to installments of the Term B loans ratably in accordance with the then outstanding amounts thereof. The U.S. Credit Facility also requires us to use the proceeds we receive from certain asset sales and specified debt or equity issuances and upon the occurrence of other events to repay outstanding borrowings under the U.S. Credit Facility. The cash proceeds received by the Company from the Rights Offering were not subject to this requirement. On December 30, 2012, a principal amount of $559.1 million under the Term B loans commitment was outstanding.

Actual borrowings by the Company under the revolving credit commitment component of the U.S. Credit Facility are subject to a borrowing base, which is a formula based on certain eligible inventory, eligible receivables and restricted cash under the control of CoBank ACB. As of December 30, 2012, the applicable borrowing base was $658.1 million, the amount available for borrowing under the revolving loan commitment was $529.9 million and outstanding borrowings and letters of credit under the revolving loan commitment were $103.6 million and $24.6 million, respectively.

The U.S. Credit Facility contains financial covenants and various other covenants that may adversely affect our ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain restricted payments, consummate certain assets sales, enter into certain transactions with JBS USA and our other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of our assets. On June 23, 2011 and December 16, 2011, the Company entered into amendments to the U.S. Credit Facility, which, among other things, (i) temporarily suspended the requirement for the Company to comply with the fixed charge coverage ratio and senior secured leverage ratio financial covenants until the quarter ended December 30, 2012, (ii) modified the fixed charge coverage ratio financial covenant so that when the requirement to comply with this covenant resumes in the quarter ended December 30, 2012, the Company can calculate the fixed charge coverage ratio based upon a specified number of fiscal quarters selected by the Company, (iii) reduced the minimum allowable consolidated tangible net worth to the sum of $450 million plus 50% of the cumulative net income (excluding any losses) of the Company from December 16, 2011 through such date of calculation and (iv) increased the maximum allowable senior secured leverage ratio, determined for any period of four consecutive fiscal quarters ending on the last day of each fiscal quarter, to be no greater than 4.0 to 1.0 for periods calculated from September 24, 2012 and thereafter. The Company is currently in compliance with these financial covenants.

The U.S. Credit Facility provides that the Company may not incur capital expenditures in excess of $175.0 million in either 2011 or 2012 and $350.0 million each fiscal year thereafter. The U.S. Credit Facility contains various other covenants that may adversely affect our ability to, among other things, incur additional indebtedness, incur liens, pay dividends or make certain restricted payments, consummate certain assets sales, enter into certain transactions with JBS USA and our other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of our assets.

All obligations under the U.S. Credit Facility are unconditionally guaranteed by certain of the Company’s subsidiaries and are secured by a first priority lien on (i) the accounts receivable and inventories of the Company and its non-Mexico subsidiaries, (ii) 65% of the equity interests in the Company’s direct foreign subsidiaries and 100% of the equity interests in the Company’s other subsidiaries, (iii) substantially all of the personal property and intangibles of the borrowers and guarantors under the U.S. Credit Facility and (iv) substantially all of the real estate and fixed assets of the Company and the guarantor subsidiaries under the U.S. Credit Facility.

Mexico Credit Facility. On October 19, 2011, Avícola Pilgrim’s Pride de México, S.A. de C.V. , Pilgrim’s Pride S. de R.L. de C.V. and certain Mexican subsidiaries entered into an amended and restated credit agreement (the “Mexico Credit Facility”) with ING Bank (México), S.A. Institución de Banca Múltiple, ING Grupo Financiero, as lender and ING Capital LLC, as administrative agent. The Mexico Credit Facility has a final maturity date of September 25, 2014. The Mexico Credit Facility is secured by substantially all of the assets of the Company’s Mexico subsidiaries. As of December 30, 2012, the U.S. dollar-equivalent of the loan commitment under the Mexico Credit Facility was $42.8 million. There were no outstanding borrowings under the Mexico Credit Facility at December 30, 2012.

Under the Mexico Credit Facility, if (i) any default or event of default has occurred and is continuing or (ii) the quotient of the borrowing base divided by the outstanding loans and letters of credit (the “Collateral Coverage Ratio”) under the Mexico Credit Facility is less than 1.25 to 1.00, the loans and letters of credit under the Mexico Credit Facility will be subject to, and cannot exceed, a borrowing base. The borrowing base is a formula based on accounts receivable, inventory, prepaid assets, net cash under the control of the administrative agent and up to 150.0 million Mexican pesos of fixed assets of our Mexico subsidiaries party to the Mexico Credit Facility. The borrowing base formula will be reduced by trade payables of those Mexico subsidiaries. If the Collateral Coverage Ratio falls below 1.25 to 1.00, the borrowing base requirement would terminate upon the earlier of (i) the Collateral Coverage Ratio exceeding 1.25 to 1.00 as of the latest measurement period for 60 consecutive days or (ii) the borrowing availability under the Mexico Credit Facility being equal to or greater than the greater of 20% of the revolving commitments under the Mexico Credit Facility and 100.0 million Mexican pesos for a period of 60 consecutive days.

Avicola may pay dividends or make other restricted payments to the Company in an amount not to exceed in the aggregate 250.0 million Mexican pesos during the term of the Mexico Credit Facility if certain conditions are satisfied, including a condition that availability is at least 100% of the revolving loan commitment under the Mexico Credit Facility, less any letter of credit liability under the Mexico Credit Facility. However, the Company deems its earnings from Mexico as of December 30, 2012 to be permanently reinvested. As such, U.S. deferred income taxes have not been provided on these earnings. If such earnings were not considered indefinitely reinvested, certain deferred foreign and U.S. income taxes would be provided.

Collateral

Substantially all of our domestic inventories and domestic fixed assets are pledged as collateral to secure the obligations under the U.S. Credit Facility. The Mexico Credit Facility is secured by substantially all of the assets of the Company’s Mexico subsidiaries.

Off-Balance Sheet Arrangements

We maintain operating leases for various types of equipment, some of which contain residual value guarantees for the market value of assets at the end of the term of the lease. The terms of the lease maturities range from one to ten years. We estimate the maximum potential amount of the residual value guarantees is approximately $8.4 million; however, the actual amount would be offset by any recoverable amount based on the fair market value of the underlying leased assets. No liability has been recorded related to this contingency as the likelihood of payments under these guarantees is not considered to be probable, and the fair value of the guarantees is immaterial. We historically have not experienced significant payments under similar residual guarantees.

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

Capital Expenditures

We anticipate spending approximately $107.0 million on the acquisition of property, plant and equipment in 2013. Capital expenditures will primarily be incurred to improve efficiencies and reduce costs. We expect to fund these capital expenditures with cash flow from operations and proceeds from the revolving lines of credit under our various debt facilities.

Indefinite Reinvestment of Mexico Subsidiaries’ Undistributed Earnings

We have determined that the undistributed earnings of our Mexico subsidiaries will be indefinitely reinvested and not distributed to the U.S. The undistributed earnings of our Mexico subsidiaries totaled $208.6 million at December 30, 2012.

Contractual Obligations

In addition to our debt commitments at December 30, 2012, we had other commitments and contractual obligations that obligate us to make specified payments in the future. The following table summarizes the total amounts due as of December 30, 2012, under all debt agreements, commitments and other contractual obligations. The table indicates the years in which payments are due under the contractual obligations.

	Payments Due By Period
			Less than 1						More than 5
Contractual Obligations^(e)	Total		year		1-3 years		3-5 years		years
	(In thousands)
Long-term debt^(a)	$	1,166,587	$	156,762	$	506,308	$	3,517	$	500,000
Interest^(b)		343,120		89,190		133,186		80,574		40,170
Capital leases^(c)		1,145		194		510		349		92
Operating leases		12,650		7,450		5,200		—		—
Derivative liabilities		1,530		1,530		—		—		—
Purchase obligations^(d)		230,850		230,265		585		—		—
Total	$	1,755,882	$	485,391	$	645,789	$	84,440	$	540,262

(a)		Long-term debt includes an unaccreted discount of $2.7 million and excludes $24.6 million in letters of credit outstanding related to normal business transactions. Pursuant to the U.S. Credit Facility, subsequent to the end of each fiscal year, a portion of our cash flow must be used to repay outstanding principal amounts under the Term B loans. The Company is required to pay approximately $141.0 million with respect to 2012.
(b)		Interest expense in the table above assumes the continuation of interest rates and outstanding borrowings under our credit facilities as of December 30, 2012.
(c)		Capital leases includes $0.3 million in interest expense.
(d)		Includes agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction.
(e)		The total amount of PPC’s unrecognized tax benefits at December 30, 2012 was $16.6 million. We did not include this amount in the contractual obligations table above as reasonable estimates cannot be made at this time of the amounts or timing of future cash outflows. The table above does not include estimated funding of our unfunded pension and other postretirement benefits obligations totaling approximately $104.0 million at December 30, 2012 as discussed in “Note 14. Pension and Other Postretirement Benefits” to the Consolidated Financial Statements.

Historical Flow of Funds

Fiscal Year 2012

Cash provided by operating activities was $199.6 million for 2012 and cash used in operating activities was $129.0 million for 2011. The increase in cash flows provided by operating activities was primarily from net income of $174.0 million for 2012 as compared to a net loss of $495.7 million for 2011 and changes in working capital (excluding the impacts as a result of changes in foreign currency exchange rates).

Our net working capital position, which we define as current assets less current liabilities, increased $65.5 million to a surplus of $812.5 million and a current ratio of 2.11 at December 30, 2012 compared to a surplus of $747.0 million and a current ratio of 2.04 at December 25, 2011. The increase in working capital was caused by the generation of cash from operations.

Trade accounts and other receivables, including accounts receivable from JBS USA, increased $16.0 million, or 4.3%, to $386.4 million at December 30, 2012 from $370.4 million at December 25, 2011. The change in trade accounts and other receivables resulted primarily from increased sales prices.

Inventories increased $71.2 million, or 8.1%, to $950.3 million at December 30, 2012 from $879.1 million at December 25, 2011. The change in inventories was primarily due to increased costs for live chicken products and feed, eggs and other inventory items.

Prepaid expenses and other current assets increased $3.7 million, or 7.1%, to $56.0 million at December 30, 2012 from $52.3 million at December 25, 2011. This change resulted primarily from a $9.8 million increase in value-added tax receivables and an increase of $12.0 million in prepaid insurance. These increases were partially offset by a decrease of $14.2 million in prepaid grain purchases and a decrease of $4.3 million in open derivative positions.

Accounts payable, including accounts payable to JBS USA, decreased $14.7 million, or 4.3%, to $325.8 million at December 30, 2012 from $340.5 million at December 25, 2011. This change resulted from the timing of payments disbursed to vendors at December 25, 2011.

Accrued expenses increased $1.7 million, or 0.6%, to $283.5 million at December 30, 2012 from $281.8 million at December 25, 2011. This change resulted primarily from a $5.3 million increase in compensation, benefits and other employee-related accruals and a $4.5 million increase in accrued property taxes. These increases were partially offset by a decrease of $3.9 million in market development fund accruals, a $2.3 million decrease in accrued interest, a $1.1 million decrease in brokerage accrued expenses and a $1.0 million decrease in outstanding derivative liabilities.

Cash used in investing activities was $60.4 million and $58.2 million in 2012 and 2011, respectively. We incurred capital expenditures of $90.3 million and $136.0 million for 2012 and 2011, respectively. In 2012, capital expenditures were primarily incurred for the routine replacement of equipment and to improve efficiencies and reduce costs. In 2011, capital expenditures were primarily incurred for the reopening of the Douglas, Georgia facility and for the routine replacement of equipment and to improve efficiencies and reduce costs. Capital expenditures for 2012 could not exceed $175 million under the terms of the U.S. Credit Facility. Cash was used to purchase investment securities totaling $0.2 million and $4.6 million in 2012 and 2011, respectively. Cash proceeds in 2012 and 2011 from the sale or maturity of investment securities were $0.7 million and $15.9 million, respectively. Cash proceeds from property disposals in 2012 and 2011 were $29.4 million and $29.0 million, respectively. Cash proceeds from business dispositions in 2011 totaled $37.5 million.

Cash used in financing activities was $111.0 million in 2012. Cash provided by financing activities was $126.9 million in 2011. Cash was used in 2012 to repay the note payable to JBS USA totaling $50.0 million. Cash proceeds in 2011 from notes payable to JBS USA were $50.0 million. Cash proceeds in 2012 and 2011 from long-term debt were $851.4 million and $965.7 million, respectively. Cash was used to repay long-term debt totaling $1,110.7 million and $881.8 million in 2012 and 2011, respectively. Cash proceeds in 2012 from the sale of common stock were $198.3 million. Cash was used to pay capitalized loan costs totaling $4.4 million in 2011. Cash used to purchase the remaining interest in a subsidiary we did not already own totaled $2.5 million in 2011. Cash was used for other financing activities totaling $0.1 million in 2011.

Fiscal Year 2011

Cash used in operating activities was $129.0 million for 2011 and cash provided by operating activities was $14.6 million for 2010. The increase in cash flows used in operating activities was primarily from reductions in net working capital as well as a net loss of $495.7 million for 2011 as compared to a net income of $90.3 million for 2010.

Our net working capital position, which we define as current assets less current liabilities, decreased $224.8 million to a surplus of $747.0 million and a current ratio of 2.04 at December 25, 2011 compared to a surplus of $971.8 million and a current ratio of 2.32 at December 26, 2010. Key contributors to the reduction in net working capital included decreases in cash and cash equivalents, restricted cash, inventories and prepaid expenses and other current assets and an increase in current deferred tax liabilities, partially offset by an increase in trade accounts and other receivables and a decreases in current maturities of long-term debt, accrued expenses and income taxes payable.

Restricted cash decreased $53.3 million, or 87.4%, to $7.7 million at December 25, 2011 from $61.0 million at December 26, 2010. The change in restricted cash resulted from the release of cash held in our captive insurance companies.

Trade accounts and other receivables, including accounts receivable from JBS USA, increased $48.6 million, or 15.1%, to $370.4 million at December 25, 2011 from $321.8 million at December 26, 2010. The change in trade accounts and other receivables resulted primarily from increased sales recognized towards the latter part of the current period as well as an increase of $20.7 million in receivables from JBS USA.

Inventories decreased $150.2 million, or 14.6%, to $879.1 million at December 25, 2011 from $1,029.3 million at December 26, 2010. The change in inventories was primarily due to a decrease in finished products resulting from the Company’s concerted efforts to reduce inventory during 2011.

Prepaid expenses and other current assets decreased $28.9 million, or 35.6%, to $52.4 million at December 25, 2011 from $81.3 million at December 26, 2010. This decrease occurred primarily because of a $30.5 million reduction in open derivative positions, offset by a $2.1 million increase in prepaid grain purchases.

Accounts payable increased $3.5 million, or 1.0%, to $340.5 million at December 25, 2011 from $337.0 million at December 26, 2010. This increase occurred primarily because of a $4.4 million increase in accounts payable to JBS USA.

Accrued expenses decreased $16.1 million, or 5.4%, to $281.8 million at December 25, 2011 from $297.9 million at December 26, 2010. This decrease resulted primarily from a $13.7 million reduction in derivative liabilities and a $11.4 million reduction in employee related expenses. This was partially offset by a $6.8 million increase in the accrued balances for sales programs and a $2.3 million increase in grain commitments.

Cash used in investing activities was $58.2 million and $113.7 million in 2011 and 2010, respectively. Capital expenditures of $136.0 million and $179.3 million for 2011 and 2010, respectively, were primarily incurred for the reopening of the Douglas, Georgia facility and for the routine replacement of equipment and to improve efficiencies and reduce costs. Capital expenditures for 2011 could not exceed $175 million under the terms of the Exit Credit Facility. Cash was used to purchase investment securities totaling $4.6 million and $17.2 million in 2011 and 2010, respectively. Cash proceeds in 2011 and 2010 from the sale or maturity of investment securities were $15.9 million and $68.1 million, respectively. Cash proceeds from property disposals in 2011 and 2010 were $29.0 million and $14.7 million, respectively. Cash proceeds from business dispositions in 2011 totaled $37.5 million.

Cash provided by financing activities was $126.9 million in 2011. Cash used in financing activities was $29.5 million in 2010. Cash proceeds for 2011 from notes payable to JBS USA were $50.0 million. Cash proceeds in 2011 and 2010 from long-term debt were $965.7 million and $2,438.9 million, respectively. Cash was used to repay long-term debt totaling $881.8 million and $3,197.4 million in 2011 and 2010, respectively. Cash proceeds in 2010 from the sale of common stock were $800.0 million. Cash was used to pay capitalized loan costs totaling $4.4 million and $62.8 million in 2011 and 2010. Cash used to purchase the remaining interest in a subsidiary we did not already own totaled $2.5 million and $7.6 million in 2011 and 2010. Cash was used for other financing activities totaling $0.1 million and $0.5 million in 2011 and 2010, respectively.

Recently Adopted Accounting Pronouncements

On December 26, 2011, the Company adopted Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Disclosure Requirements in the U.S. GAAP and IFRS. The amendment clarifies the FASB’s intent about the application of existing fair value measurement and disclosure requirements (ASC Topic 820) and improves consistency in wording to ensure that U.S. GAAP and International Financial Reporting Standards (“IFRS”) are described the same way. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The adoption did not have a material impact on the Company’s consolidated financial statements.

Critical Accounting Policies and Estimates

General. Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, customer programs and incentives, allowance for doubtful accounts, inventories, income taxes and product recall accounting. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.

Revenue Recognition. We recognize revenue when all of the following circumstances are satisfied: (i) persuasive evidence of an arrangement exists, (ii) price is fixed or determinable, (iii) collectability is reasonably assured and (iv) delivery has occurred. Delivery occurs in the period in which the customer takes title and assumes the risks and rewards of ownership of the products specified in the customer’s purchase order or sales agreement. Revenue is recorded net of estimated incentive offerings including special pricing agreements, promotions and other volume-based incentives. Revisions to these estimates are charged back to net sales in the period in which the facts that give rise to the revision become known.

Inventory. Live chicken inventories are stated at the lower of cost or market and breeder hens at the lower of cost, less accumulated amortization, or market. The costs associated with breeder hens are accumulated up to the production stage and amortized over their productive lives using the unit-of-production method. Finished poultry products, feed, eggs and other inventories are stated at the lower of cost (average) or market. We record valuations and adjustments for our inventory and for estimated obsolescence at or equal to the difference between the cost of inventory and the estimated market value based upon known conditions affecting inventory obsolescence, including significantly aged products, discontinued product lines, or damaged or obsolete products. We allocate meat costs between our various finished chicken products based on a by-product costing technique that reduces the cost of the whole bird by estimated yields and amounts to be recovered for certain byproduct parts. This primarily includes leg quarters, wings, tenders and offal, which are carried in inventory at the estimated recovery amounts, with the remaining amount being reflected as our breast meat cost. Generally, the Company performs an evaluation of whether any lower of cost or market adjustments are required at the country level based on a number of factors, including: (i) pools of related inventory, (ii) product continuation or discontinuation, (iii) estimated market selling prices and (iv) expected distribution channels. If actual market conditions or other factors are less favorable than those projected by management, additional inventory adjustments may be required.

Property, Plant and Equipment. The Company records impairment charges on long-lived assets held for use when events and circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. The impairment charge is determined based upon the amount by which the net book value of the assets exceeds their fair market value. In making these determinations, the Company utilizes certain assumptions, including, but not limited to: (i) future cash flows estimated to be generated by these assets, which are based on additional assumptions such as asset utilization, remaining length of service and estimated salvage values, (ii) estimated fair market value of the assets, and (iii) determinations with respect to the lowest level of cash flows relevant to the respective impairment test, generally groupings of related operational facilities. Given the interdependency of the Company’s individual facilities during the production process, which operate as a vertically integrated network, and the fact that the Company does not price the transfers of inventory between its vertically integrated facilities at market prices, it evaluates impairment of assets held for use at the country level (i.e., the U.S. and Mexico) within each segment. Management believes this is the lowest level of identifiable cash flows for its assets that are held for use in production activities. At the present time, the Company’s forecasts indicate that it can recover the carrying value of its assets held for use based on the projected undiscounted cash flows of the operations.

The Company records impairment charges on long-lived assets held for sale when the carrying amount of those assets exceeds their fair value less appropriate selling costs. Fair value is based on amounts documented in sales contracts or letters of intent accepted by the Company, amounts included in counteroffers initiated by the Company, or, in the absence of current contract negotiations, amounts determined using a sales comparison approach for real property and amounts determined using a cost approach for personal property. Under the sales comparison approach, sales and asking prices of reasonably comparable properties are considered to develop a range of unit prices within which the current real estate market is operating. Under the cost approach, a current cost to replace the asset new is calculated and then the estimated replacement cost is reduced to reflect the applicable decline in value resulting from physical deterioration, functional obsolescence and economic obsolescence. Appropriate selling costs includes reasonable broker’s commissions, costs to produce title documents, filing fees, legal expenses and the like. We estimate appropriate closing costs as 4% to 6% of asset fair value. This range of rates is considered reasonable for our assets held for sale based on historical experience. The Company recognized impairment charges related to assets held for sale of $2.8 million and $24.7 million during 2012 and 2011, respectively.

Litigation and Contingent Liabilities. The Company is subject to lawsuits, investigations and other claims related to employment, environmental, product, and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes, as well as potential ranges of probable losses, to these matters. The Company estimates the amount of reserves required for these contingencies when losses are determined to be probable and after considerable analysis of each individual issue. The Company expenses legal costs related to such loss contingencies as they are incurred. With respect to our environmental remediation obligations, the accrual for environmental remediation liabilities is measured on an undiscounted basis. These reserves may change in the future due to changes in the Company’s assumptions, the effectiveness of strategies, or other factors beyond the Company’s control.

Accrued Self Insurance. Insurance expense for casualty claims and employee-related health care benefits are estimated using historical and current experience and actuarial estimates. Stop-loss coverage is maintained with third-party insurers to limit the Company’s total exposure. Certain categories of claim liabilities are actuarially determined. The assumption used to arrive at periodic expenses is reviewed regularly by management. However, actual expenses could differ from these estimates and could result in adjustments to be recognized.

Income Taxes. Starting in 2011, the Company follows the provisions of ASC 740-10-30-27 in the Expenses-Income Taxes topic with regards to members of a group that file a consolidated tax return but issue separate financial statements. The Company files its own U.S. federal tax return, but is included in certain state consolidated returns with JBS USA. The income tax expense of the Company is computed using the separate return method. The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred income taxes reflect the net tax effect of temporary differences between the book and tax bases of recorded assets and liabilities, net operating losses and tax credit carry forwards. The amount of deferred tax on these temporary differences is determined using the tax rates expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on the tax rates and laws in the respective tax jurisdiction enacted as of the balance sheet date. The Company recognizes potential interest and penalties related to income tax positions as a part of the income tax provision.

Realizability of Deferred Tax Assets. The Company reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, potential for carry back of tax losses, projected future taxable income, applicable tax strategies, and the expected timing of the reversals of existing temporary differences. A valuation allowance is provided when it is more likely than not that some or all of the deferred tax assets will not be realized. Valuation allowances have been established primarily for net operating loss carry forwards. See “Note 13. Income Taxes” to the Consolidated Financial Statements.

Indefinite Reinvestment in Foreign Subsidiaries. The Company deems its earnings from Mexico as of December 30, 2012 to be permanently reinvested. As such, U.S. deferred income taxes have not been provided on these earnings. If such earnings were not considered indefinitely reinvested, certain deferred foreign and U.S. income taxes would be provided. For activity after 2008, the Company did not permanently reinvest its earnings in Puerto Rico. Therefore, net earnings generated in Puerto Rico have U.S. taxes provided as if the earnings were distributed.

Accounting for Uncertainty in Income Taxes. The Company follows the provisions under ASC 740-10-25 that provides a recognition threshold and measurement criteria for the financial statement recognition of a tax benefit taken or expected to be taken in a tax return. Tax benefits are recognized only when it is more likely than not, based on the technical merits, that the benefits will be sustained on examination. Tax benefits that meet the more-likely-than-not recognition threshold are measured using a probability weighting of the largest amount of tax benefit that has greater than 50% likelihood of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a particular tax benefit is a matter of judgment based on the individual facts and circumstances evaluated in light of all available evidence as of the balance sheet date. See “Note 13. Income Taxes” to the Consolidated Financial Statements.

Pension and Other Postretirement Benefits. The Company’s pension and other postretirement benefit costs and obligations are dependent on the various actuarial assumptions used in calculating such amounts. These assumptions relate to discount rates, salary growth, long-term return on plan assets and other factors. The Company bases the discount rate assumptions on current investment yields on high-quality corporate long-term bonds. The salary growth assumptions reflect our long-term actual experience and future or near-term outlook. Long-term return on plan assets is determined based on historical portfolio results and management’s expectation of the future economic environment. Actual results that differ from our assumptions are accumulated and, if in excess of the lesser of 10% of the projected benefit obligation or the fair market value of plan assets, amortized over either (i) the estimated average future service period of active plan participants if the plan is active or (ii) the estimated average future life expectancy of all plan participants if the plan is frozen.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market Risk-Sensitive Instruments and Positions

The risk inherent in our market risk-sensitive instruments and positions is primarily the potential loss arising from adverse changes in the price of feed ingredients, foreign currency exchange rates, interest rates and the credit quality of available-for-sale securities as discussed below. The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity, nor do they consider additional actions our management may take to mitigate our exposure to such changes. Actual results may differ.

Feed Ingredients. We purchase certain commodities, primarily corn and soybean meal, for use as ingredients in the feed we either sell commercially or consume in our live operations. As a result, our earnings are affected by changes in the price and availability of such feed ingredients. In the past, we have from time to time attempted to minimize our exposure to the changing price and availability of such feed ingredients using various techniques, including, but not limited to, (i) executing purchase agreements with suppliers for future physical delivery of feed ingredients at established prices and (ii) purchasing or selling derivative financial instruments such as futures and options.

Market risk is estimated as a hypothetical 10% increase in the weighted-average cost of our primary feed ingredients as of December 30, 2012. Based on our feed consumption during 2012, such an increase would have resulted in an increase to cost of sales of approximately $324.7 million, excluding the impact of any feed ingredients derivative financial instruments in that period. A 10% change in ending feed ingredients inventories at December 30, 2012 would be $10.7 million, excluding any potential impact on the production costs of our chicken inventories. A 10% change in corn and soybean meal prices on December 30, 2012 would have resulted in an approximate $12,500 change in the fair value of our net commodity derivative asset position as of that date.

Foreign Currency. Our earnings are affected by foreign exchange rate fluctuations related to the Mexican peso net monetary position of our Mexican subsidiaries. We manage this exposure primarily by attempting to minimize our Mexican peso net monetary position. We are also exposed to the effect of potential exchange rate fluctuations to the extent that amounts are repatriated from Mexico to the U.S. However, we currently anticipate that the future cash flows of our Mexican subsidiaries will be reinvested in our Mexican operations. In addition, the Mexican peso exchange rate can directly and indirectly impact our financial condition and results of operations in several ways, including potential economic recession in Mexico because of devaluation of their currency. The impact on our financial position and results of operations resulting from a hypothetical change in the exchange rate between the U.S. dollar and the Mexican peso cannot be reasonably estimated. Foreign currency exchange gains and losses, representing the change in the U.S. dollar value of the net monetary assets of our Mexican subsidiaries denominated in Mexican pesos, was a gain of $4.9 million in 2012, a loss of $12.6 million in 2011 and a gain of $0.1 million in 2010. The average exchange rates for 2012, 2011 and 2010 were 13.16 Mexican pesos to 1 U.S. dollar, 12.39 Mexican pesos to 1 U.S. dollar and 12.65 Mexican pesos to 1 U.S. dollar, respectively. No assurance can be given as to how future movements in the Mexican peso could affect our future financial condition or results of operations.

Interest Rates. Our earnings are also affected by changes in interest rates due to the impact those changes have on our variable-rate debt instruments. We had variable-rate debt instruments representing approximately 32.5% of our total debt at December 30, 2012. Holding other variables constant, including levels of indebtedness, an increase in interest rates of 25 basis points would have increased our interest expense by $0.9 million for 2012. These amounts are determined by considering the impact of the hypothetical interest rates on our variable-rate debt at December 30, 2012.

Market risk for fixed-rate debt is estimated as the potential increase in fair value resulting from a hypothetical decrease in interest rates of 10%. Using a discounted cash flow analysis, a hypothetical 10% decrease in interest rates would have increased the fair value of our fixed rate debt by approximately $4.6 million as of December 30, 2012.

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

Impact of Inflation. Due to low to moderate inflation in the U.S. and Mexico and our rapid inventory turnover rate, the results of operations have not been significantly affected by inflation during the past three-year period.

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Pilgrim’s Pride Corporation

We have audited the accompanying consolidated balance sheet of Pilgrim’s Pride Corporation (the “Company”) as of December 30, 2012, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the fifty-three weeks ended December 30, 2012. In connection with our audit of the consolidated financial statements, we have also audited financial statement schedule II, Valuation and Qualifying Accounts, as of and for the fifty-three weeks ended December 30, 2012. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Pilgrim’s Pride Corporation as of December 30, 2012, and the consolidated results of its operations and its cash flows for the fifty-three weeks ended December 30, 2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited the retrospective adjustments applied to earnings per share in the 2011 and 2010 consolidated financial statements as described in “Note 15. Stockholder’s Equity” under the section “Rights Offering.” In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2011 and 2010 consolidated financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2011 and 2010 consolidated financial statements taken as a whole.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Pilgrim’s Pride Corporation’s internal control over financial reporting as of December 30, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 15, 2013 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

	/s/ KPMG LLP

Denver, Colorado
February 15, 2013

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Pilgrim’s Pride Corporation

We have audited, before the effects of the adjustments to retrospectively apply the change in accounting described in “Note 15. Stockholder’s Equity,” the accompanying consolidated balance sheet of Pilgrim’s Pride Corporation (the “Company”) as of December 25, 2011, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the years ended December 25, 2011 and December 26, 2010 (the 2011 and 2010 consolidated financial statements before the effects of the adjustments discussed in “Note 15. Stockholders’ Equity” are not presented herein). Our audits also include the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements, before the effects of the adjustments to retrospectively apply the change in accounting described in “Note 15. Stockholder’s Equity,” present fairly, in all material respects, the consolidated financial position of Pilgrim’s Pride Corporation at December 25, 2011, and the consolidated results of its operations and its cash flows for the years ended December 25, 2011 and December 26, 2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting described in “Note 15. Stockholder’s Equity,” and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by KPMG LLP.

	/s/ Ernst & Young LLP
Denver, Colorado
February 17, 2012

PILGRIM’S PRIDE CORPORATION
CONSOLIDATED BALANCE SHEETS

	December 30, 2012			December 25, 2011
	(In thousands, except shares and per share data)
Assets:
Cash and cash equivalents	$	68,180		$	41,609
Restricted cash and cash equivalents		—			7,680
Investment in available-for-sale securities		—			157
Trade accounts and other receivables, less allowance for doubtful accounts		384,930			349,222
Accounts receivable from JBS USA, LLC		1,514			21,198
Inventories		950,296			879,094
Income taxes receivable		54,719			59,067
Prepaid expenses and other current assets		56,047			52,350
Assets held for sale		27,042			53,816
Total current assets		1,542,728			1,464,193
Investment in available-for-sale securities		—			497
Deferred tax assets		97,431			71,099
Other long-lived assets		45,523			57,921
Identified intangible assets, net		38,266			44,083
Property, plant and equipment, net		1,189,921			1,241,752
Total assets	$	2,913,869		$	2,879,545
Liabilities and stockholders’ equity:
Accounts payable	$	312,365		$	328,864
Accounts payable to JBS USA, LLC		13,436			11,653
Accrued expenses and other current liabilities		283,540			281,797
Income taxes payable		468			—
Current deferred tax liabilities		104,482			79,248
Current maturities of long-term debt		15,886			15,611
Total current liabilities		730,177			717,173
Long-term debt, less current maturities		1,148,870			1,408,001
Note payable to JBS USA Holdings, Inc.		—			50,000
Other long-term liabilities		125,825			145,941
Total liabilities		2,004,872			2,321,115
Commitments and contingencies		—			—
Stockholders’ equity:
Preferred stock, $.01 par value, 50,000,000 shares authorized; no shares issued		—			—
Common stock, $.01 par value, 800,000,000 shares authorized; 258,999,033
and 214,281,914 shares issued and outstanding at year-end 2012 and 2011,
respectively.		2,590			2,143
Additional paid-in capital		1,642,003			1,443,484
Accumulated deficit		(669,711	)		(843,945	)
Accumulated other comprehensive loss		(68,511	)		(46,070	)
Total Pilgrim’s Pride Corporation stockholders’ equity		906,371			555,612
Noncontrolling interest		2,626			2,818
Total stockholders’ equity		908,997			558,430
Total liabilities and stockholders’ equity	$	2,913,869		$	2,879,545

The accompanying notes are an integral part of these Consolidated Financial Statements.

PILGRIM’S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

	Fifty-Three Weeks			Fifty-Two Weeks			Fifty-Two Weeks
	Ended			Ended			Ended
	December 30, 2012			December 25, 2011			December 26, 2010
	(In thousands, except per share data)
Net sales	$	8,121,382		$	7,535,698		$	6,881,629
Costs and expenses:
Cost of sales		7,685,550			7,675,277			6,416,318
Operational restructuring charges, net		—			1,958			4,318
Gross profit (loss)		435,832			(141,537	)		460,993
Selling, general and administrative expense		177,041			205,143			209,544
Administrative restructuring charges, net		8,449			26,911			66,022
Total costs and expenses		7,871,040			7,909,289			6,696,202
Operating income (loss)		250,342			(373,591	)		185,427
Other expenses (income):
Interest expense		104,926			111,532			105,553
Interest income		(1,397	)		(1,465	)		(3,805	)
Foreign currency transaction losses (gains)		(4,810	)		12,601			212
Loss on early extinguishment of debt		—			—			11,726
Miscellaneous, net		(1,439	)		(9,133	)		(13,288	)
Total other expenses		97,280			113,535			100,398
Income (loss) from continuing operations before
reorganization		153,062			(487,126	)		85,029
Reorganization items, net		—			—			18,541
Income (loss) from continuing operations before
income taxes		153,062			(487,126	)		66,488
Income tax expense (benefit)		(20,980	)		8,564			(23,838	)
Net income (loss)		174,042			(495,690	)		90,326
Less: Net income (loss) attributable to noncontrolling
interest		(192	)		1,082			3,185
Net income (loss) attributable to Pilgrim’s Pride
Corporation	$	174,234		$	(496,772	)	$	87,141

Net income (loss) per basic common share
attributable to Pilgrim’s Pride Corporation common
stockholders	$	0.70		$	(2.21	)	$	0.39
Net income (loss) per diluted common share
attributable to Pilgrim’s Pride Corporation common
stockholders	$	0.70		$	(2.21	)	$	0.39

The accompanying notes are an integral part of these Consolidated Financial Statements.

PILGRIM’S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

	Fifty-Three Weeks	Fifty-Two Weeks	Fifty-Two Weeks
	Ended	Ended	Ended
	December 30, 2012	December 25, 2011	December 26, 2010
	(In thousands, except per share data)
Weighted average shares outstanding:
Basic	250,101	224,996	224,996
Effect of dilutive common stock equivalents	115	—	—
Diluted	250,216	224,996	224,996

The accompanying notes are an integral part of these Consolidated Financial Statements.

PILGRIM’S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

	Fifty-Three Weeks			Fifty-Two Weeks			Fifty-Two Weeks
	Ended			Ended			Ended
	December 30, 2012			December 25, 2011			December 26, 2010
	(In thousands)
Net income (loss)	$	174,042		$	(495,690	)	$	90,326
Other comprehensive income (loss):
Unrealized holding gains (losses) on available-for-sale securities,
net of tax		(12	)		(1,160	)		(226	)
Recognition in earnings of a previously unrecognized gain on a
derivative instrument designated as a cash flow hedge, net of tax		—			—			(2,565	)
Gains (losses) associated with pension and other postretirement
benefits, net of tax		(22,429	)		(21,273	)		6,420
Total other comprehensive income (loss), net of tax		(22,441	)		(22,433	)		3,629
Comprehensive income (loss)		151,601			(518,123	)		93,955
Less: Comprehensive income (loss) attributable to noncontrolling
interests		(192	)		1,082			3,185
Comprehensive income (loss) attributable to Pilgrim’s Pride
Corporation	$	151,793		$	(519,205	)	$	90,770

The accompanying notes are an integral part of these Consolidated Financial Statements.

PILGRIM’S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

				Pilgrim’s Pride Corporation Stockholders
									Accumulated									Non-controlling
									Other						Additional			Interests in
				Comprehensive		Accumulated			Comprehensive				Common		Paid-in			Consolidated
	Total			Income		Deficit			Income (Loss)			Shares	Stock		Capital			Subsidiaries
	(In thousands)
Balance at December 27, 2009	$	192,808				$	(435,794	)	$	(27,266	)	77,141	$	771	$	648,583		$	6,514
Comprehensive income (loss):
Net income		90,326		87,141			87,141												3,185
Other comprehensive income (loss), net of tax:
Net unrealized holding gains on available-for-sale
securities, net of tax		(226	)	(226	)					(226	)
Recognition in earnings of previously unrealized gains on
a derivative instrument designated as a cash flow hedge, net of tax		(2,565	)	(2,565	)					(2,565	)
Gains associated with pension and other postretirement
benefits, net of tax		6,420		6,420						6,420
Total other comprehensive income		3,629		3,629
Total comprehensive income		93,955		90,770
Common stock issued		800,000										137,141		1,372		798,628
Other activity		(8,167	)													(4,401	)		(3,766	)
Balance at December 26, 2010	$	1,078,596				$	(348,653	)	$	(23,637	)	214,282	$	2,143	$	1,442,810		$	5,933

PILGRIM’S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)

				Pilgrim’s Pride Corporation Stockholders
										Accumulated								Non-controlling
										Other						Additional		Interests in
				Comprehensive			Accumulated			Comprehensive				Common		Paid-in		Consolidated
	Total			Income			Deficit			Income (Loss)			Shares	Stock		Capital		Subsidiaries
	(In thousands)
Balance at December 26, 2010	$	1,078,596					$	(348,653	)	$	(23,637	)	214,282	$	2,143	$	1,442,810	$	5,933
Comprehensive income (loss):
Net income (loss)	$	(495,690	)	$	(496,772	)	$	(496,772	)									$	1,082
Other comprehensive loss, net of tax:
Net unrealized holding losses on available-for-sale
securities, net of tax		(1,160	)		(1,160	)					(1,160	)
Losses associated with pension and other postretirement
benefits, net of tax		(21,273	)		(21,273	)					(21,273	)
Total other comprehensive loss		(22,433	)		(22,433	)
Total comprehensive loss		(518,123	)		(519,205	)
Share-based compensation		567															567
Other activity		(2,610	)					1,480									107		(4,197	)
Balance at December 25, 2011	$	558,430					$	(843,945	)	$	(46,070	)	214,282	$	2,143	$	1,443,484	$	2,818
Comprehensive income (loss):
Net Income (loss)		174,042			174,234			174,234											(192	)
Other comprehensive loss, net of tax:
Net unrealized holding losses on available-for-sale
securities, net of tax		(12	)		(12	)					(12	)
Losses associated with pension and other postretirement
benefits, net of tax		(22,429	)		(22,429	)					(22,429	)
Total other comprehensive loss		(22,441	)		(22,441	)
Total comprehensive income		151,601			151,793
Issuance of common stock		198,281											44,444		444		197,837
Share-based compensation plans:
Common stock issued under compensation plans		3											273		3
Requisite service period recognition		682															682
Balance at December 30, 2012	$	908,997					$	(669,711	)	$	(68,511	)	258,999	$	2,590	$	1,642,003	$	2,626

PILGRIM’S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Fifty-Three Weeks			Fifty-Two Weeks			Fifty-Two Weeks
	Ended			Ended			Ended
	December 30, 2012			December 25, 2011			December 26, 2010
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	174,042		$	(495,690	)	$	90,326
Adjustments to reconcile net income (loss) attributable to Pilgrim’s Pride
Corporation to cash provided by (used in) operating activities:

Depreciation and amortization		147,414			209,061			231,045
Asset impairment		2,770			22,895			26,484
Foreign currency transaction losses (gains)		(5,261	)		9,980			(1,111	)
Noncash loss on early extinguishment of debt recognized as a
component of other expense		—			—			11,726
Noncash loss on early extinguishment of debt recognized as
a reorganization item		—			—			13,654
Accretion of bond discount		456			453			38
Losses (gains) on property disposals		5,306			(4,271	)		(401	)
Share-based compensation		684			567			—
Deferred income tax benefit		(1,098	)		(7,097	)		(69,260	)
Changes in operating assets and liabilities:
Restricted cash and cash equivalents		12,680			53,273			(55,881	)
Trade accounts and other receivables		(14,137	)		(63,987	)		(9,045	)
Inventories		(65,870	)		122,827			(285,839	)
Prepaid expenses and other current assets		(2,600	)		27,068			(45,315	)
Accounts payable and accrued expenses		(16,520	)		(7,274	)		(91,119	)
Income taxes		(33,714	)		4,683			145,056
Deposits		1,783			2,174			56,552
Long-term pension and other postretirement obligations		(2,700	)		—			—
Other		(3,611	)		(3,653	)		(2,305	)
Cash provided by (used in) operating activities		199,624			(128,991	)		14,605
Cash flows from investing activities:
Acquisitions of property, plant and equipment		(90,327	)		(135,968	)		(179,332	)
Purchases of investment securities		(162	)		(4,596	)		(17,201	)
Proceeds from sale or maturity of investment securities		688			15,852			68,100
Proceeds from business dispositions to Swift Pork Company,
a subsidiary of JBS USA, LLC		—			13,000			—
Proceeds from business dispositions to JBS Trading International, Inc.,
a subsidiary of JBS USA, LLC		—			24,479			—
Proceeds from property sales and disposals		29,400			29,044			14,698
Cash used in investing activities		(60,401	)		(58,189	)		(113,735	)
Cash flows from financing activities:
Payments on notes payable to JBS USA		(50,000	)		—			—
Proceeds from notes payable to JBS USA		—			50,000			—
Proceeds from revolving line of credit and long-term borrowings		851,400			965,689			2,438,855
Payments on revolving line of credit, long-term borrowings and capital lease
obligations		(1,110,711	)		(881,833	)		(3,197,399	)
Proceeds from sale of common stock		198,282			—			800,000

PILGRIM’S PRIDE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Purchase of remaining interest in joint venture		—			(2,504	)		(7,637	)
Payment of capitalized loan costs		—			(4,395	)		(62,788	)
Other financing activities		—			(107	)		(511	)
Cash provided by (used in) financing activities		(111,029	)		126,850			(29,480	)
Effect of exchange rate changes on cash and cash equivalents		(1,623	)		(4,138	)		(1,613	)
Increase (decrease) in cash and cash equivalents		26,571			(64,468	)		(130,223	)
Cash and cash equivalents, beginning of period		41,609			106,077			236,300
Cash and cash equivalents, end of period	$	68,180		$	41,609		$	106,077
Supplemental Disclosure Information:
Interest paid (net of amount capitalized)	$	96,657		$	104,430		$	66,044
Income taxes paid (received)		10,931			3,957			(115,974	)

The accompanying notes are an integral part of these Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms) is one of the largest chicken companies in the United States (“U.S.”), Mexico and Puerto Rico. Our fresh chicken retail line is sold in the southeastern, central, southwestern and western regions of the U.S., throughout Puerto Rico, and in the northern and central regions of Mexico. Our prepared-foods products meet the needs of some of the largest customers in the food service industry across the U.S. Additionally, the Company exports commodity chicken products to approximately 100 countries. As a vertically integrated company, we control every phase of the production of our products. We operate feed mills, hatcheries, processing plants and distribution centers in 12 U.S. states, Puerto Rico and Mexico. Our fresh chicken products consist of refrigerated (nonfrozen) whole or cut-up chicken, either pre-marinated or non-marinated, and prepackaged chicken in various combinations of freshly refrigerated, whole chickens and chicken parts. Our prepared chicken products include portion-controlled breast fillets, tenderloins and strips, delicatessen products, salads, formed nuggets and patties and bone-in chicken parts. These products are sold either refrigerated or frozen and may be fully cooked, partially cooked or raw. In addition, these products are breaded or non-breaded and either pre-marinated or non-marinated.

Consolidated Financial Statements

The consolidated financial statements include the accounts of Pilgrim’s Pride Corporation and its majority owned subsidiaries. We eliminate all significant affiliate accounts and transactions upon consolidation.

The Company measures the financial statements of its Mexico subsidiaries as if the U.S. dollar were the functional currency. Accordingly, we remeasure assets and liabilities, other than non-monetary assets, of the Mexico subsidiaries at current exchange rates. We remeasure nonmonetary assets using the historical exchange rate in effect on the date of each asset’s acquisition. We remeasure income and expenses at average exchange rates in effect during the period, except for certain accounts which are remeasured at a historical rate. Currency exchange gains or losses are included in the line item Foreign currency transaction losses (gains) in the Consolidated Statements of Operations.

Reclassifications

We have made certain reclassifications to the 2011 and 2010 Consolidated Financial Statements with no impact to reported net income (loss) in order to conform to the 2012 presentation.

Revenue Recognition

We recognize revenue when all of the following circumstances are satisfied: (i) persuasive evidence of an arrangement exits, (ii) price is fixed or determinable, (iii) collectability is reasonably assured and (iv) delivery has occurred. Delivery occurs in the period in which the customer takes title and assumes the risks and rewards of ownership of the products specified in the customer’s purchase order or sales agreement. Revenue is recorded net of estimated incentive offerings including special pricing agreements, promotions and other volume-based incentives. Revisions to these estimates are charged back to net sales in the period in which the facts that give rise to the revision become known. Taxes collected from customers and remitted to governmental authorities are excluded from revenues.

Shipping and Handling Costs

Costs associated with the products shipped to customers are recognized in cost of sales.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs are included in selling, general and administrative expenses and totaled $6.5 million, $9.6 million and $10.5 million for 2012, 2011 and 2010, respectively.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development costs totaled $3.8 million, $5.0 million and $5.5 million for 2012, 2011 and 2010, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents

The Company considers highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The majority of the Company’s disbursement bank accounts are zero balance accounts where cash needs are funded as checks are presented for payment by the holder. Checks issued pending clearance that result in overdraft balances for accounting purposes are classified as accounts payable and the change in the related balance is reflected in operating activities on the Consolidated Statements of Cash Flows.

Current and Long-Term Investments

The Company’s current and long-term investments consist primarily of fixed income securities, municipal debt securities, bond and equity mutual funds and fund-of-funds. These investments are classified as available-for-sale. These securities are recorded at fair value, and unrealized holding gains and losses are recorded, net of tax, as a separate component of accumulated other comprehensive income. Debt securities with remaining maturities of less than one year and those identified by management at the time of purchase for funding operations in less than one year are classified as current. Debt securities with remaining maturities greater than one year that management has not identified at the time of purchase for funding operations in less than one year are classified as long-term. Unrealized losses are charged against net earnings when a decline in fair value is determined to be other than temporary. Management reviews several factors to determine whether a loss is other than temporary, such as the length of time a security is in an unrealized loss position, the extent to which fair value is less than amortized cost, the impact of changing interest rates in the short and long term, and the Company’s intent and ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. The Company determines the cost of each security sold and each amount reclassified out of accumulated other comprehensive income into earnings using the specific identification method. Purchases and sales are recorded on a trade date basis.

Investments in entities in which the Company has an ownership interest greater than 50% and exercises control over the entity are consolidated in the Consolidated Financial Statements. Investments in entities in which the Company has an ownership interest between 20% and 50% and exercises significant influence are accounted for using the equity method. The Company invests from time to time in ventures in which its ownership interest is less than 20% and over which it does not exercise significant influence. Such investments are accounted for under the cost method. The fair values for investments not traded on a quoted exchange are estimated based upon the historical performance of the ventures, the ventures’ forecasted financial performance and management’s evaluation of the ventures’ viability and business models. To the extent the book value of an investment exceeds its assessed fair value, the Company will record an appropriate impairment charge. Thus, the carrying value of the Company’s investments approximates fair value.

Accounts Receivable

The Company records accounts receivable when revenue is recognized. We record an allowance for doubtful accounts, reducing our receivables balance to an amount we estimate is collectible from our customers. Estimates used in determining the allowance for doubtful accounts are based on historical collection experience, current trends, aging of accounts receivable, and periodic credit evaluations of our customers’ financial condition. We write off accounts receivable when it becomes apparent, based upon age or customer circumstances, that such amounts will not be collected. Generally, the Company does not require collateral for its accounts receivable.

Inventories

Live chicken inventories are stated at the lower of cost or market and breeder hens at the lower of cost, less accumulated amortization, or market. The costs associated with breeder hens are accumulated up to the production stage and amortized over their productive lives using the unit-of-production method. Finished poultry products, feed, eggs and other inventories are stated at the lower of cost (average) or market.

We record valuation adjustments for our inventory and for estimated obsolescence at or equal to the difference between the cost of inventory and the estimated market value based upon known conditions affecting inventory, including significantly aged products, discontinued product lines, or damaged or obsolete products. We allocate meat costs between our various finished chicken products based on a by-product costing technique that reduces the cost of the whole bird by estimated yields and amounts to be recovered for certain by-product parts. This primarily includes leg quarters, wings, tenders and offal, which are carried in inventory at the estimated recovery amounts, with the remaining amount being reflected as our breast meat cost.

Generally, the Company performs an evaluation of whether any lower of cost or market adjustments are required at the country level based on a number of factors, including: (i) pools of related inventory, (ii) product continuation or discontinuation, (iii) estimated market selling prices and (iv) expected distribution channels. If actual market conditions or other factors are less favorable than those projected by management, additional inventory adjustments may be required.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property, Plant and Equipment

Property, plant and equipment are stated at cost, and repair and maintenance costs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of these assets. Estimated useful lives for building, machinery and equipment are five to 33 years and for automobiles and trucks are three to ten years. The charge to income resulting from amortization of assets recorded under capital leases is included with depreciation expense.

The Company records impairment charges on long-lived assets held for use when events and circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. When the above is true, the impairment charge is determined based upon the amount the net book value of the assets exceeds their fair market value. In making these determinations, the Company utilizes certain assumptions, including, but not limited to: (i) future cash flows estimated to be generated by these assets, which are based on additional assumptions such as asset utilization, remaining length of service and estimated salvage values, (ii) estimated fair market value of the assets and (iii) determinations with respect to the lowest level of cash flows relevant to the respective impairment test, generally groupings of related operational facilities.

Given the interdependency of the Company’s individual facilities during the production process, which operate as a vertically integrated network, and the fact that the Company does not price the transfers of inventory between its vertically integrated facilities at market prices, it evaluates impairment of assets held for use at the country level (i.e., the U.S. and Mexico). Management believes this is the lowest level of identifiable cash flows for its assets that are held for use in production activities. At the present time, the Company’s forecasts indicate that it can recover the carrying value of its assets held for use based on the projected undiscounted cash flows of the operations. A key assumption in management’s forecast is that the Company’s sales volumes will return to historical margins as supply and demand between commodities and chicken and other animal-based proteins become more balanced. However, the exact timing of the return to historical margins is not certain, and if the return to historical margins is delayed, impairment charges could become necessary in the future.

Identified Intangible Assets

Our identified intangible assets consist of assets subject to amortization such as trade names, customer relationships and non-compete agreements. We calculate amortization of those assets that are subject to amortization on a straight-line basis over the estimated useful lives of the related assets. The useful lives range from three to 15 years for trade names and non-compete agreements and 13 years for customer relationships.

We review intangible assets subject to amortization for impairment whenever an event or change in circumstances indicates the carrying values of the assets may not be recoverable. We test intangible assets subject to amortization for impairment and estimate their fair values using the same assumptions and techniques we employ on property, plant and equipment.

Litigation and Contingent Liabilities

The Company is subject to lawsuits, investigations and other claims related to employment, environmental, product and other matters. The Company is required to assess the likelihood of any adverse judgments or outcomes, as well as potential ranges of probable losses, to these matters. The Company estimates the amount of reserves required for these contingencies when losses are determined to be probable and after considerable analysis of each individual issue. The Company expenses legal costs related to such loss contingencies as they are incurred. The accrual for environmental remediation liabilities is measured on an undiscounted basis. These reserves may change in the future due to changes in the Company’s assumptions, the effectiveness of strategies, or other factors beyond the Company’s control.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accrued Self Insurance

Insurance expense for casualty claims and employee-related health care benefits are estimated using historical and current experience and actuarial estimates. Stop-loss coverage is maintained with third-party insurers to limit the Company’s total exposure. Certain categories of claim liabilities are actuarially determined. The assumptions used to arrive at periodic expenses are reviewed regularly by management. However, actual expenses could differ from these estimates and could result in adjustments to be recognized.

Income Taxes

The Company follows the provisions of ASC 740-10-30-27 in the Expenses -Income Taxes topic with regards to members of a group that file a consolidated tax return but issue separate financial statements. The Company files its own U.S. federal tax return but is included in certain state consolidated returns with JBS USA. The income tax expense of the Company is computed using the separate return method. The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred income taxes reflect the net tax effect of temporary differences between the book and tax bases of recorded assets and liabilities, net operating losses and tax credit carry forwards. The amount of deferred tax on these temporary differences is determined using the tax rates expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on the tax rates and laws in the respective tax jurisdiction enacted as of the balance sheet date.

The Company reviews its deferred tax assets for recoverability and establishes a valuation allowance based on historical taxable income, potential for carry back of tax losses, projected future taxable income, applicable tax strategies, and the expected timing of the reversals of existing temporary differences. A valuation allowance is provided when it is more likely than not that some or all of the deferred tax assets will not be realized. Valuation allowances have been established primarily for net operating loss carry forwards. See “Note 13. Income Taxes” to the Consolidated Financial Statements.

The Company deems its earnings from Mexico as of December 30, 2012 to be permanently reinvested. As such, U.S. deferred income taxes have not been provided on these earnings. If such earnings were not considered indefinitely reinvested, certain deferred foreign and U.S. income taxes would be provided. For activity after 2008, the Company did not permanently reinvest its earnings in Puerto Rico. Therefore, net earnings generated in Puerto Rico have U.S. taxes provided as if the earnings were distributed.

The Company follows the provisions under ASC 740-10-25 that provides a recognition threshold and measurement criteria for the financial statement recognition of a tax benefit taken or expected to be taken in a tax return. Tax benefits are recognized only when it is more likely than not, based on the technical merits, that the benefits will be sustained on examination. Tax benefits that meet the more-likely-than-not recognition threshold are measured using a probability weighting of the largest amount of tax benefit that has greater than 50% likelihood of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a particular tax benefit is a matter of judgment based on the individual facts and circumstances evaluated in light of all available evidence as of the balance sheet date. See “Note 13. Income Taxes” to the Consolidated Financial Statements.

Pension and Other Postemployment Benefits

Our pension and other postemployment benefit costs and obligations are dependent on the various actuarial assumptions used in calculating such amounts. These assumptions relate to discount rates, salary growth, long-term return on plan assets and other factors. We base the discount rate assumptions on current investment yields on high-quality corporate long-term bonds. The salary growth assumptions reflect our long-term actual experience and future or near-term outlook. We determine the long-term return on plan assets based on historical portfolio results and management’s expectation of the future economic environment. Actual results that differ from our assumptions are accumulated and, if in excess of the lesser of 10% of the projected benefit obligation or the fair market value of plan assets, amortized over either (i) the estimated average future service period of active plan participants if the plan is active or (ii) the estimated average future life expectancy of all plan participants if the plan is frozen.

Operating Leases

Rent expense for operating leases is recorded on a straight-line basis over the lease term unless the lease contains an escalation clause which is not fixed or determinable. The lease term begins when we have the right to control the use of the leased property, which is typically before rent payments are due under the terms of the lease. If a lease has a fixed or determinable escalation clause, the difference between rent expense and rent paid is recorded as deferred rent and is included in the Consolidated Balance Sheets. Rent for operating leases that do not have an escalation clause or where escalation is based on an inflation index is expensed over the lease term as it is payable.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Risk Management

The Company attempts to mitigate commodity purchase exposures through a program of risk management that includes the use of forward purchase contractual obligations and derivative financial instruments. The Company’s Mexico subsidiaries also attempt to mitigate the foreign currency exposure on certain U.S. dollar-denominated transactions through the use of derivative financial instruments. We recognize all derivative financial instruments in the Consolidated Balance Sheets at fair value. We elected not to designate derivative financial instruments executed to mitigate commodity purchase exposures and foreign currency exposures as hedges of forecasted transactions. Therefore, we recognize changes in the fair value of these derivative financial instruments immediately in earnings. Gains or losses related to the commodity derivative financial instruments are included in the line item Cost of sales in the Consolidated Statements of Operations. Gains or losses related to the foreign currency derivative financial instruments are included in the line item Selling, general and administrative expenses in the Consolidated Statements of Operations.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We make significant estimates in regard to receivables collectability; inventory valuation; realization of deferred tax assets; valuation of long-lived assets; valuation of contingent liabilities, liabilities subject to compromise and self insurance liabilities; valuation of pension and other postretirement benefits obligations; and valuation of acquired businesses.

Recently Adopted Accounting Pronouncements

On December 26, 2011, the Company adopted Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Disclosure Requirements in the U.S. GAAP and IFRS. The amendment clarifies the FASB’s intent about the application of existing fair value measurement and disclosure requirements (ASC Topic 820) and improves consistency in wording to ensure that U.S. GAAP and International Financial Reporting Standards (“IFRS”) are described the same way. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The adoption of the ASU did not have a material impact on the Company’s consolidated financial statements.

2. CHAPTER 11 PROCEEDINGS

Chapter 11 Bankruptcy Filings and Proceedings

Emergence from Bankruptcy

On December 1, 2008, Pilgrim’s and six of its subsidiaries (the “Debtors”) filed voluntary petitions in the United States Bankruptcy Court for the Northern District of Texas, Fort Worth Division (the “Bankruptcy Court”), seeking reorganization relief under the provisions of Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). We emerged from Chapter 11 bankruptcy proceedings on December 28, 2009 (the “Effective Date”). In connection with our emergence from bankruptcy, our common stock outstanding immediately prior to the emergence was canceled and converted into the right to receive newly-issued shares of common stock of the reorganized Company based on a one-for-one exchange ratio, which constituted 36.0% of the total number of shares of our newly-issued common stock on that date. The remaining shares of our newly-issued common stock, constituting 64.0% of our total issued and outstanding common stock on December 28, 2009, were purchased for $800.0 million by JBS USA Holdings, Inc. (“JBS USA”), a wholly-owned indirect subsidiary of JBS S.A., a Brazil-based meat producer. As the result of subsequent purchases, JBS USA owned 75.5% of our total issued and outstanding common stock as of December 30, 2012.

Financial Reporting Considerations

The Company’s emergence from bankruptcy did not qualify for fresh start accounting because the reorganization value determined for the Company upon emergence exceeded post-petition liabilities and allowed claims. The acquisition of a controlling interest in the Company by JBS USA did not qualify for push-down accounting as JBS USA only purchased 64.0% of the common stock of the reorganized Company on December 28, 2009.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We incurred no reorganization items in 2012 or 2011. We incurred the following reorganization costs in 2010 (in thousands):

Professional fees directly related to reorganization^(a)	$	2,785
Finance costs related to various credit facilities^(b)		13,654
Other costs^(c)		2,102
Reorganization items, net	$	18,541

(a)		Professional fees directly related to the reorganization included post-petition fees and fee reductions associated with advisors to the debtors, the statutory committee of unsecured creditors and certain secured creditors.
(b)		Finance costs related to various credit facilities included expenses related to the elimination of unamortized loan costs associated with credit facilities and notes payable extinguished on December 28, 2009 and the recognition in earnings of a previously unrealized gain on a derivative instrument designated as a cash flow hedge associated with a note payable extinguished on December 28, 2009.
(c)		Other expenses includes (i) severance, grower pay, live flock impairment, inventory disposal costs, equipment relocation costs and other shutdown costs related to the closed processing facilities in Douglas, Georgia; El Dorado, Arkansas; Farmerville, Louisiana; Franconia, Pennsylvania; Dalton, Georgia; Athens, Georgia; and Athens, Alabama, (ii) severance costs related to the closed distribution center in Houston, Texas, the February 2009 Operations management reduction-in-force (“RIF”) action, the April 2009 non-production employee RIF action, and reduced or consolidated production at various facilities throughout the U.S., (iii) asset impairment costs related to the closed processing facility in Dalton, Georgia and (iv) fees associated with the termination of a September 2008 receivables purchase agreement on December 3, 2008.

We did not receive cash from reorganization activities in 2012 or 2011. Net cash received from reorganization activities in 2010 totaled $0.3 million from the sale of maintenance inventory parts. These cash flows are included in the section Cash flows from investing activities on the Consolidated Statement of Cash Flows.

We did not pay cash for reorganization activities in 2012 or 2011. Net cash paid for reorganization items in 2010 totaled $30.7 million. This represented payment of incentive compensation totaling $13.0 million that was contingent upon confirmation by the Bankruptcy Court of a plan of reorganization that satisfied the requirements of the Bankruptcy Code, professional fees directly related to the reorganization totaling $15.7 million, severance payments of $1.5 million and payment of facility closure costs totaling $0.5 million.

The Company did not record activity through the accrued reorganization cost accounts during 2012 or 2011. The following table sets forth activity that was recorded through the Company’s accrued reorganization cost accounts during 2010:

	Accrued Other			Accrued
	Costs			Severance			Total
	(In thousands)
December 27, 2009	$	1,903		$	745		$	2,648
Accrual provisions^(a)		2,118			849			2,967
Payment /Disposal		(2,649	)		(1,538	)		(4,187	)
Adjustments^(a)		(1,372	)		(56	)		(1,428	)
December 26, 2010	$	—		$	—		$	—

(a)

Accrual provisions and adjustments recognized in 2010 were primarily classified as reorganization items.

The Company has resolved a substantial majority of the claims against it through settlement or by Bankruptcy Court order resulting in benefits of $8.8 million that were reflected in Miscellaneous, net in the Consolidated Statement of Operations for 2010. Unpaid amounts totaling $0.8 million related to unresolved claims were classified in Accrued expenses and other current liabilities on the Consolidated Balance Sheet at December 25, 2011. At December 30, 2012, there were no unpaid amounts related to unresolved claims recognized in the Consolidated Balance Sheet except for those related to several pre-petition lawsuits discussed below. During 2012 and 2011, the Company paid creditors approximately $0.7 million and $0.7 million, respectively, to settle allowed claim amounts and interest accrued on those claim amounts. During 2010, the Company paid creditors, excluding creditors under the credit facilities and notes payable extinguished on December 28, 2010, for allowed claim amounts with interest totaling approximately $101.1 million.

The Company is the named defendant in several pre-petition lawsuits that, as of December 30, 2012, have not been resolved. See “Note 17. Commitments and Contingencies” to the Consolidated Financial Statements for additional information.

See “Note 2. Chapter 11 Proceedings” to the Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 25, 2011 for additional information.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. EXIT OR DISPOSAL ACTIVITIES

From time to time, the Company will incur costs to implement exit or disposal efforts for specific operations. These exit or disposal plans, each of which is approved by the Company’s Board of Directors, focus on various aspects of operations, including closing and consolidating certain processing facilities, rationalizing headcount and aligning operations in the most strategic and cost-efficient structure. Specific exit or disposal efforts that were ongoing during 2012, 2011 and 2010 included the following:

			JBS USA
	Facility Closures^(a)		Integration^(b)		Total
	(In thousands, except positions eliminated)
Earliest implementation date	October 2008		January 2010
Latest expected completion date	September 2014		September 2012
Positions eliminated		2,410		480		2,890
Costs incurred and expected to be incurred:
Employee-related costs	$	2,492	$	32,311	$	34,803
Asset impairment costs		21,842		38,048		59,890
Inventory valuation costs		344		—		344
Other exit or disposal costs		15,248		11,336		26,584
Total exit or disposal costs	$	39,926	$	81,695	$	121,621
Costs incurred since earliest implementation date:
Employee-related costs	$	2,492	$	32,311	$	34,803
Asset impairment costs		21,842		38,048		59,890
Inventory valuation costs		344		—		344
Other exit or disposal costs		12,222		11,336		23,558
Total exit or disposal costs	$	36,900	$	81,695	$	118,595

	2012							2011						2010
	Facility		JBS USA					Facility		JBS USA				Facility		JBS USA
	Closures		Integration					Closures		Integration				Closures		Integration
	(a)		(b)			Total		(a)		(b)		Total		(a)		(b)		Total
	(In thousands)
Employee-related
costs	$	65	$	—		$	65	$	647	$	405	$	1,052	$	—	$	31,227	$	31,227
Asset impairment
costs		3,868		(1,098	)		2,770		9,203		13,693		22,896		1,030		25,453		26,483
Inventory
valuation costs		151		—			151		—		—		—		—		—		—
Other exit or
disposal costs		3,685		1,994			5,679		5,249		—		5,249		2,118		10,512		12,630
Total exit or
disposal costs	$	7,769	$	896		$	8,665	$	15,099	$	14,098	$	29,197	$	3,148	$	67,192	$	70,340

(a)		Significant facilities closed included one processing plant in 2008, two processing plants in 2009, two processing plants in the transition period and one processing plant in 2011. The transition period began September 27, 2009 and ended December 27, 2009 and resulted from the Company’s change in its fiscal year end from the Saturday nearest September 30 each year to the last Sunday in December of each year.
(b)		Company management implemented certain activities to integrate the administrative functions of the Company into those of JBS USA. These included the closures of administrative offices in Georgia and Texas.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accrued severance costs are included in Accrued expenses and other current liabilities and accrued inventory charges are included in Inventories on the accompanying Consolidated Balance Sheets. The following table sets forth activity that was recorded through the Company’s accrued exit or disposal cost accounts during 2012 and 2011:

							Accrued
	Accrued Lease			Accrued			Other Exit or			Inventory
	Obligation			Severance			Disposal Costs			Reserves			Total
	(In thousands)
December 27, 2009		20			516			3,614			—			4,150
Accruals		—			31,116			9,869			—			40,985
Payment/Disposal		—			(27,086	)		(2,611	)		—			(29,697	)
Adjustments		(20	)		(396	)		(10,872	)		793			(10,495	)
December 26, 2010		—			4,150			—			793			4,943
Accruals		—			2,375			—			—			2,375
Payment/Disposal		—			(5,111	)		—			—			(5,111	)
Adjustments		—			(1,324	)		—			—			(1,324	)
December 25, 2011		—			90			—			793			883
Accruals		—			65			—			151			216
Payment/Disposal		—			(155	)		—			(136	)		(291	)
December 30, 2012	$	—		$	—		$	—		$	808		$	808

Exit or disposal costs were included on the following lines in the accompanying Consolidated Statements of Operations:

	2012		2011		2010
	(In thousands)
Cost of sales	$	216	$	—	$	—
Operational restructuring charges		—		1,958		4,318
Selling, general and administrative expense		—		328		—
Administrative restructuring charges		8,449		26,911		66,022
Total exit or disposal costs	$	8,665	$	29,197	$	70,340

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain exit and disposal costs were classified as either Operational restructuring charges, net or Administrative restructuring charges, net on the accompanying Consolidated Statements of Operations because management believed these costs were not directly related to the Company’s ongoing operations. Components of operational restructuring charges and administrative restructuring charges are summarized below:

	2012		2011		2010
	(In thousands)
Operational restructuring charges:
Relocation charges expensed as incurred	$	—	$	—	$	3,288
Asset impairments (See “Note 10. Property, Plant and Equipment”)		—		1,958		1,030
Loss on egg sales and flock depletion expensed as incurred		—		—		—
Total	$	—	$	1,958	$	4,318
Administrative restructuring charges:
Severance charges	$	—	$	724	$	31,227
Relocation charges expensed as incurred		—		—		7,224
Asset impairments (See “Note 10. Property, Plant and Equipment”)		2,770		20,938		25,453
Loss on scrapped inventory expensed as incurred		—		—		2,118
Loss on egg sales and flock depletion expensed as incurred		509		2,390		—
Other restructuring costs		5,170		2,859		—
Total	$	8,449	$	26,911	$	66,022

4. FAIR VALUE MEASUREMENT

The asset (liability) amounts recorded in the Consolidated Balance Sheet (carrying amounts) and the estimated fair values of financial instruments consisted of the following:

	2012						2011
	Carrying			Fair			Carrying			Fair			Note
	Amount			Value			Amount			Value			Reference
	(In thousands)
Short-term investments in available-
for-sale securities	$	—		$	—		$	157		$	157		7
Commodity derivative assets^(a):													8
Futures		1,821			1,821			2,870			2,870
Long-term investments in available-
for-sale securities		—			—			497			497		7
Commodity derivative liabilities^(b):													8
Futures		(1,530	)		(1,530	)		(2,120	)		(2,120	)
Options		—			—			(603	)		(603	)
Long-term debt and other borrowing
arrangements^(c)		(1,164,756	)		(1,208,730	)		(1,423,612	)		(1,421,517	)	12
Note payable to JBS USA Holdings		—			—			(50,000	)		(50,077	)	12, 16

(a)		Commodity derivative assets are included in Prepaid expenses and other current assets on the Consolidated Balance Sheet.
(b)		Commodity derivative liabilities are included in Accrued expenses and other current liabilities on the Consolidated Balance Sheet.
(c)		The fair values of the Company’s long-term debt and other borrowing arrangements were estimated by calculating the net present value of future payments for each debt obligation or borrowing by: (i) using a risk-free rate applicable for an instrument with a life similar to the remaining life of each debt obligation or borrowing plus the current estimated credit risk spread for the Company or (ii) using the quoted market price at December 30, 2012 or December 25, 2011, as applicable.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The carrying amounts of our cash and cash equivalents, derivative trading accounts’ margin cash, restricted cash and cash equivalents, accounts receivable, accounts payable and certain other liabilities approximate their fair values due to their relatively short maturities. The Company adjusts its investments, commodity derivative assets and commodity derivative liabilities to fair value based on quoted market prices in active markets for identical instruments, quoted market prices in active markets for similar instruments with inputs that are observable for the subject instrument, or unobservable inputs such as discounted cash flow models or valuations.

The Company follows guidance under ASC Topic 820, Fair Value Measurements and Disclosures, which establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. The guidance under ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC Topic 820 also requires disclosure about how fair value was determined for assets and liabilities and established a hierarchy for which these assets and liabilities must be grouped based on significant levels of inputs as follows:

Level 1		Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2		Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or

Level 3		Unobservable inputs, such as discounted cash flow models or valuations.

The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

As of December 30, 2012, the Company held certain items that were required to be measured at fair value on a recurring basis. These included cash and cash equivalents, derivative assets and liabilities, short-term investments in available-for-sale securities and long-term investments in available-for-sale securities. Cash equivalents consist of short-term, highly liquid, income-producing investments such as money market funds and other funds that have maturities of 90 days or less. Derivative assets and liabilities consist of long and short positions on both exchange-traded commodity futures and commodity options as well as margin cash on account with the Company’s derivatives brokers. Short-term investments in available-for-sale securities consist of short-term, highly liquid, income-producing investments such as municipal debt securities that have maturities of greater than 90 days but less than one year. Long-term investments in available-for-sale securities consist of income-producing investments such as municipal debt securities, corporate debt securities, equity securities and fund-of-funds units that have maturities of greater than one year.

The following items are measured at fair value on a recurring basis at December 30, 2012:

	Level 1		Level 2	Level 3	Total
	(In thousands)
Commodity derivative assets:
Futures	1,821		—	—	1,821
Commodity derivative liabilities:
Futures	(1,530	)	—	—	(1,530	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following items are measured at fair value on a recurring basis at December 25, 2011:

	Level 1			Level 2			Level 3		Total
	(In thousands)
Short-term investments in available-for-sale securities	$	—		$	157		$	—	$	157
Commodity derivative assets:
Futures		2,870			—			—		2,870
Long-term investments in available-for-sale securities		—			438			59		497
Commodity derivative liabilities:
Futures		(2,120	)		—			—		(2,120	)
Options		—			(603	)		—		(603	)

Financial assets and liabilities classified in Level 1 at December 30, 2012 and December 25, 2011 include commodity futures derivative instruments traded in active markets. The valuation of these instruments is determined using a market approach, taking into account current interest rates, creditworthiness, and liquidity risks in relation to current market conditions, and is based upon unadjusted quoted prices for identical assets in active markets. The valuation of assets and liabilities in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets or other inputs that are observable for substantially the full term of the financial instrument. Level 2 securities primarily include fixed income securities and commodity option derivative instruments. The valuation of assets in Level 3 is determined using an income approach based on unobservable inputs such as discounted cash flow models or valuations.

The following table presents activity for each reporting period related to the Company’s investment in a fund-of-funds asset that was measured at fair value on a recurring basis using Level 3 inputs:

	2012			2011			2010
	(In thousands)
Balance at beginning of year	$	59		$	1,190		$	1,116
Included in other comprehensive income		—			(19	)		74
Sale of securities		(59	)		(1,112	)		—
Balance at end of year	$	—		$	59		$	1,190

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities at fair value on a nonrecurring basis. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges when required by U.S. GAAP. During 2012, certain long-lived assets with an aggregate carrying amount of $29.9 million were written down to an aggregate fair value of $27.1 million, resulting in a loss of $2.8 million recorded in earnings. These assets are classified as Level 2 assets because their fair value can be corroborated based on observable market data.

5. TRADE ACCOUNTS AND OTHER RECEIVABLES

Trade accounts and other receivables, less allowance for doubtful accounts, consisted of the following:

	December 30, 2012			December 25, 2011
	(In thousands)
Trade accounts receivable	$	381,747		$	337,411
Account receivable from JBS USA, LLC		1,514			21,198
Receivables from officers and employees		48			9
Other receivables		6,892			16,965
Receivables, gross		390,201			375,583
Allowance for doubtful accounts		(3,757	)		(5,163	)
Receivables, net	$	386,444		$	370,420

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. INVENTORIES

Inventories consisted of the following:

	December 30, 2012		December 25, 2011
	(In thousands)
Live chicken and hens	$	405,335	$	363,590
Feed, eggs and other		307,500		238,449
Finished chicken products		237,159		273,363
Total chicken inventories		949,994		875,402
Commercial feed, table eggs and other		302		3,692
Total inventories	$	950,296	$	879,094

7. INVESTMENTS IN SECURITIES

We recognize investments in available-for-sale securities as cash equivalents, current investments or long-term investments depending upon each security’s length to maturity. Additionally, those securities identified by management at the time of purchase for funding operations in less than one year are classified as current.

The following table summarizes our investments in available-for-sale securities:

	December 30, 2012				December 25, 2011
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(In thousands)
Current investments:
Fixed income securities	$	—	$	—	$	152	$	157
Long-term investments:
Fixed income securities		—		—		367		438
Other		—		—		59		59

The Company and certain retirement plans that it sponsors invest in a variety of financial instruments. Certain postretirement funds in which the Company participates hold significant amounts of mortgage-backed securities. However, none of the mortgages collateralizing these securities are considered subprime.

At December 25, 2011, certain investments were held in trust as compensating balance arrangements for our insurance liability and were classified as long-term based on a maturity date greater than one year from the balance sheet date and management’s intention not to use such assets in the next year.

8. DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes various raw materials in its operations, including corn, soybean meal, soybean oil and energy, such as natural gas, electricity and diesel fuel, which are all considered commodities. The Company considers these raw materials generally available from a number of different sources and believes it can obtain them to meet its requirements. These commodities are subject to price fluctuations and related price risk due to factors beyond our control, such as economic and political conditions, supply and demand, weather, governmental regulation and other circumstances. Generally, the Company purchases derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to its anticipated consumption of commodity inputs for the next 12 months. The Company may purchase longer-term derivative financial instruments on particular commodities if deemed appropriate. The Company’s Mexico subsidiaries will sometimes purchase foreign currency derivative financial instruments to mitigate foreign currency transaction exposure on U.S. dollar-denominated purchases. The fair value of derivative assets is included in the line item Prepaid expenses and other current assets on the Consolidated Balance Sheets while the fair value of derivative liabilities is included in the line item Accrued expenses and other current liabilities on the same statements. Our counterparties require that we post cash collateral for changes in the net fair value of the derivative contracts.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We have not designated the derivative financial instruments that we have purchased to mitigate commodity purchase or foreign currency transaction exposures as cash flow hedges. Therefore, we recognize changes in the fair value of these derivative financial instruments immediately in earnings. Gains or losses related to these derivative financial instruments are included in either the line item Cost of sales or the line item Selling, general and administrative expenses in the Consolidated Statements of Operations based upon the business purpose of the associated exposure. The Company recognized $8.3 million, $63.8 million and $69.2 million in net gains related to changes in the fair value of its derivative financial instruments during 2012, 2011 and 2010, respectively.

Information regarding the Company’s outstanding derivative instruments and cash collateral posted with (owed to) brokers is included in the following table:

	December 30,			December 25,
	2012			2011
	(Fair values in thousands)
Fair values:
Commodity derivative assets	$	1,821		$	2,870
Commodity derivative liabilities		(1,530	)		(2,723	)
Cash collateral posted with (owed to) brokers		(166	)		3,271
Derivatives Coverage^(a):
Corn		—			N/A
Soybean meal		—			N/A
Period through which stated percent of needs are covered:
Corn		December 2013			N/A
Soybean meal		December 2013			N/A
Written put options outstanding^(b):
Fair value	$	—		$	(603	)
Number of contracts:
Corn		—			500
Expiration dates		N/A			March 2012
Short positions on outstanding futures derivative instruments^(b):
Fair value	$	1,464		$	495
Number of contracts:
Corn		584			2,531
Soybean meal		269			96

(a)		Derivatives coverage is the percent of anticipated corn and soybean meal needs covered by outstanding derivative instruments through a specified date. At December 25, 2011, the Company held short derivative positions that exceeded open long derivative positions for both corn and soybean meal. Short derivative positions are held to offset long forward cash purchases.
(b)		A written put option is an option that the Company has sold that grants the holder the right, but not the obligation, to sell the underlying asset at a certain price for a specified period of time. When the Company takes a short position on a futures derivative instrument, it agrees to sell the underlying asset in the future at a price established on the contract date. The Company writes put options and takes short positions on futures derivative instruments to minimize the impact of feed ingredients price volatility on its operating results.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. IDENTIFIED INTANGIBLE ASSETS

Identified intangible assets consisted of the following:

	Useful Life			Accumulated			Carrying
	(Years)	Original Cost		Amortization			Amount
	(In thousands)
December 25, 2011:
Trade names	3–15	$	40,143	$	(27,445	)	$	12,698
Customer relationships	13		51,000		(19,615	)		31,385
Non-compete agreements	3		300		(300	)		—
Total intangible assets			91,443		(47,360	)		44,083
December 30, 2012:
Trade names	3–15		40,143		(29,263	)		10,880
Customer relationships	13		51,000		(23,614	)		27,386
Non-compete agreements	3		300		(300	)		—
Total intangible assets		$	91,443	$	(53,177	)	$	38,266

We recognized amortization expense related to identified intangible assets of $5.8 million in 2012, $5.7 million in 2011 and $5.7 million in 2010.

We expect to recognize amortization expense associated with identified intangible assets of $5.7 million in each year from 2013 through 2016 and $5.8 million in 2017.

10. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment (“PP&E”), net consisted of the following:

	December 30, 2012			December 25, 2011
	(In thousands)
Land	$	63,788		$	65,413
Buildings		1,081,059			1,077,789
Machinery and equipment		1,498,280			1,492,251
Autos and trucks		58,526			58,518
Construction-in-progress		47,927			36,094
Property, plant and equipment, gross		2,749,580			2,730,065
Accumulated depreciation		(1,559,659	)		(1,488,313	)
Property, plant and equipment, net	$	1,189,921		$	1,241,752

The Company recognized depreciation expense of $131.5 million, $192.6 million and $209.4 million during 2012, 2011 and 2010, respectively.

During 2012, the Company sold certain PP&E for cash of $29.4 million and recognized a loss of $5.3 million. PP&E sold in 2012 included a commercial egg operation in Texas, a vacant office building in Texas, an idled processing plant and broiler farm in Georgia, an idled feed mill in Arkansas, idled hatcheries in Alabama, Arkansas and Georgia, an idled distribution center in Louisiana, various broiler and breeder farms in Texas, both developed and undeveloped land in Texas and miscellaneous processing equipment. During 2011, the Company sold certain PP&E for cash of $29.0 million and recognized a gain of $4.3 million. PP&E sold in 2011 included a processing plant in North Carolina, a rendering plant in Georgia, an egg production facility in Texas, a feed mill in Georgia, a hatchery in Alabama, various broiler, breeder and pullet farms in Texas, an empty office building in West Virginia, rental properties in Texas, developed and undeveloped real estate in Texas and miscellaneous processing equipment.

As part of the exit or disposal activities discussed in “Note 3. Exit or Disposal Activities,” the Company closed or idled (i) processing facilities in Alabama, Georgia, Arkansas and Texas, (ii) a feed mill in North Carolina and Arkansas, (iii) hatcheries in Alabama, Texas, Arkansas and North Carolina, (iv) various broiler farms in Texas and (v) a vehicle maintenance center in Arkansas. Neither the Board of Directors nor JBS USA has determined if it would be in the best interest of the Company to divest any of these idled assets. Management is therefore not certain that it can or will divest any of these assets within one year, is not actively marketing these assets and, accordingly, has not classified them as assets held for sale. The Company continues to depreciate these assets. At December 30, 2012, the carrying amount of these idled assets was $60.4 million based on depreciable value of $152.7 million and accumulated depreciation of $92.3 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Management has committed to the sale of certain properties and related assets, including, but not limited to (i) processing plants in Louisiana and Pennsylvania, (ii) an administrative office building in Georgia, (iii) a warehouse in Texas and (iv) a vehicle maintenance center in Texas, as such assets no longer fit into the operating plans of the Company. The Company is actively marketing these properties and related assets for immediate sale and believes a sale of each property can be consummated within the next 12 months. At December 30, 2012, the Company reported assets held for sale totaling $27.0 million in Assets held for sale on its Consolidated Balance Sheets. In 2012, the Company recognized administrative restructuring charges totaling $2.8 million to impair the carrying amounts of certain assets held for sale to fair value.

The Company tested the recoverability of its long-lived assets held for use during the thirteen weeks ended December 30, 2012 by comparing the book value of its invested capital, exclusive of assets held for sale, with the undiscounted cash flows expected to result from the use and eventual disposition of its long-lived assets held for use. The Company determined that the carrying amount of its long-lived assets held for use is recoverable over the remaining life of the primary asset in the group, and the long-lived assets for use pass the Step 1 recoverability test of ASC 360-10-35, Impairment or Disposal of Long-Lived Assets.

11. CURRENT LIABILITIES

Current liabilities, other than income taxes and current maturities of long-term debt, consisted of the following components:

	December 30, 2012		December 25, 2011
	(In thousands)
Accounts payable:
Trade accounts	$	252,644	$	294,662
Book overdrafts		58,066		32,958
Other payables		1,655		1,244
Total accounts payable		312,365		328,864
Accounts payable to JBS USA, LLC		13,436		11,653
Accrued expenses and other current liabilities:
Compensation and benefits		77,376		72,328
Interest and debt-related fees		10,740		13,809
Insurance and self-insured claims		108,806		102,256
Commodity derivative liabilities:
Futures		1,530		2,120
Options		—		603
Other accrued expenses		85,088		89,855
Pre-petition obligations		—		826
Total accrued expenses and other current liabilities		283,540		281,797
	$	609,341	$	622,314

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS

Long-term debt consisted of the following components:

	Maturity	December 30, 2012			December 25, 2011
		(In thousands)
Senior notes, at 7 ⅞%, net of unaccreted discount	2018	$	497,301		$	496,846
The U.S. Credit Facility Term B-1 note payable at
4.8125%	2014		275,443			275,443
The U.S. Credit Facility Term B-2 note payable at
9.00%	2014		283,647			299,145
The U.S. Credit Facility with one revolving note payable on
which the Company had funds borrowed at 4.32% and
6.25%	2014		103,600			347,300
Mexico Credit Facility (defined below) with notes payable at TIIE Rate
plus 2.25% or Equilibrium Interbank Interest Rate plus 4.5%	2014		—			—
Subordinated Loan Agreement (defined below) with one
term note payable at 9.845%	2015		—			50,000
Other	Various		4,765			4,878
Long-term debt			1,164,756			1,473,612
Less: Current maturities of long-term debt			(15,886	)		(15,611	)
Long-term debt, less current maturities		$	1,148,870		$	1,458,001

Senior and Subordinated Notes

At December 30, 2012, the Company had an aggregate principal balance of $500.0 million of 7 ⅞% senior notes due 2018 (the “2018 Notes”) outstanding that are registered under the Securities Act of 1933. The 2018 Notes are unsecured obligations of the Company and are guaranteed by one of the Company’s subsidiaries. Interest is payable on December 15 and June 15 of each year, commencing on June 15, 2011. The indenture governing the 2018 Notes contains various covenants that may adversely affect our ability, among other things, to incur additional indebtedness, incur liens, pay dividends or make certain restricted payments, consummate certain asset sales, enter into certain transactions with JBS USA and our other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of our assets. Additionally, we have an aggregate principal balance of $3.9 million of 7 ⅝% senior unsecured notes, 8 ⅜% senior subordinated unsecured notes and 9 ¼% senior unsecured notes outstanding at December 30, 2012.

JBS Subordinated Loan Agreement

On June 23, 2011, the Company entered into a Subordinated Loan Agreement with JBS USA (the “Subordinated Loan Agreement”), which provided an aggregate commitment of $100.0 million. On June 23, 2011, JBS USA made a term loan to the Company in the principal amount of $50.0 million. Pursuant to the terms of the Subordinated Loan Agreement, we also agreed to reimburse JBS USA up to $56.5 million for draws upon any letters of credit issued for JBS USA’s account that support certain obligations of the Company or its subsidiaries. On December 16, 2011, the Company and JBS USA executed an amendment to the Subordinated Loan Agreement that, among other things, provided that if the Company consummated a stock rights offering (the “Rights Offering”) that allowed stockholders of record as of January 17, 2012 to purchase an aggregate 44,444,444 shares of the Company’s common stock on or before March 24, 2012, the loan commitment under the Subordinated Loan Agreement would be terminated. The Company consummated the Rights Offering on February 29, 2012. Further, under the U.S. Credit Facility (as defined below), following the consummation of the Rights Offering, (i) the Company, at its option, was permitted to prepay the outstanding $50.0 million term loan under the Subordinated Loan Agreement and (ii) the existing commitment of JBS USA to make an additional $50.0 million term loan to the Company under the Subordinated Loan Agreement would be terminated. On March 7, 2012, the Company repaid the outstanding $50.0 million term loan under the Subordinated Loan Agreement, plus accrued interest, with proceeds received from the Rights Offering and the remaining commitment of JBS USA to make loans under the Subordinated Loan Agreement was terminated.

JBS USA agreed to arrange for letters of credit to be issued on its account in the amount of $56.5 million to an insurance company serving the Company in order to allow that insurance company to return cash it held as collateral against potential workers compensation, auto and general liability claims. In return for providing this letter of credit, the Company has agreed to reimburse JBS USA for the letter of credit cost the Company would otherwise incur under its U.S. Credit Facility (as defined below). The total amount paid by the Company for 2012 and 2011 costs, to reimburse JBS USA, was $2.2 million and $0.4 million, respectively. As of December 30, 2012, the Company has accrued an obligation of $0.2 million to reimburse JBS USA for letter of credit costs incurred on its behalf.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. Credit Facility

Pilgrim’s and certain of its subsidiaries have entered into a credit agreement (the “U.S. Credit Facility”) with CoBank ACB, as administrative agent and collateral agent, and other lenders party thereto, which currently provides a $700.0 million revolving credit facility and a Term B facility. The U.S. Credit Facility also includes an accordion feature that allows us, at any time, to increase the aggregate revolving loan commitment by up to an additional $100.0 million and to increase the aggregate Term B loans commitment by up to an additional $400.0 million, in each case subject to the satisfaction of certain conditions, including obtaining the lenders’ agreement to participate in the increase and an aggregate limit on all commitments under the U.S. Credit Facility of $1.85 billion. On April 22, 2011, we increased the amount of the sub-limit for swingline loans under the U.S. Credit Facility to $100.0 million. The revolving loan commitment and the Term B loans will mature on December 28, 2014.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Mexico Credit Facility

On October 19, 2011, Avícola Pilgrim’s Pride de México, S.A. de C.V. , Pilgrim’s Pride S. de R.L. de C.V. and certain Mexican subsidiaries entered into an amended and restated credit agreement (the “Mexico Credit Facility”) with ING Bank (México), S.A. Institución de Banca Múltiple, ING Grupo Financiero, as lender and ING Capital LLC, as administrative agent. The Mexico Credit Facility has a final maturity date of September 25, 2014. The Mexico Credit Facility is secured by substantially all of the assets of the Company’s Mexico subsidiaries. As of December 30, 2012, the U.S. dollar-equivalent of the loan commitment under the Mexico Credit Facility was $42.8 million. There were no outstanding borrowings under the Mexico Credit Facility at December 30, 2012.

Early Extinguishment of Debt

The Company did not recognize any expense related to the early extinguishment of debt in 2012 or 2011. The Company incurred expenses of $11.7 million related to the early extinguishment of debt in 2010. These expenses included costs associated with the elimination of unamortized capitalized finance charges related to the Term A loan and a portion of the Term B loan of the U.S. Credit Facility.

Other Disclosures

Annual maturities of long-term debt for the five years subsequent to December 30, 2012 are as follows (in thousands):

2013	$	15,886
2014		647,327
2015		263
2016		86
2017		3,611
Thereafter		500,282
Total maturities		1,167,455
Less: Amount representing original issue discount, net of accretion		(2,699	)
Total long-term debt	$	1,164,756

Total interest expense was $104.9 million, $111.5 million and $105.6 million in 2012, 2011 and 2010, respectively. Interest related to new construction capitalized in 2012, 2011 and 2010 was $1.7 million, $3.4 million and $1.3 million, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. INCOME TAXES

Income (loss) from continuing operations before income taxes by jurisdiction is as follows:

	2012		2011			2010
	(In thousands)
U.S.	$	62,332	$	(481,048	)	$	(7,594	)
Foreign		90,730		(6,078	)		74,082
Total	$	153,062	$	(487,126	)	$	66,488

The components of income tax expense (benefit) are set forth below:

	2012			2011			2010
	(In thousands)
Current:
Federal	$	(28,883	)	$	741		$	28,156
Foreign		9,279			13,132			25,815
State and other		(211	)		1,914			(8,549	)
Total current		(19,815	)		15,787			45,422
Deferred:
Federal		(293	)		(9,128	)		(27,823	)
Foreign		(835	)		1,033			(41,212	)
State and other		(37	)		872			(225	)
Total deferred		(1,165	)		(7,223	)		(69,260	)
	$	(20,980	)	$	8,564		$	(23,838	)

The effective tax rate for continuing operations for 2012 was (13.7)% compared to (1.8)% for 2011. The effective tax rate for 2012 differed from 2011 primarily as a result of decreases in the valuation allowance and reserves for unrecognized tax benefits during 2012 and increases in the valuation allowance and reserves for unrecognized tax benefits during 2011.

The effective tax rate for continuing operations for 2010 was (35.9)%. The effective tax rate for 2011 differed from 2010 primarily as a result of an increase in the valuation allowance during 2011 and the benefit in 2010 from the deconsolidation for tax purposes of the Mexico operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table reconciles the statutory U.S. federal income tax rate to the Company’s effective income tax rate:

	2012			2011			2010
Federal income tax rate	35.0		%	35.0		%	35.0		%
State tax rate, net	2.5			2.6			0.8
Permanent items	1.5			(0.8	)		13.6
Permanent items – reorganization costs	—			0.1			(14.1	)
Domestic production activity	—			(0.8	)		(7.3	)
Difference in U.S. statutory tax rate and foreign
country effective tax rate	(3.3	)		—			(7.8	)
Book income of consolidated entities
attributable to noncontrolling interests	—			—			(1.7	)
Tax credits	(2.3	)		1.8			(7.6	)
Change in reserve for unrecognized tax
benefits	(10.4	)		(2.5	)		13.9
Change in valuation allowance	(34.4	)		(35.3	)		(10.9	)
Change in tax legislation	—			0.9			(44.3	)
Other	(2.3	)		(2.8	)		(5.5	)
Total	(13.7	)	%	(1.8	)	%	(35.9	)	%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant components of the Company’s deferred tax liabilities and assets are as follows:

	December 30,			December 25,
	2012			2011
	(In thousands)
Deferred tax liabilities:
PP&E and identified intangible assets	$	124,921		$	125,310
Inventories		107,420			88,779
Insurance claims and losses		28,701			20,890
All other current		24,857			19,026
All other noncurrent		9,957			10,905
Total deferred tax liabilities		295,856			264,910
Deferred tax assets:
Net operating losses		244,151			251,328
Foreign net operating losses		19,113			37,932
Credit carry forwards		60,129			57,781
Allowance for doubtful accounts		5,583			6,039
Accrued liabilities		41,808			48,578
All other current		581			—
All other noncurrent		3,627			8,185
Derivatives		—			6
Workers compensation		45,320			36,318
Pension and other postretirement benefits		56,847			40,930
Total deferred tax assets		477,159			487,097
Valuation allowance		(188,354	)		(230,336	)
Net deferred tax assets		288,805			256,761
Net deferred tax liabilities	$	7,051		$	8,149

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected future taxable income and tax-planning strategies in making this assessment.

As of December 30, 2012, the Company does not believe it has sufficient positive evidence to conclude that realization of its federal and state net deferred tax assets is more likely than not to be realized. The decrease in valuation allowance of $42.0 million during 2012 was primarily due to a decrease in federal, state and foreign net operating losses. As of December 30, 2012, the Company’s valuation allowance is $188.4 million, of which $168.3 million relates to federal and state net operating losses and credit carry forwards and $20.1 million relates to Mexico operations.

As of December 30, 2012, the Company had U.S. federal net operating loss carry forwards of approximately $594.7 million that will begin to expire in 2026 and state net operating loss carry forwards of approximately $795.8 million that will begin to expire in 2013. The Company also had Mexico net operating loss carry forwards at December 30, 2012 of approximately $63.7 million that will begin to expire in 2013.

As of December 30, 2012, the Company had approximately $56.5 million of federal tax credit carry forwards that will begin to expire in 2024 and $3.6 million of state tax credit carry forwards that will begin to expire in 2013.

On November 6, 2009, H.R. 3548 was signed into law and included a provision that allowed most business taxpayers an increased carry back period for net operating losses incurred in 2008 or 2009. As a result, during 2009 the Company utilized $547.7 million of its U.S. federal net operating losses under the expanded carry back provisions of H.R. 3548 and filed a claim for refund of $169.7 million. The Company received $122.6 million in refunds from the Internal Revenue Service (“IRS”) from the carry back claims during 2010. The Company anticipates receipt of the remainder of its claim pending resolution of its litigation with the IRS. See “Note 17. Commitments and Contingencies” for additional information.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Section 382 of the Internal Revenue Code of 1986, as amended, imposes an annual limit on the ability of a corporation that undergoes an “ownership change” to use its U.S. net operating losses and tax credits to reduce its tax liability. The Company experienced an ownership change in December 2009, but believes that utilization of the U.S. net operating losses and tax credits will not be hindered by the Section 382 limitation.

The Company has not provided any deferred income taxes on the undistributed earnings of its Mexico subsidiaries as of December 30, 2012 based upon the determination that such earnings will be indefinitely reinvested. It is not practicable to determine the amount of incremental taxes that might arise if these earnings were to be remitted. For activity after fiscal year ended September 2008, the Company is not permanently reinvesting its earnings in Puerto Rico. Therefore, the earnings generated in Puerto Rico have U.S. taxes provided on the earnings as if the earnings were distributed.

During 2011, the Company completed its deconsolidation of its Mexico operations from a tax perspective to help minimize the impact of the Mexico tax reform that became effective January 1, 2010. As a result, all of the Mexico subsidiaries started filing separate returns in 2011. The deconsolidation reduced the accrued taxes that had been previously recognized under the consolidated filing status as it eliminated recapturing certain taxes required under the new consolidation laws. As a result of the deconsolidation, the Company recognized a benefit of $4.3 million and $29.5 million during 2011 and 2010, respectively, which reduced the additional taxes that had been previously accrued as of December 27, 2009, resulting in a total net benefit of $18.4 million.

The Company follows the provisions of ASC 740-10-25 that clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax benefit is required to meet before being recognized in the financial statements.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

	December 30,			December 25,
	2012			2011
	(In thousands)
Unrecognized tax benefits, beginning of year	$	64,808		$	66,674
Increase as a result of tax positions taken during the current year		926			6,368
Increase as a result of tax positions taken during prior years		119			13,964
Decrease as a result of tax positions taken during prior years		(27,619	)		(22,198	)
Decrease for lapse in statute of limitations		(13,670	)		—
Decrease relating to settlements with taxing authorities		(7,921	)		—
Unrecognized tax benefits, end of year	$	16,643		$	64,808

Included in unrecognized tax benefits of $16.6 million at December 30, 2012, was $10.9 million of tax benefits that, if recognized, would reduce the Company’s effective tax rate. It is not practicable at this time to estimate the amount of unrecognized tax benefits that will change in the next twelve months.

The Company recognizes interest and penalties related to unrecognized tax benefits in its provision for income taxes. As of December 30, 2012, the Company had recorded a liability of $9.9 million for interest and penalties. During 2012, accrued interest and penalty amounts related to uncertain tax positions decreased by $14.0 million.

The Company operates in the U.S. (including multiple state jurisdictions), Puerto Rico and Mexico. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations for years prior to 2008 and is no longer subject to Mexico income tax examinations by taxing authorities for years prior to 2007.

The Company is currently working with the IRS through the normal processes and procedures that are available to all taxpayers outside of bankruptcy to resolve the IRS’ proof of claim. In connection, the Company has filed various petitions in the United States Tax Court (“Tax Court”) in response to the Notices of Deficiency that were issued to the Company. On December 12, 2012, the Company entered into two Stipulation of Settled Issues (“Stipulation” or “Stipulations”) with the IRS that resolved a portion of the IRS’ proof of claim. The Company is still working with the IRS to resolve the portion of the IRS’ amended proof of claim relating to Gold Kist’s tax year ended June 20, 2004. See “Note 17. Commitments and Contingencies” for additional information.

14. PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company sponsors programs that provide retirement benefits to most of its employees. These programs include qualified defined benefit pension plans, nonqualified defined benefit retirement plans, a defined benefit postretirement life insurance plan, and defined contribution retirement savings plans. Under all of our retirement plans, the Company’s expenses were $8.7 million, $7.9 million and $9.5 million in 2012, 2011 and 2010, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company used a year-end measurement date of December 30, 2012 for its pension and postretirement benefits plans. Certain disclosures are listed below. Other disclosures are not material to the financial statements.

Qualified Defined Benefit Pension Plans

The Company sponsored three qualified defined benefit pension plans:

The Pilgrim’s Pride Retirement Plan for Union Employees (the “Union Plan”),
The Pilgrim’s Pride Retirement Plan for El Dorado Union Employees (the “El Dorado Plan”), and
The Pilgrim’s Pride Pension Plan for Legacy Gold Kist Employees (the “GK Pension Plan”).

The Union Plan covers certain locations or work groups within PPC. The El Dorado Plan was spun off from the Union Plan effective January 1, 2008 and covered certain eligible locations or work groups within the Company. This plan was settled in 2010. The GK Pension Plan covers certain eligible U.S. employees who were employed at locations that the Company purchased through its acquisition of Gold Kist Inc. (“Gold Kist”) in 2007. Participation in the GK Pension Plan was frozen as of February 8, 2007 for all participants with the exception of terminated vested participants who are or may become permanently and totally disabled. The plan was frozen for that group as of March 31, 2007.

Nonqualified Defined Benefit Pension Plans

The Company sponsored two nonqualified defined benefit retirement plans:

The Former Gold Kist Inc. Supplemental Executive Retirement Plan (the “SERP Plan”), and
The Former Gold Kist Inc. Directors’ Emeriti Retirement Plan (the “Directors’ Emeriti Plan”).

Pilgrim’s Pride assumed sponsorship of the SERP Plan and Directors’ Emeriti Plan through its acquisition of Gold Kist in 2007. The SERP Plan provides benefits on compensation in excess of certain Internal Revenue Code limitations to certain former executives with whom Gold Kist negotiated individual agreements. Benefits under the SERP Plan were frozen as of February 8, 2007. The Directors’ Emeriti Plan provides benefits to former Gold Kist directors.

Defined Benefit Postretirement Life Insurance Plan

The Company currently sponsors one defined benefit postretirement life insurance plan named the Gold Kist Inc. Retiree Life Insurance Plan (the “Insurance Plan”).

Pilgrim’s Pride also assumed defined benefit postretirement medical and life insurance obligations, including the Insurance Plan, through its acquisition of Gold Kist in 2007. In January 2001, Gold Kist began to substantially curtail its programs for active employees. On July 1, 2003, Gold Kist terminated medical coverage for retirees age 65 or older, and only retired employees in the closed group between ages 55 and 65 could continue their coverage at rates above the average cost of the medical insurance plan for active employees. These retired employees all reached the age of 65 in 2012 and liabilities of the postretirement medical plan then ended.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Defined Benefit Plans Obligations and Assets

The change in benefit obligation, change in fair value of plan assets, funded status and amounts recognized in the Consolidated Balance Sheets for these plans were as follows:

	Pension Benefits						Other Benefits
	2012			2011			2012			2011
Change in projected benefit obligation:	(In thousands)
Projected benefit obligation, beginning of year	$	167,931		$	155,653		$	1,961		$	2,127
Service cost		51			173			—			—
Interest cost		8,272			8,213			96			112
Actuarial losses (gains)		24,872			12,072			159			(170	)
Benefits paid		(6,692	)		(8,180	)		—			(108	)
Curtailments and settlements		—			—			(283	)		—
Projected benefit obligation, end of year	$	194,434		$	167,931		$	1,933		$	1,961

	Pension Benefits						Other Benefits
	2012			2011			2012			2011
Change in plan assets:	(In thousands)
Fair value of plan assets, beginning of year	$	81,193		$	84,863		$	—		$	—
Actual return on plan assets		8,013			(3,247	)		—			—
Contributions by employer		9,769			7,757			283			108
Benefits paid		(6,692	)		(8,180	)		—			(108	)
Curtailments and settlements		—			—			(283	)		—
Fair value of plan assets, end of year	$	92,283		$	81,193		$	—		$	—

	Pension Benefits						Other Benefits
	2012			2011			2012			2011
Funded status:	(In thousands)
Unfunded benefit obligation, end of year	$	(102,151	)	$	(86,738	)	$	(1,933	)	$	(1,961	)

	Pension Benefits						Other Benefits
	2012			2011			2012				2011
Amounts recognized in the Consolidated Balance Sheets
at end of year:	(In thousands)
Current liability	$	(6,656	)	$	(10,993	)	$	(158	)	$	(166	)
Long-term liability		(95,495	)		(75,745	)		(1,775	)		(1,795	)
Recognized liability	$	(102,151	)	$	(86,738	)	$	(1,933	)	$	(1,961	)

	Pension Benefits						Other Benefits
	2012			2011			2012			2011
Amounts recognized in accumulated other
comprehensive loss at end of year:	(In thousands)
Net actuarial loss (gain)	$	53,368		$	31,108		$	(49	)	$	(217	)

The accumulated benefit obligation for our defined benefit pension plans was $194.4 million and $167.9 million at December 30, 2012 and December 25, 2011, respectively. Each of our defined benefit pension plans had accumulated benefit obligations that exceeded the fair value of plan assets at December 30, 2012 and December 25, 2011, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Net Periodic Benefit Cost (Income)

Net pension and other postretirement costs included the following components:

	Pension Benefits									Other Benefits
	2012			2011			2010			2012			2011		2010
	(In thousands)
Service cost	$	51		$	173		$	165		$	—		$	—	$	—
Interest cost		8,272			8,213			8,659			96			112		115
Estimated return on plan assets		(5,867	)		(6,177	)		(6,117	)		—			—		—
Curtailment loss		—			16			36			—			—		—
Settlement loss (gain)		—			—			1,504			(7	)		—		—
Amortization of prior service cost		—			3			3			—			—		—
Amortization of net loss (gain)		465			96			1			(2	)		—		—
Net cost	$	2,921		$	2,324		$	4,251		$	87		$	112	$	115

Economic Assumptions

The weighted average assumptions used in determining pension and other postretirement plan information were as follows:

	Pension Benefits						Other Benefits
	2012		2011		2010		2012		2011		2010
Benefit obligation:
Discount rate	4.22	%	5.09	%	5.50	%	4.22	%	5.09	%	5.50	%
Rate of compensation increase	NA		3.00	%	3.00	%	NA		NA		NA
Net pension and other postretirement cost:
Discount rate	5.09	%	5.50	%	5.69	%	5.09	%	5.50	%	5.69	%
Rate of compensation increase	3.00	%	3.00	%	3.00	%	NA		NA		NA
Expected return on plan assets	7.50	%	7.75	%	7.67	%	NA		NA		NA

The expected rate of return on plan assets was determined based on the current interest rate environment and historical market premiums relative to the fixed income rates of equities and other asset classes. We also take into consideration anticipated asset allocations, investment strategies and the views of various investment professionals when developing this rate.

Plan Assets

The following table reflects the pension plans’ actual asset allocations:

	2012		2011
Common collective trusts that invest in equity securities	71	%	71	%
Common collective trusts that invest in fixed income securities	29	%	29	%
Total assets	100	%	100	%

Absent regulatory or statutory limitations, the target asset allocation for the investment of the assets for our ongoing pension plans is 30% in fixed income securities and 70% in equity securities. The plans only invest in fixed income and equity instruments for which there is a ready public market. We develop our expected long-term rate of return assumptions based on the historical rates of returns for equity and fixed income securities of the type in which our plans invest.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The fair value measurements of plan assets fell into the following levels of the fair value hierarchy as of December 30, 2012 and December 25, 2011:

	2012								2011
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(In thousands)
Common collective trusts the invest in:
Equity securities	$	—	$	65,145	$	—	$	65,145	$	—	$	57,495	$	—	$	57,495
Fixed income securities		—		27,138		—		27,138		—		23,698		—		23,698
Total	$	—	$	92,283	$	—	$	92,283	$	—	$	81,193	$	—	$	81,193

The valuation of plan assets in Level 2 is determined using a market approach based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for substantially the full term of the financial instrument. Level 2 securities primarily include equity and fixed income securities funds.

Benefit Payments

The following table reflects the benefits as of December 30, 2012 expected to be paid in each of the next five years and in the aggregate for the five years thereafter from our pension and other postretirement plans. Because our pension plans are primarily funded plans, the anticipated benefits with respect to these plans will come primarily from the trusts established for these plans. Because our other postretirement plans are unfunded, the anticipated benefits with respect to these plans will come from our own assets.

	Pension
	Benefits		Other Benefits
	(In thousands)
2013	$	12,040	$	158
2014		11,774		160
2015		11,307		161
2016		11,371		162
2017		11,304		162
2018-2022		53,511		763
Total	$	111,307	$	1,566

We anticipate contributing $6.7 million and $0.2 million, as required by funding regulations or laws, to our pension and other postretirement plans, respectively, during 2013.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unrecognized Benefit Amounts in Accumulated Other Comprehensive Loss (Income)

The amounts in accumulated other comprehensive income (loss) that were not recognized as components of net periodic benefits cost and the changes in those amounts are as follows:

	Pension Benefits									Other Benefits
	2012			2011			2010			2012			2011			2010
	(In thousands)
Net actuarial loss (gain),
beginning of year	$	31,108		$	9,708		$	10,017		$	(217	)	$	(47	)	$	(50	)
Amortization		(465	)		(96	)		(1	)		2			—			—
Curtailment and settlement
adjustments		—			—			(1,768	)		7			—			—
Actuarial loss (gain)		24,872			12,072			6,675			159			(170	)		3
Asset loss (gain)		(2,147	)		9,424			(5,215	)		—			—			—
Net actuarial loss (gain),
end of year	$	53,368		$	31,108		$	9,708		$	(49	)	$	(217	)	$	(47	)
Net prior service cost,
beginning of year	$	—		$	19		$	58		$	—		$	—		$	—
Amortization		—			(19	)		(39	)		—			—			—
Net prior service cost, end
of year	$	—		$	—		$	19		$	—		$	—		$	—

The Company expects to recognize in net pension cost throughout 2013 an actuarial loss of $1.1 million that was recorded in accumulated other comprehensive income at December 30, 2012.

Defined Contribution Plans

The Company currently sponsors two defined contribution retirement savings plans:

The Pilgrim’s Pride Retirement Savings Plan (the “RS Plan”), a Section 401(k) salary deferral plan, and
The To-Ricos Employee Savings and Retirement Plan (the “To-Ricos Plan”), a Section 1165(e) salary deferral plan.

Under the RS Plan, eligible U.S. employees may voluntarily contribute a percentage of their compensation. The Company matches up to 30.0% of the first 2.14% to 6.00% of salary based on the salary deferral and compensation levels up to $245,000. The To-Ricos Plan is maintained for certain eligible Puerto Rican employees. Under the To-Ricos Plan, eligible employees may voluntarily contribute a percentage of their compensation and there are various company matching provisions.

The Company also maintains three postretirement plans for eligible Mexico employees as required by Mexico law that primarily cover termination benefits.

The Company’s expenses related to its defined contribution plans totaled $5.7 million, $5.5 million and $5.2 million in 2012, 2011 and 2010, respectively.

Certain retirement plans that the Company sponsors invest in a variety of financial instruments. Certain postretirement funds in which the Company participates hold significant amounts of mortgage-backed securities. However, none of the mortgages collateralizing these securities are considered subprime.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. STOCKHOLDERS’ EQUITY

Rights Offering

In January 2012, Pilgrim’s commenced the Rights Offering for stockholders of record as of January 17, 2012 (the “Record Date”). The basic subscription privilege gave stockholders the option to purchase 0.2072 shares of Pilgrim’s common stock, rounded up to the next largest whole number, at a subscription price of $4.50 per share for each share of Pilgrim’s common stock they owned as of the Record Date. The multiplier was determined by dividing the 44,444,444 shares being offered in the Rights Offering by the total number of shares owned by all stockholders on the Record Date. Those stockholders that exercised their basic subscription privilege in full also received an over-subscription privilege that afforded them the opportunity to purchase additional shares at the subscription price of $4.50 per share from a pool of the shares left over had all stockholders not elected to exercise their basic subscription privileges in full. JBS USA committed to participate in the Rights Offering and exercise its basic and over-subscription privileges in full. The last day a stockholder could exercise either their basic subscription rights or their over-subscription rights was February 29, 2012. On March 7, 2012, the Company issued 44,444,444 shares of common stock to stockholders that exercised their basic subscription privileges and over-subscription privileges under the Rights Offering. Gross proceeds received under the Rights Offering totaled $200.0 million. The Company incurred costs directly attributable to the Rights Offering of $1.7 million that it deferred and charged against the proceeds of the Rights Offering in Additional Paid-in Capital on the Consolidated Balance Sheet. The Company used the net proceeds of $198.3 million for additional working capital to improve its capital position and for general corporate purposes. Pilgrim’s also used a portion of the net proceeds to repay the outstanding principal amount of $50.0 million, plus accrued interest, of its subordinated debt owed to JBS USA and to repay indebtedness under the U.S. Credit Facility.

The Rights Offering contained a subscription price that was less than the fair value of the Company’s common stock on the last day the rights could be exercised. This price discount is considered a bonus element similar to a stock dividend. Because of this bonus element, the Company adjusted both the weighted average basic and diluted shares outstanding as reported in the Quarterly Report on Form 10-Q filed with the SEC on April 29, 2011 by multiplying those weighted average shares by an adjustment factor that represented the $6.40 fair value of a share of the Company’s common stock immediately prior to the exercise of the basic and over-subscription privileges under the Rights Offering divided by the $6.07 theoretical ex-rights fair value of a share of the Company’s common stock immediately prior to the exercise of the basic and over-subscription privileges under the Rights Offering. Weighted average basic and diluted shares outstanding and net loss per weighted average basic and diluted share for 2011 as originally reported and as adjusted for this bonus element were as follows:

	As Originally Reported			As Adjusted			Effect of Change
	(In thousands, except per share data)
2011:
Weighted average basic shares outstanding		214,282			224,996			10,714
Weighted average diluted shares outstanding		214,282			224,996			10,714
Net loss per weighted average basic share	$	(2.32	)	$	(2.21	)	$	0.11
Net loss per weighted average diluted share	$	(2.32	)	$	(2.21	)	$	0.11
2010:
Weighted average basic shares outstanding		214,282			224,996			10,714
Weighted average diluted shares outstanding		214,282			224,996			10,714
Net income per weighted average basic share	$	0.41		$	0.39		$	(0.02	)
Net income per weighted average diluted share	$	0.41		$	0.39		$	(0.02	)

Stock Compensation

The Company granted 200,000 restricted shares of its common stock to William W. Lovette effective January 3, 2011 in connection with the employment agreement with Mr. Lovette. On January 5, 2012, the Company issued the 200,000 shares to allow Mr. Lovette participation in the Rights Offering. We delivered the first tranche of 100,000 shares to Mr. Lovette on January 3, 2013. Restrictions on the second tranche of 100,000 shares will lapse on January 3, 2014, subject to Mr. Lovette’s continued employment with the Company through the applicable lapse date. See “Note 18. Incentive Compensation” to the Consolidated Financial Statements for additional information.

The Company granted 72,675 restricted shares of its common stock to Fabio Sandri, the Company’s Chief Financial Officer, effective August 27, 2012 as compensation for services to be rendered. Restrictions on these shares will lapse on April 27, 2014, subject to Mr. Sandri’s continued employment with the Company through the applicable lapse date. See “Note 18. Incentive Compensation” to the Consolidated Financial Statements for additional information.

Other than the above arrangements, the Company does not have any other outstanding stock compensation grants.

Restrictions on Retained Earnings

The U.S. Credit Facility prohibits us from paying dividends on the common stock of the Company. Further, the indenture governing the 2018 Notes restricts, but does not prohibit, the Company from declaring dividends.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Antidilutive Common Stock Equivalents

Due to the net loss incurred during 2011, the Company did not include 12,094 common stock equivalents in the calculation of the denominator used for net loss per weighted average diluted common share outstanding as these common stock equivalents would have been antidilutive.

Other Comprehensive Income

The amounts of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, are as follows:

Expense (Benefit)	2012			2011			2010
	(In thousands)
Unrealized holding gains (losses) on available-for-sale securities	$	(6	)	$	(658	)	$	(66	)
Recognition in earnings of a previously unrecognized gain on
derivative instrument designated as a cash flow hedge		—			—			(1,521	)
Gains (losses) associated with pension and other postretirement benefits		—			—			3,934
	$	(6	)	$	(658	)	$	2,347

Accumulated Other Comprehensive Loss

As of December 30, 2012 and December 25, 2011, the balance of each component of accumulated other comprehensive loss is as follows:

Component	2012			2011
	(In thousands)
Unrealized holding gains on available-for-sale securities, net of tax	$	—		$	12
Losses associated with pension and other postretirement benefits, net of tax		(68,511	)		(46,082	)
	$	(68,511	)	$	(46,070	)

16. RELATED PARTY TRANSACTIONS

Pilgrim’s has been and, in some cases, continues to be a party to certain transactions with affiliated persons and our current and former directors and executive officers. Company management has analyzed the terms of all contracts executed with related parties and believes that they are substantially similar to, and contain terms no less favorable to us than, those obtainable from unaffiliated parties.

On December 28, 2009, JBS USA became the holder of the majority of the common stock of the Company. Until March 26, 2012, Lonnie A. “Bo” Pilgrim (the “Founder Director”) and certain entities related to the Founder Director collectively owned the second-largest block of our common stock. On March 12, 2012, the Founder Director resigned as a director of Pilgrim’s. On March 26, 2012, the Founder Director and certain entities related to the Founder Director sold 18,924,438 shares of our common stock to JBS USA.

Transactions with JBS USA, JBS USA, LLC (a JBS USA subsidiary) and the former Founder Director recognized in the Consolidated Statements of Operations are summarized below:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	2012		2011		2010
	(In thousands)
JBS USA, LLC:
Purchases from JBS USA, LLC	$	69,048	$	173,081	$	93,898
Expenditures paid by JBS USA, LLC on behalf of Pilgrim’s^(a)		61,353		26,331		26,818
Sales to JBS USA, LLC		206,720		117,909		5,422
Expenditures paid by Pilgrim’s on behalf of JBS USA, LLC^(a)		4,134		1,312		482
Sale of PFS Distribution business assets to JBS USA, LLC^(f)		—		24,479		—
Sale of pork business assets to JBS USA, LLC^(g)		—		13,000		—
Founder Director:
Sale of airplane hangars and undeveloped land to Founder Director^(e)		—		—		1,450
Purchase of commercial egg property from Founder Director^(b)		—		—		12,000
Loan guaranty fees paid to Founder Director^(c)		—		—		8,928
Contract grower pay paid to Founder Director		297		1,132		1,249
Consulting fee paid to Founder Director^(d)		374		1,497		1,497
Board fees paid to Founder Director^(d)		45		154		105
Lease payments on commercial egg property paid to Founder Director		—		—		125
Sales to Founder Director		1		22		28

(a)		On January 19, 2010, the Company entered into an agreement with JBS USA, LLC in order to allocate costs associated with JBS USA, LLC’s procurement of SAP licenses and maintenance services for its combined companies. Under this agreement, the fees associated with procuring SAP licenses and maintenance services are allocated between the Company and JBS USA, LLC in proportion to the percentage of licenses used by each company. The agreement expires on the date of expiration, or earlier termination, of the underlying SAP license agreement. On May 5, 2010, the Company also entered into an agreement with JBS USA, LLC in order to allocate the costs of supporting the business operations by one consolidated corporate team, which have historically been supported by their respective corporate teams. Expenditures paid by JBS USA, LLC on behalf of the Company will be reimbursed by the Company and expenditures paid by the Company on behalf of JBS USA, LLC will be reimbursed by JBS USA, LLC. This agreement expires on May 5, 2015.
(b)		On February 23, 2010, the Company purchased a commercial egg property from the Founder Director for $12.0 million. Prior to the purchase, the Company leased the commercial egg property including all of the ongoing costs of the operation from the Founder Director.
(c)		Prior to December 28, 2009, Pilgrim Interests, Ltd., an entity related to the Founder Director, guaranteed a portion of the Company’s debt obligations. In consideration of such guarantees, the Company would pay Pilgrim Interests, Ltd. a quarterly fee equal to 0.25% of one-half of the average aggregate outstanding balance of such guaranteed debt. Pursuant to the terms of the financing in place during the term of the Company’s Chapter 11 case, the Company could not pay any loan guarantee fees without the consent of the lenders party thereto. At December 27, 2009, the Company had accrued loan guaranty fees totaling $8.9 million. The Company paid these fees after emerging from bankruptcy on December 28, 2009.
(d)		In connection with the Company’s plan of reorganization, the Company and the Founder Director entered into a consulting agreement, which became effective on December 28, 2009. The terms of the consulting agreement included, among other things, that the Founder Director (i) provide services to the Company that are comparable in the aggregate with the services provided by him to the Company prior to December 28, 2009, (ii) be appointed to the Board of Directors of the Company and during the term of the consulting agreement will be nominated for subsequent terms on the board, (iii) be compensated for services rendered to the Company at a rate of $1.5 million per year for a term of five years, (iv) be subject to customary non-solicitation and non-competition provisions and (v) be, along with his spouse, provided with medical benefits (or will be compensated for medical coverage) that are comparable in the aggregate to the medical benefits afforded to employees of the Company.
(e)		On June 9, 2010, the Company sold two airplane hangars and undeveloped land to the Founder Director for $1.45 million.
(f)		On October 7, 2011, the Company and certain of its wholly owned subsidiaries entered into an agreement with JBS USA, LLC and JBS Trading International, Inc. to sell certain real property, tractor trailers, inventory, equipment, accounts receivable and other assets related to our distribution and transportation businesses. See below for additional information regarding this sale.
(g)		On October 26, 2011, the Company entered into an agreement with Swift Pork Company, a wholly owned subsidiary of JBS USA, LLC, to sell certain real property, tractor trailers, inventory, livestock, equipment, accounts receivable and other assets related to our pork business. See paragraph below for additional information regarding this sale.

As of December 30, 2012 and December 25, 2011, the outstanding payable to JBS USA was $13.4 million and $11.7 million, respectively. As of December 30, 2012 and December 25, 2011, the outstanding receivable from JBS USA, LLC was $1.5 million and $21.2 million, respectively. As of December 30, 2012, approximately $3.8 million of goods from JBS USA, LLC were in transit and not reflected on our Consolidated Balance Sheet.

On March 2, 2011, the Company agreed to purchase the home of William W. Lovette in Arkansas on reasonable and customary commercial terms and at a purchase price not to exceed approximately $2.1 million. Consequently, Mr. Lovette transferred all of the rights and the Company assumed all obligations relative to the property for a purchase price of $2.1 million. His home was sold on July 23, 2012.

On October 7, 2011, the Company and certain of its wholly owned subsidiaries entered into an agreement with JBS USA, LLC and JBS Trading International, Inc. to sell certain real property, tractor trailers, inventory, equipment, accounts receivable and other assets related to our distribution and transportation businesses. The purchase price for these assets was $24.5 million, paid in cash, and the transaction closed on November 18, 2011. Company management analyzed the terms of the contract and believe that they were substantially similar to and contain terms no less favorable to us than those obtainable from unaffiliated parties. Additionally, the Audit Committee of the Company’s Board of Directors reviewed and approved the agreement.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On October 26, 2011, the Company entered into an agreement with Swift Pork Company, a wholly owned subsidiary of JBS USA, LLC to sell certain real property, tractor trailers, inventory, livestock, equipment, accounts receivable and other assets related to our pork business. The purchase price for these assets was $13.0 million, payable in cash, subject to adjustment based on the final accounting of the assets. The closing occurred on December 2, 2011. Company management analyzed the terms of the contract and believe that they were substantially similar to and contain terms no less favorable to us than those obtainable from unaffiliated parties. Additionally, the Audit Committee of the Company’s Board of Directors reviewed and approved the agreement.

17. COMMITMENTS AND CONTINGENCIES

General

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

Purchase Obligations

The Company will sometimes enter into noncancelable contracts to purchase capital equipment and certain commodities such as corn, soybean meal, electricity and natural gas. At December 30, 2012, the Company was party to outstanding purchase contracts totaling $230.9 million. Payments for purchases made under these contracts are due in less than one year.

Operating Leases

The Consolidated Statements of Operations include rental expense for operating leases of approximately $14.3 million, $26.2 million and $58.3 million in 2012, 2011 and 2010, respectively. The Company’s future minimum lease commitments under noncancelable operating leases are as follows (in thousands):

2013	$	7,450
2014		2,836
2015		2,123
2016		240
2017		—
Total	$	12,649

Certain of the Company’s operating leases include rent escalations. The Company includes the rent escalation in its minimum lease payments obligations and recognizes them as a component of rental expense on a straight-line basis over the minimum lease term.

The Company also maintains operating leases for various types of equipment, some of which contain residual value guarantees for the market value of assets at the end of the term of the lease. The terms of the lease maturities range from one to ten years. The maximum potential amount of the residual value guarantees is estimated to be approximately $8.4 million; however, the actual amount would be offset by any recoverable amount based on the fair market value of the underlying leased assets. No liability has been recorded related to this contingency as the likelihood of payments under these guarantees is not considered to be probable and the fair value of such guarantees is immaterial. The Company historically has not experienced significant payments under similar residual guarantees.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Instruments

Pursuant to the terms of the Subordinated Loan Agreement, we have agreed to reimburse JBS USA up to $56.5 million for draws upon any letters of credit issued for JBS USA’s account that support certain obligations of the Company and its subsidiaries.

The Company’s loan agreements generally obligate the Company to reimburse the applicable lender for incremental increased costs due to a change in law that imposes (i) any reserve or special deposit requirement against assets of, deposits with or credit extended by such lender related to the loan, (ii) any tax, duty or other charge with respect to the loan (except standard income tax) or (iii) capital adequacy requirements. In addition, some of the Company’s loan agreements contain a withholding tax provision that requires the Company to pay additional amounts to the applicable lender or other financing party, generally if withholding taxes are imposed on such lender or other financing party as a result of a change in the applicable tax law. These increased cost and withholding tax provisions continue for the entire term of the applicable transaction, and there is no limitation on the maximum additional amounts the Company could be obligated to pay under such provisions. Any failure to pay amounts due under such provisions generally would trigger an event of default, and, in a secured financing transaction, would entitle the lender to foreclose upon the collateral to realize the amount due.

Litigation

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

On December 1, 2008, the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The cases were jointly administered under Case No. 08-45664. Until the Effective Date, the Debtors operated their business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Debtors emerged from Chapter 11 on the Effective Date. The Company continues to work through the claims allowance process with respect to claims arising before the Effective Date. The Company will be responsible to the extent those claims become allowed claims.

Among the claims presently pending are claims brought against certain current and former directors, executive officers and employees of the Company, the Pilgrim’s Pride Administrative Committee and the Pilgrim’s Pride Pension Committee seeking unspecified damages under section 502 of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1132. These claims were brought by individual participants in the Pilgrim’s Pride Retirement Savings Plan, individually and on behalf of a putative class, alleging that the defendants breached fiduciary duties to plan participants and beneficiaries or otherwise violated ERISA. Although the Company is not a named defendant in these claims, our bylaws require us to indemnify our current and former directors and officers from any liabilities and expenses incurred by them in connection with actions they took in good faith while serving as an officer or director. In these actions the plaintiffs assert claims in excess of $35.0 million. The likelihood of an unfavorable outcome or the amount or range of any possible loss to the Company cannot be determined at this time.

Also, among the claims presently pending against the Company are two identical claims seeking unspecified damages, each brought by a stockholder, individually and on behalf of a putative class, alleging violations of certain antifraud provisions of the Securities Exchange Act of 1934. The court consolidated these cases into one matter. The parties have reached an agreement to settle this matter for $1.5 million, subject to court approval. A Stipulation was filed on November 14, 2011. On January 23, 2012, the court issued an Order Preliminarily Approving Settlement, in which the court set a hearing date for the final approval of the settlement for May 1, 2012. On May 2, 2012 the Court issued an order of final approval of the settlement and dismissed the case with prejudice in accordance with the terms of the settlement agreement.

Other claims presently pending against the Company are claims seeking unspecified damages brought by current or former contract chicken growers who allege, along with other assertions, that the Company breached grower contracts and made false representations to induce the plaintiffs into building chicken farms and entering into chicken growing agreements with the Company. In the case styled Sheila Adams, et al. v. Pilgrim’s Pride Corporation, on September 30, 2011, the trial court issued its findings of fact and conclusions of law stating that the Company violated section 192(e) of the Packers and Stockyards Act of 1921 by purportedly attempting to manipulate the price of chicken by idling the El Dorado, Arkansas complex and awarded damages in the amount of $25.8 million. Afterward, the Company filed post-judgment motions attacking the trial court’s findings of fact and conclusions of law, which, on December 28, 2011, were granted in part and resulted in a reduction of the damages award from $25.8 million to $25.6 million. The case relates to our Farmerville, Louisiana; Nacogdoches, Texas; and the De Queen and Batesville, Arkansas complexes. On January 19, 2012, the Company appealed the findings of fact and conclusions of law and decision concerning the post-judgment motions to the United States Fifth Circuit Court of Appeals. The Company intends to vigorously pursue its appellate rights and defend against the underlying judgment. The Company has recorded an estimated probable loss that is less than the outstanding judgment. Oral argument occurred on December 3, 2012. The appeal has been submitted for a decision, but there is no deadline set for the Fifth Circuit Court of Appeals to issue a decision. As for the remaining claims, the bench trials relating to the allegations asserted by the plaintiffs from the Farmerville, Louisiana complex began on July 16, 2012. That bench trial concluded on August 2, 2012. The Marshall Court has not issued a decision. Additionally, the bench trials relating to the claims asserted by the plaintiffs from the Nacogdoches, Texas complex began on September 12, 2012. The trial has not concluded. However, at this time, the Nacogdoches, Texas bench trial is scheduled to resume on April 22, 2013. The remaining bench trial for the plaintiffs from the De Queen and Batesville, Arkansas complexes was scheduled for October 29, 2012, but that trial date was canceled. The Marshall Court has not scheduled new dates for that bench trial. The Company intends to vigorously defend against these claims. Although the likelihood of financial loss related to the remaining growers’ claims is reasonably possible, an estimate of potential loss cannot be determined at this time because of now conflicting legal authority, the factual nature of the various growers’ individual claims, and a new judge who will preside over the remaining bench trials. There can be no assurances that other similar claims may not be brought against the Company.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The United States Department of Treasury, IRS filed an amended proof of claim in the Bankruptcy Court pursuant to which the IRS asserted claims that total $74.7 million. We filed in the Bankruptcy Court (i) an objection to the IRS’ amended proof of claim, and (ii) a motion requesting the Bankruptcy Court to determine our U.S. federal tax liability pursuant to Sections 105 and 505 of the Bankruptcy Code. The objection and motion asserted that the Company had no liability for the additional U.S. federal taxes that have been asserted for pre-petition periods by the IRS. The IRS responded in opposition to our objection and motion. On July 8, 2010, the Bankruptcy Court granted our unopposed motion requesting that the Bankruptcy Court abstain from determining our federal tax liability. As a result we have worked with the IRS through the normal processes and procedures that are available to all taxpayers outside of bankruptcy (including the Tax Court proceedings discussed below) to resolve the IRS’ amended proof of claim. On December 12, 2012 we entered into two Stipulations with the IRS. The first Stipulation relates to the Company’s 2003, 2005, and 2007 tax years and resolves all of the material issues in the case. The second Stipulation relates to the Company as the successor in interest to Gold Kist for the tax years ended June 30, 2005 and September 30, 2005, and resolves all substantive issues in the case. These Stipulations account for approximately $29.3 million of the amended proof of claim and should result in no additional tax due.

Upon the initial filing of the Gold Kist tax return for the year ended June 30, 2004, the Company assessed the likelihood that the position related to the proceeding would be sustained upon examination and determined that it met the recognition threshold and the full amount of benefit was recognized. We continue to believe the position is more likely than not of being sustained. If adversely determined, the outcome could have a material effect on the Company’s operating results and financial position.

U.S. Immigration and Customs Enforcement (“ICE”) investigated allegations of identity theft within our workforce. With our cooperation, ICE arrested approximately 350 of our employees in 2008 believed to have engaged in identity theft at five of our facilities. On December 30, 2009, PPC, the U.S. Attorney’s Office for the Eastern District of Texas, and the Dallas Office of ICE entered into a non-prosecution agreement and civil resolution of the government’s investigation. Under this agreement: (i) the government agreed not to proceed either criminally or civilly against PPC, and to end its investigation of the immigration-related matters, relating to both the company and its current and former officers, employees and directors; (ii) PPC agreed to an immigration compliance program that would remain in effect for at least the 5-year term of the agreement; and (iii) PPC will pay an aggregate of $4.5 million, which approximates the amount the Company had previously accrued for this matter, to the government in four annual installments. We paid the first three installments of $1.1 million in 2010, 2011 and 2012. We also paid the final installment in 2013. The parties acknowledged that PPC was admitting to no civil liability or criminal culpability as a result of the settlement. However, no assurances can be given that further enforcement efforts by governmental authorities against our employees or the Company (i) will not disrupt a portion of our workforce or our operations at one or more of our facilities, thereby negatively impacting our business or (ii) result in the assessment of fines against us that could have a material adverse effect on our financial position, results of operations or cash flows.

18. INCENTIVE COMPENSATION

Incentive Compensation Plans

The Company sponsors an annual incentive program that provides the grant of bonus awards payable upon achievement of specified performance goals (the “STIP”). Full-time, salaried exempt employees of the Company and its affiliates who are selected by the administering committee are eligible to participate in the STIP. The Company has accrued $7.2 million in costs related to the STIP at December 30, 2012.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company also sponsors a performance-based, omnibus long-term incentive plan that provides for the grant of a broad range of long-term equity-based and cash-based awards to the Company’s officers and other employees, members of the Board and any consultants (the “LTIP”). The equity-based awards that may be granted under the LTIP include “incentive stock options,” within the meaning of the Internal Revenue Code, nonqualified stock options, stock appreciation rights, restricted stock awards and restricted stock units. We have reserved approximately 6.6 million shares of common stock for future issuance under the LTIP. The restricted stock awarded to Fabio Sandri on August 27, 2012 was granted under this plan. No other awards have been granted under the LTIP as of the date of this annual report.

Share-Based Compensation

The Company granted 200,000 restricted shares of its common stock to William W. Lovette effective January 14, 2011 in connection with the employment agreement with Mr. Lovette. Restrictions on the first tranche of 100,000 shares of this common stock lapsed on January 3, 2013 and restrictions on the second tranche of 100,000 shares of this common stock will lapse on January 3, 2014, subject to Mr. Lovette’s continued employment with the Company through the applicable lapse date. The $1.4 million fair value of the shares as of the grant date was determined by multiplying the number of shares granted by the closing market price of the Company’s common stock on the grant date. The Company recognized compensation expense of $0.7 million on the first tranche of these restricted shares ratably from January 14, 2011 to January 3, 2013. Assuming no forfeiture of shares, the Company will recognize compensation expense of $0.7 million on the second tranche of these restricted shares ratably from January 14, 2011 to January 3, 2014.

The Company granted 72,675 restricted shares of its common stock to Mr. Sandri effective August 27, 2012 as compensation for services to be rendered. Restrictions on these shares will lapse on April 27, 2014, subject to Mr. Sandri’s continued employment with the Company through the applicable vesting date. The $0.4 million fair value of the shares as of the grant date was determined by multiplying the number of shares granted by the average market price of the Company’s common stock on the grant date. Assuming no forfeiture of shares, the Company will recognize compensation expense of $0.4 million ratably from August 27, 2012 to April 27, 2014.

Compensation cost charged as selling, general and administrative expense, the income tax benefit recognized for our share-based compensation arrangements and the weighted average fair value of the restricted shares of common stock granted is included below:

	2012		2011		2010
	(In thousands, except weighted average fair values)
Total share-based compensation cost	$	684	$	568	$	—
Income tax benefit		28		—		—
Weighted average fair value of restricted shares of
common stock granted		5.00		7.10		—

The Company’s restricted share activity is included below:

	2012			2011
		Weighted Average			Weighted Average
		Grant Date			Grant Date Fair
	Number	Fair Value		Number	Value
	(In thousands, except weighted average fair values)
Outstanding at beginning of year	200	$	7.10	—	$	—
Shares granted	73		5.00	200		7.10
Outstanding at end of year	273	$	6.53	200	$	7.10

At December 30, 2012, the total unrecognized compensation cost related to all nonvested awards was $532,000. That cost is expected to be recognized over a weighted average period of 1.18 years.

Historically, we have issued new shares to satisfy award conversions.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19. INSURANCE PROCEEDS

On August 16, 2011, an ammonia leak and explosion at our Marshville, North Carolina facility damaged portions of the building, machinery and equipment. The Company resumed operations at the Marshville facility approximately two weeks after the accident occurred. This insurance claim was still open as of December 30, 2012.

On July 21, 2008, a fire at one of the Company’s facilities in Mt. Pleasant, Texas damaged a significant portion of the plant’s building, machinery and equipment. The Company resumed operations at the Mt. Pleasant plant in April 2009. The insurance claim was closed in May 2010.

The Company received the following proceeds related to business interruption claims:

	2012		2011		2010
	(In thousands)
Mt. Pleasant, Texas	$	—	$	—	$	326
Marshville, North Carolina		1,448		—		—

These proceeds were recognized in Cost of sales in the Consolidated Statements of Operations.

20. MARKET RISKS AND CONCENTRATIONS

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash equivalents, investment securities and trade accounts receivable. The Company’s cash equivalents and investment securities are high-quality debt and equity securities placed with major banks and financial institutions. The Company’s trade accounts receivable are generally unsecured. Credit evaluations are performed on all significant customers and updated as circumstances dictate. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of customers and their dispersion across geographic areas. With the exception of one customer that accounts for approximately 12.9% of trade accounts and other receivables at December 30, 2012, and approximately 9.7% of net sales for 2012, the Company does not believe it has significant concentrations of credit risk in its trade accounts receivable.

At December 30, 2012, approximately 36.3% of the Company’s employees were covered under collective bargaining agreements. Substantially all employees covered under collective bargaining agreements are covered under agreements that expired in 2011 or 2012 and remain subject to continuing negotiation or will expire in 2013. We have not experienced any labor-related work stoppage at any location in over eight years. We believe our relationship with our employees and union leadership is satisfactory. At any given time, we will be in some stage of contract negotiations with various collective bargaining units. The Company is currently in negotiations with union locals in 11 locations, and there is no assurance that agreement will be reached. In the absence of an agreement, we may become subject to labor disruption at any of these locations, which could have an adverse effect on our financial results.

The aggregate carrying amount of net assets belonging to our Mexico operations was $277.0 million and $194.3 million at December 30, 2012 and December 25, 2011, respectively.

21. NONCONTROLLING INTERESTS

In December 2007, the Company assumed a 54% ownership interest in GC Properties General Partnership (“GC Properties”) through its acquisition of Gold Kist. GC Properties owns and maintains an office building in Atlanta, Georgia at which the Company, among other tenants, leased office space. In September 2010, the Company purchased the remaining 46% ownership interest in GC Properties from Cotton States Mutual Insurance Company for $7.6 million.

In April 2007, the Company purchased a 49% ownership interest in Merit Provisions LLC (“Merit”). Until March 2011, Merit purchased inventory from the Company for ultimate distribution to a major foodservice company. In June 2011, the Company purchased the remaining 51% ownership interest in Merit for $2.5 million.

22. BUSINESS SEGMENT AND GEOGRAPHIC REPORTING

We operate in one reportable business segment, as a producer and seller of chicken products we either produce or purchase for resale in the U.S., Puerto Rico and Mexico. We conduct separate operations in the U.S., Puerto Rico and Mexico; however, for geographic reporting purposes, we include Puerto Rico with our U.S. operations. Corporate expenses are allocated to Mexico based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the U.S.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2011, we announced organizational changes that resulted in the merger of our former Other Products segment into our Chicken segment. Data related to our former Other Products segment, which included primarily non-chicken products sold through our distribution centers, table eggs, animal feed and offal, is no longer reported directly to the chief operating decision maker. This information is now reported through chicken operations management. We reclassified prior year segment disclosures to conform to the new segment presentation.

Net sales to customers by customer location and long-lived assets are as follows:

	2012		2011		2010
	(In thousands)
Net sales to customers by customer location:
United States	$	6,600,206	$	6,108,797	$	5,740,563
Mexico		988,712		827,186		669,870
Asia		262,455		353,368		223,240
North America		111,305		88,900		82,026
Europe		79,101		82,261		130,635
Africa		62,642		56,741		23,363
South America		13,775		14,224		8,252
Pacific		3,186		4,221		3,680
Total	$	8,121,382	$	7,535,698	$	6,881,629

	December 30, 2012		December 25, 2011
	(In thousands)
Long-lived assets^(a):
United States	$	1,106,482	$	1,157,410
Mexico		83,439		84,342
Total	$	1,189,921	$	1,241,752

(a)

For this disclosure, we exclude financial instruments, deferred tax assets and intangible assets in accordance with ASC 280-10-50-41, Segment Reporting. Long-lived assets, as used in ASC 280-10-50-41, implies hard assets that cannot be readily removed.

The following table sets forth, for the periods beginning with 2010, net sales attributable to each of our primary product lines and markets served with those products. We based the table on our internal sales reports and their classification of product types.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	2012		2011		2010
U.S. chicken:	(In thousands)
Prepared chicken	$	2,239,289	$	2,135,337	$	2,262,107
Fresh chicken		3,583,854		3,160,429		2,834,972
Export and other chicken by-products		817,723		808,038		581,303
Total U.S. chicken		6,640,866		6,103,804		5,678,382
Mexico chicken		758,023		720,333		615,433
Total chicken		7,398,889		6,824,137		6,293,815
Other products:
U.S.		608,619		674,923		558,675
Mexico		113,874		36,638		29,139
Total other products		722,493		711,561		587,814
Total net sales	$	8,121,382	$	7,535,698	$	6,881,629

23. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

On December 15, 2010, the Company closed on the sale of the 2018 Notes. The 2018 Notes are unsecured obligations of the Company and are fully and unconditionally guaranteed on a senior unsecured basis by Pilgrim’s Pride Corporation of West Virginia, Inc., a wholly owned subsidiary of the Company (the “Guarantor”). In accordance with Rule 3-10 of Regulation S-X promulgated under the Securities Act of 1933, the following condensed consolidating financial statements present the financial position, results of operations and cash flows of the Company (referred to as “Parent” for the purpose of this note only) on a Parent-only basis, the Guarantor on a Guarantor-only basis, the combined non-Guarantor subsidiaries and elimination entries necessary to arrive at the information for the Parent, the Guarantor and non-Guarantor subsidiaries on a consolidated basis. Investments in subsidiaries are accounted for by the Company using the equity method for this presentation.

The tables below present the condensed consolidating balance sheets as of December 30, 2012 and December 25, 2011 as well as the condensed consolidating statements of operations, condensed consolidating statements of comprehensive income (loss) and condensed consolidated statements of cash flows for the years ended 2012, 2011 and 2010 based on the guarantor structure.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEETS
December 30, 2012
(In thousands)

			Subsidiary		Subsidiary		Eliminations/
	Parent		Guarantor		Non-Guarantors		Adjustments			Consolidation
Cash and cash equivalents	$	27,657	$	—	$	40,523	$	—		$	68,180
Restricted cash and cash equivalents		—		—		—		—			—
Investment in available-for-sale securities		—		—		—		—			—
Trade accounts and other receivables, less
allowance for doubtful accounts		326,031		1,843		57,056		—			384,930
Account receivable from JBS USA, LLC		1,514		—		—		—			1,514
Inventories		802,282		22,813		125,201		—			950,296
Income taxes receivable		55,306		—		—		(587	)		54,719
Current deferred tax assets		—		3,794		506		(4,300	)		—
Prepaid expenses and other current assets		29,603		—		26,444		—			56,047
Assets held for sale		9,808		—		17,234		—			27,042
Total current assets		1,252,201		28,450		266,964		(4,887	)		1,542,728
Investment in available-for-sale securities		—		—		—		—			—
Intercompany receivable		19,860		53,706		—		(73,566	)		—
Investment in subsidiaries		376,226		—		—		(376,226	)		—
Deferred tax assets		101,100		—		422		(4,091	)		97,431
Other long-lived assets		44,936		—		180,587		(180,000	)		45,523
Identified intangible assets, net		27,386		—		10,880		—			38,266
Property, plant and equipment, net		1,043,696		45,746		104,368		(3,889	)		1,189,921
Total assets	$	2,865,405	$	127,902	$	563,221	$	(642,659	)	$	2,913,869
Accounts payable	$	255,517	$	4,270	$	52,578	$	—		$	312,365
Account payable to JBS USA, LLC		13,436		—		—		—			13,436
Accrued expenses and other current liabilities		230,278		24,265		28,997		—			283,540
Income taxes payable		—		—		1,055		(587	)		468
Current deferred tax liabilities		108,201		—		581		(4,300	)		104,482
Current maturities of long-term debt		15,886		—		—		—			15,886
Total current liabilities		623,318		28,535		83,211		(4,887	)		730,177
Long-term debt, less current maturities		1,173,870		—		—		(25,000	)		1,148,870
Note payable to JBS USA Holdings, Inc.		—		—		—		—			—
Intercompany payable		—		—		73,566		(73,566	)		—
Deferred tax liabilities		—		3,794		297		(4,091	)		—
Other long-term liabilities		122,580		—		3,245		—			125,825
Total liabilities		1,919,768		32,329		160,319		(107,544	)		2,004,872
Total Pilgrim’s Pride Corporation stockholders’
equity		945,637		95,573		400,276		(535,115	)		906,371
Noncontrolling interest		—		—		2,626		—			2,626
Total stockholders’ equity		945,637		95,573		402,902		(535,115	)		908,997
Total liabilities and stockholders’ equity	$	2,865,405	$	127,902	$	563,221	$	(642,659	)	$	2,913,869

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEETS
December 25, 2011
(In thousands)

			Subsidiary		Subsidiary		Eliminations/
	Parent		Guarantor		Non-Guarantors		Adjustments			Consolidation
Cash and cash equivalents	$	13,733	$	30	$	27,846	$	—		$	41,609
Restricted cash and cash equivalents		—		—		7,680		—			7,680
Investment in available-for-sale securities		—		—		157		—			157
Trade accounts and other receivables, less
allowance for doubtful accounts		302,809		1,575		44,838		—			349,222
Account receivable from JBS USA, LLC		21,198		—		—		—			21,198
Inventories		766,227		21,144		91,723		—			879,094
Income taxes receivable		62,160		—		528		(3,621	)		59,067
Current deferred tax assets		—		4,003		1,478		(5,481	)		—
Prepaid expenses and other current assets		35,877		87		16,386		—			52,350
Assets held for sale		37,754		—		16,062		—			53,816
Total current assets		1,239,758		26,839		206,698		(9,102	)		1,464,193
Investment in available-for-sale securities		—		—		497		—			497
Intercompany receivable		50,064		33,978		—		(84,042	)		—
Investment in subsidiaries		304,395		—		—		(304,395	)		—
Deferred tax assets		75,392		—		7		(4,300	)		71,099
Other long-lived assets		57,460		—		180,461		(180,000	)		57,921
Identified intangible assets, net		31,384		—		12,699		—			44,083
Property, plant and equipment, net		1,090,376		49,336		105,928		(3,888	)		1,241,752
Total assets	$	2,848,829	$	110,153	$	506,290	$	(585,727	)	$	2,879,545
Accounts payable	$	270,538	$	13,033	$	45,293	$	—		$	328,864
Account payable to JBS USA, LLC		11,653		—		—		—			11,653
Accrued expenses and other current liabilities		226,016		17,193		38,588		—			281,797
Income taxes payable		—		—		3,621		(3,621	)		—
Current deferred tax liabilities		83,795		—		934		(5,481	)		79,248
Current maturities of long-term debt		15,611		—		—		—			15,611
Total current liabilities		607,613		30,226		88,436		(9,102	)		717,173
Long-term debt, less current maturities		1,433,001		—		—		(25,000	)		1,408,001
Note payable to JBS USA Holdings, Inc.		50,000		—		—		—			50,000
Intercompany payable		—		—		84,042		(84,042	)		—
Deferred tax liabilities		—		4,003		297		(4,300	)		—
Other long-term liabilities		289,697		—		11,675		(155,431	)		145,941
Total liabilities		2,380,311		34,229		184,450		(277,875	)		2,321,115
Total Pilgrim’s Pride Corporation stockholders’
equity		468,518		75,924		319,022		(307,852	)		555,612
Noncontrolling interest		—		—		2,818		—			2,818
Total stockholders’ equity		468,518		75,924		321,840		(307,852	)		558,430
Total liabilities and stockholders’ equity	$	2,848,829	$	110,153	$	506,290	$	(585,727	)	$	2,879,545

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Fifty-Three Weeks Ended December 30, 2012
(In thousands)

				Subsidiary			Subsidiary			Eliminations/
	Parent			Guarantor			Non-Guarantors			Adjustments			Consolidation
Net sales	$	6,836,012		$	537,198		$	992,501		$	(244,329	)	$	8,121,382
Cost of sales		6,530,925			511,800			887,154			(244,329	)		7,685,550
Gross profit		305,087			25,398			105,347			—			435,832
Selling, general and administrative expense		156,535			—			20,506			—			177,041
Administrative restructuring charges, net		9,743			—			(1,294	)		—			8,449
Total costs and expenses		6,697,203			511,800			906,366			(244,329	)		7,871,040
Operating income		138,809			25,398			86,135			—			250,342
Other expenses (income):
Interest expense		104,652			—			274			—			104,926
Interest income		(295	)		—			(1,102	)		—			(1,397	)
Foreign currency transaction losses (gains)		95			—			(4,905	)		—			(4,810	)
Miscellaneous, net		(2,131	)		(14	)		22			684			(1,439	)
Total other expenses		102,321			(14	)		(5,711	)		684			97,280
Income (loss) from continuing operations before
income taxes		36,488			25,412			91,846			(684	)		153,062
Income tax expense (benefit)		(38,852	)		9,593			8,279			—			(20,980	)
Income (loss) before equity in earnings of
consolidated subsidiaries		75,340			15,819			83,567			(684	)		174,042
Equity in earnings of consolidated subsidiaries		101,372			—			—			(101,372	)		—
Net income (loss)		176,712			15,819			83,567			(102,056	)		174,042
Less: Net loss attributable to noncontrolling
interest		—			—			(192	)		—			(192	)
Net income (loss) attributable to Pilgrim’s Pride	$	176,712		$	15,819		$	83,759		$	(102,056	)	$	174,234

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Fifty-Two Weeks Ended December 25, 2011

	(In thousands)
				Subsidiary		Subsidiary			Eliminations/
	Parent			Guarantor		Non-Guarantors			Adjustments			Consolidation
Net sales	$	6,135,319		$	458,932	$	1,225,128		$	(283,681	)	$	7,535,698
Cost of sales		6,237,535			430,343		1,291,080			(283,681	)		7,675,277
Operational restructuring charges, net		1,958			—		—			—			1,958
Gross profit (loss)		(104,174	)		28,589		(65,952	)		—			(141,537	)
Selling, general and administrative expense		174,694			—		30,449			—			205,143
Administrative restructuring charges, net		19,824			—		7,087			—			26,911
Total costs and expenses		6,434,011			430,343		1,328,616			(283,681	)		7,909,289
Operating income (loss)		(298,692	)		28,589		(103,488	)		—			(373,591	)
Other expenses (income):
Interest expense		110,940			—		592			—			111,532
Interest income		(363	)		—		(1,102	)		—			(1,465	)
Foreign currency transaction losses (gains)		(31	)		—		12,632			—			12,601
Miscellaneous, net		59,661			3,818		(98,360	)		25,748			(9,133	)
Total other expenses		170,207			3,818		(86,238	)		25,748			113,535
Income (loss) from continuing operations before
income taxes		(468,899	)		24,771		(17,250	)		(25,748	)		(487,126	)
Income tax expense (benefit)		(14,139	)		9,351		13,352			—			8,564
Income (loss) before equity in earnings of
consolidated subsidiaries		(454,760	)		15,420		(30,602	)		(25,748	)		(495,690	)
Equity in earnings of consolidated subsidiaries		(9,334	)		—		—			9,334			—
Net income (loss)		(464,094	)		15,420		(30,602	)		(16,414	)		(495,690	)
Less: Net income attributable to noncontrolling
interest		—			—		1,082			—			1,082
Net income (loss) attributable to Pilgrim’s Pride	$	(464,094	)	$	15,420	$	(31,684	)	$	(16,414	)	$	(496,772	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Fifty-Two Weeks Ended December 26, 2010

	(In thousands)
				Subsidiary			Subsidiary			Eliminations/
	Parent			Guarantor			Non-Guarantors			Adjustments			Consolidation
Net sales	$	5,623,958		$	470,649		$	1,173,766		$	(386,744	)	$	6,881,629
Costs and expenses:
Cost of sales		5,183,274			449,358			1,170,430			(386,744	)		6,416,318
Operational restructuring charges, net		4,318			—			—			—			4,318
Gross profit (loss)		436,366			21,291			3,336			—			460,993
Selling, general and administrative expense		176,589			(279	)		33,234			—			209,544
Administrative restructuring charges, net		59,136			—			6,886			—			66,022
Total costs and expenses		5,423,317			449,079			1,210,550			(386,744	)		6,696,202
Operating income (loss)		200,641			21,570			(36,784	)		—			185,427
Other expenses (income):
Interest expense		103,735			—			1,818			—			105,553
Interest income		(580	)		—			(3,225	)		—			(3,805	)
Loss on early extinguishment of debt		11,726			—			—			—			11,726
Foreign currency transaction losses (gains)		314			—			(102	)		—			212
Miscellaneous, net		91,576			4,241			(110,261	)		1,156			(13,288	)
Total other expenses		206,771			4,241			(111,770	)		1,156			100,398
Income (loss) from continuing operations before
reorganization		(6,130	)		17,329			74,986			(1,156	)		85,029
Reorganization items, net		18,348			—			193			—			18,541
Income (loss) from continuing operations before
income taxes		(24,478	)		17,329			74,793			(1,156	)		66,488
Income tax expense (benefit)		(15,266	)		6,542			(15,114	)		—			(23,838	)
Income (loss) before equity in earnings of
consolidated subsidiaries		(9,212	)		10,787			89,907			(1,156	)		90,326
Equity in earnings of consolidated subsidiaries		65,544			—			—			(65,544	)		—
Net income (loss)		56,332			10,787			89,907			(66,700	)		90,326
Less: Net income attributable to noncontrolling
interest		—			—			3,185			—			3,185
Net income (loss) attributable to Pilgrim’s Pride	$	56,332		$	10,787		$	86,722		$	(66,700	)	$	87,141

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Fifty-Three Weeks Ended December 30, 2012

(In thousands)

				Subsidiary		Subsidiary			Eliminations/
	Parent			Guarantor		Non-Guarantors			Adjustments			Consolidation
Net income (loss)	$	176,712		$	15,819	$	83,567		$	(102,056	)	$	174,042
Other comprehensive income (loss):
Unrealized holding losses on available-
for-sale securities, net of tax		—			—		(12	)		—			(12	)
Losses associated with pension and
other postretirement benefits, net of tax		(22,429	)		—		—			—			(22,429	)
Total other comprehensive loss, net of tax		(22,429	)		—		(12	)		—			(22,441	)
Comprehensive income (loss)		154,283			15,819		83,555			(102,056	)		151,601
Less: Comprehensive income attributable to
noncontrolling interests		—			—		(192	)		—			(192	)
Comprehensive income (loss) attributable to
Pilgrim’s Pride Corporation	$	154,283		$	15,819	$	83,747		$	(102,056	)	$	151,793

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Fifty-Two Weeks Ended December 25, 2011

(In thousands)

				Subsidiary		Subsidiary			Eliminations/
	Parent			Guarantor		Non-Guarantors			Adjustments			Consolidation
Net income (loss)	$	(464,094	)	$	15,420	$	(30,602	)	$	(16,414	)	$	(495,690	)
Other comprehensive income (loss):
Unrealized holding gains on available-
for-sale securities, net of tax		—			—		(1,160	)		—			(1,160	)
Losses associated with pension and
other postretirement benefits, net of tax		(21,273	)		—		—			—			(21,273	)
Total other comprehensive income (loss),
net of tax		(21,273	)		—		(1,160	)		—			(22,433	)
Comprehensive income (loss)		(485,367	)		15,420		(31,762	)		(16,414	)		(518,123	)
Less: Comprehensive income attributable to
noncontrolling interests		—			—		1,082			—			1,082
Comprehensive income (loss) attributable to
Pilgrim’s Pride Corporation	$	(485,367	)	$	15,420	$	(32,844	)	$	(16,414	)	$	(519,205	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Fifty-Two Weeks Ended December 26, 2010

(In thousands)

				Subsidiary		Subsidiary			Eliminations/
	Parent			Guarantor		Non-Guarantors			Adjustments			Consolidation
Net income (loss)	$	56,332		$	10,787	$	89,907		$	(66,700	)	$	90,326
Other comprehensive income (loss):
Unrealized holding losses on available-
for-sale securities, net of tax		—			—		(226	)		—			(226	)
Recognition in earnings of a previously
unrecognized gain on a derivative
instrument designated as a cash flow
hedge, net of tax		(2,565	)		—		—			—			(2,565	)
Gains associated with pension and
other postretirement benefits, net of tax		6,420			—		—			—			6,420
Total other comprehensive income (loss),
net of tax		3,855			—		(226	)		—			3,629
Comprehensive income (loss)		60,187			10,787		89,681			(66,700	)		93,955
Less: Comprehensive income attributable to
noncontrolling interests		—			—		3,185			—			3,185
Comprehensive income (loss) attributable to
Pilgrim’s Pride Corporation	$	60,187		$	10,787	$	86,496		$	(66,700	)	$	90,770

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Fifty-Three Weeks Ended December 30, 2012

	(In thousands)
				Subsidiary			Subsidiary			Eliminations/
	Parent			Guarantor			Non-Guarantors			Adjustments			Consolidation
Cash provided by (used in) operating activities	$	174,046		$	2,178		$	23,653		$	(253	)	$	199,624

Cash flows from investing activities:
Acquisitions of property, plant and equipment		(75,985	)		(2,208	)		(12,134	)		—			(90,327	)
Purchases of investment securities		(73	)		—			(89	)		—			(162	)
Proceeds from sale or maturity of investment
securities		57			—			631			—			688
Proceeds from business dispositions to Swift
Pork Company		—			—			—			—			—
Proceeds from business dispositions to JBS
Trading International, Inc.		—			—			—			—			—
Proceeds from property sales and disposals		26,911			—			2,489			—			29,400
Cash used in investing activities		(49,090	)		(2,208	)		(9,103	)		—			(60,401	)

Cash flows from financing activities:
Payments on notes payable to JBS USA		(50,000	)		—			—			—			(50,000	)
Proceeds from long-term debt		851,400			—			—			—			851,400
Payments on long-term debt		(1,110,711	)		—			—			—			(1,110,711	)
Proceeds from sale of common stock		198,282			—			—			—			198,282
Other financing activities		—			—			(253	)		253			—
Cash provided by (used in) financing
activities		(111,029	)		—			(253	)		253			(111,029	)
Effect of exchange rate changes on cash and cash
equivalents		—			—			(1,623	)		—			(1,623	)
Increase (decrease) in cash and cash equivalents		13,927			(30	)		12,674			—			26,571
Cash and cash equivalents, beginning of period		13,733			30			27,846			—			41,609
Cash and cash equivalents, end of period	$	27,660		$	—		$	40,520		$	—		$	68,180

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Fifty-Two Weeks Ended December 25, 2011

	(In thousands)
				Subsidiary			Subsidiary			Eliminations/
	Parent			Guarantor			Non-Guarantors			Adjustments			Consolidation
Cash provided by (used in) operating activities	$	(91,621	)	$	8,973		$	(19,385	)	$	(26,958	)	$	(128,991	)

Cash flows from investing activities:
Acquisitions of property, plant and equipment		(115,791	)		(9,108	)		(11,069	)		—			(135,968	)
Purchases of investment securities		—			—			(4,596	)		—			(4,596	)
Proceeds from sale or maturity of investment
securities		—			—			15,852			—			15,852
Proceeds from business dispositions to Swift
Pork Company		—			—			13,000			—			13,000
Proceeds from business dispositions to JBS
Trading International, Inc.		—			—			24,479			—			24,479
Proceeds from property sales and disposals		26,503			165			2,376			—			29,044
Cash provided by (used in) investing
activities		(89,288	)		(8,943	)		40,042			—			(58,189	)

Cash flows from financing activities:
Proceeds from note payable to JBS USA		50,000			—			—			—			50,000
Proceeds from long-term debt		965,689			—			—			—			965,689
Payments on long-term debt		(881,833	)		—			—			—			(881,833	)
Purchase of remaining interest in subsidiary		(2,504	)		—			—			—			(2,504	)
Payment of capitalized loan costs		(4,395	)		—			—			—			(4,395	)
Cash dividends paid		—			—			(25,000	)		25,000			—
Other financing activities		—			—			(2,065	)		1,958			(107	)
Cash provided by (used in) financing
activities		126,957			—			(27,065	)		26,958			126,850
Effect of exchange rate changes on cash and cash
equivalents		—			—			(4,138	)		—			(4,138	)
Increase (decrease) in cash and cash equivalents		(53,952	)		30			(10,546	)		—			(64,468	)
Cash and cash equivalents, beginning of period		67,685			—			38,392			—			106,077
Cash and cash equivalents, end of period	$	13,733		$	30		$	27,846		$	—		$	41,609

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Fifty-Two Weeks Ended December 26, 2010

	(In thousands)
				Subsidiary			Subsidiary			Eliminations/
	Parent			Guarantor			Non-Guarantors			Adjustments			Consolidation
Cash provided by (used in) operating activities	$	22,412		$	3,496		$	(10,147	)	$	(1,156	)	$	14,605

Cash flows from investing activities:
Acquisitions of property, plant and equipment		(162,264	)		(3,273	)		(13,795	)		—			(179,332	)
Purchases of investment securities		—			—			(17,201	)		—			(17,201	)
Proceeds from sale or maturity of investment
securities		—			—			68,100			—			68,100
Proceeds from property sales and disposals		9,640			(223	)		5,281			—			14,698
Cash provided by (used in) investing
activities		(152,624	)		(3,496	)		42,385			—			(113,735	)

Cash flows from financing activities:
Proceeds from long-term debt		2,438,855			—			—			—			2,438,855
Payments on long-term debt		(3,153,848	)		—			(43,551	)		—			(3,197,399	)
Proceeds from sale of common stock		800,000			—			—			—			800,000
Purchase of remaining interest in subsidiary		(7,637	)		—			—			—			(7,637	)
Payment of capitalized loan costs		(62,788	)		—			—			—			(62,788	)
Other financing activities		—			—			(1,667	)		1,156			(511	)
Cash provided by (used in) financing
activities		14,582			—			(45,218	)		1,156			(29,480	)
Effect of exchange rate changes on cash and cash
equivalents		—			—			(1,613	)		—			(1,613	)
Decrease in cash and cash equivalents		(115,630	)		—			(14,593	)		—			(130,223	)
Cash and cash equivalents, beginning of period		183,315			—			52,985			—			236,300
Cash and cash equivalents, end of period	$	67,685		$	—		$	38,392		$	—		$	106,077

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

24.

QUARTERLY RESULTS (UNAUDITED-SEE ACCOMPANYING ACCOUNTANTS’ REPORT)

2012	First		Second		Third		Fourth^(a)		Year
	(In thousands, except per share data)
Net sales	$	1,888,773	$	1,974,469	$	2,068,478	$	2,189,662	$	8,121,382
Gross profit		110,065		144,089		106,135		75,543		435,832
Net income attributable to PPC
common stockholders		39,173		69,357		42,931		22,773		174,234
Net income per share amounts -
basic and diluted		0.18		0.27		0.17		0.09		0.70
Number of days in quarter		91		91		91		98		371

(a)

In the fourth quarter of 2012, the Company recognized expenses related to the shutdown of our Dallas plant of $1.1 million and asset impairment charges of $1.4 million.

2011	First			Second			Third			Fourth^(a)			Year
	(In thousands, except per share data)
Net sales	$	1,892,476		$	1,922,690		$	1,891,224		$	1,829,308		$	7,535,698
Gross profit (loss)		(53,110	)		(46,228	)		(62,387	)		20,188			(141,537	)
Net loss attributable to PPC
common stockholders		(120,760	)		(128,141	)		(162,516	)		(85,355	)		(496,772	)
Net loss per share amounts -
basic and diluted		(0.54	)		(0.57	)		(0.72	)		(0.38	)		(2.21	)
Number of days in quarter		91			91			91			91			364

(a)

In the fourth quarter of 2011, the Company recognized restructuring charges of $14.6 million, asset impairment charges of $11.3 million and net gains on derivative financial instruments of $3.1 million.

2010	First			Second		Third		Fourth^(a)		Year
		(In thousands, except per share data)
Net sales	$	1,642,918		$	1,707,568	$	1,719,850	$	1,811,293	$	6,881,629
Gross profit		52,019			132,491		157,294		119,189		460,993
Net income (loss) attributable to PPC
common stockholders		(45,547	)		32,918		57,926		41,844		87,141
Net income (loss) per share amounts -
basic and diluted		(0.20	)		0.15		0.26		0.18		0.39
Number of days in quarter		91			91		91		91		364

(a)

In the fourth quarter of 2010, the Company recognized restructuring charges of $4.9 million, asset impairment charges of $11.2 million and net gains on derivative financial instruments of $62.8 million.

100

SCHEDULE II
PILGRIM’S PRIDE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS

			Additions
	Beginning		Charged to			Charged to						Ending
	Balance		Operating Results			Other Accounts		Deductions				Balance
	(In thousands)
Trade Accounts and Other Receivables—
Allowance for Doubtful Accounts:
2012	$	5,163	$	(1,629	)	$	—	$	(223	)	(a)	$	3,757
2011		6,063		(1,095	)		—		(195	)	(a)		5,163
2010		5,752		887			—		576		(a)		6,063
Trade Accounts and Other Receivables—
Allowance for Sales Adjustments:
2012	$	8,030	$	147,125		$	—	$	145,004		(b)	$	10,151
2011		22,929		154,842			—		169,741		(b)		8,030
2010		7,999		121,383			—		106,453		(b)		22,929
Deferred Tax Assets—
Valuation Allowance:
2012	$	230,336	$	(50,455	)	$	8,473	$	—		(c)	$	188,354
2011		53,938		168,368			8,030		—		(c)		230,336
2010		59,795		—			—		5,857		(c)		53,938

(a)		Uncollectible accounts written off, net of recoveries.
(b)		Deductions either written off, rebilled or reclassified as liabilities for market development fund rebates.
(c)		Reductions in the valuation allowance.

101

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

As disclosed in the Company’s current report on Form 8-K filed with the SEC on March 14, 2012, the Company changed its independent registered public accountants effective March 14, 2012.

Item 9A. Controls and Procedures

As of December 30, 2012, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on that evaluation, the Company’s management, including the Chief Executive Officer and Principal Financial Officer, concluded the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that information we are required to disclose in our reports filed with the Securities and Exchange Commission is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

In connection with the evaluation described above, the Company’s management, including the Chief Executive Officer and Principal Financial Officer, identified no changes in the Company’s internal control over financial reporting that occurred during the Company’s quarter ended December 30, 2012, and that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

102

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Pilgrim’s Pride Corporation’s (“PPC”) management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). PPC’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles.

Under the supervision and with the participation of management, including its principal executive officer and principal financial officer, PPC’s management assessed the design and operating effectiveness of internal control over financial reporting as of December 30, 2012 based on the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment, management concluded that PPC’s internal control over financial reporting was effective as of December 30, 2012. KPMG LLP, an independent registered public accounting firm, has issued a report on the effectiveness of the Company’s internal control over financial reporting as of December 30, 2012. That report is included in this annual report.

103

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
The Board of Directors and Stockholders
Pilgrim’s Pride Corporation

We have audited Pilgrim’s Pride Corporation’s internal control over financial reporting as of December 30, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Pilgrim’s Pride Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Pilgrim’s Pride Corporation maintained, in all material respects, effective internal control over financial reporting as of December 30, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Pilgrim’s Pride Corporation as of December 30, 2012, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for the fifty-three weeks ended December 30, 2012, and our report dated February 15, 2013 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Denver, Colorado
February 15, 2013

104

Item 9B. Other Information

As previously announced, the Company filed voluntary Chapter 11 petitions on December 1, 2008 and emerged from bankruptcy on December 28, 2009. The Chapter 11 cases were being jointly administered under case number 08-45664. The Company has and intends to continue to post important information about the restructuring, including quarterly operating reports and other financial information required by the Bankruptcy Court, on the Company’s website www.pilgrims.com under the “Investors-Reorganization” caption. The quarterly operating reports are required to be filed with the Bankruptcy Court no later than the 20th day of the next calendar month immediately following the end of the fiscal quarter and will be posted on the Company’s website concurrently with being filed with the Bankruptcy Court. The Company intends to use its website as a means of complying with its disclosure obligations under SEC Regulation FD. Information is also available via the Company’s restructuring information line at (888) 830-4659. The information contained on or accessible through the Company’s website shall not be deemed to be part of this annual report.

105

PART III

Item 10. Directors and Executive Officers and Corporate Governance

Certain information regarding our executive officers has been presented under “Executive Officers” included in “Item 1. Business,” above.

Reference is made to the sections entitled “Election of JBS Directors” and “Election of Equity Directors and the Founder Director” of the Company’s Proxy Statement for its 2013 Annual Meeting of Stockholders, which section is incorporated herein by reference.

Reference is made to the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” of the Company’s Proxy Statement for its 2013 Annual Meeting of Stockholders, which section is incorporated herein by reference.

We have adopted a Code of Business Conduct and Ethics, which applies to all employees, including our Chief Executive Officer and our Chief Financial Officer and Principal Accounting Officer. The full text of our Code of Business Conduct and Ethics is published on our website, at www.pilgrims.com, under the “Investors-Corporate Governance” caption. We intend to disclose future amendments to, or waivers from, certain provisions of this Code on our website within four business days following the date of such amendment or waiver.

See “Item 13. Certain Relationships and Related Transactions, and Director Independence.”

Item 11. Executive Compensation

See “Item 13. Certain Relationships and Related Transactions, and Director Independence.”

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

See “Item 13. Certain Relationships and Related Transactions, and Director Independence.”

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

Additional information responsive to Items 10, 11, 12 and 13 is incorporated by reference from the sections entitled “Security Ownership,” “Board of Directors Independence,” “Committees of the Board of Directors,” “Election of JBS Directors,” “Election of Equity Directors and the Founder Director,” “Report of the Compensation Committee,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Compensation Committee Interlocks and Insider Participation” and “Certain Transactions” of the Company’s Proxy Statement for its 2013 Annual Meeting of Stockholders.

Item 14. Principal Accounting Fees and Services

The information required by this item is incorporated herein by reference from the section entitled “Independent Registered Public Accounting Firm Fee Information” of the Company’s Proxy Statement for its 2013 Annual Meeting of Stockholders.

106

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)	Financial Statements
		(1)	The financial statements and schedules listed in the index to financial statements and schedules on page 1 of this annual report are filed as part of this annual report.
		(2)	All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are not applicable and therefore have been omitted.
		(3)	The financial statements schedule entitled “Valuation and Qualifying Accounts and Reserves” is filed as part of this annual report on page 101.
(b)	Exhibits

Exhibit Number

2.1		Agreement and Plan of Reorganization dated September 15, 1986, by and among Pilgrim’s Pride Corporation, a Texas corporation; Pilgrim’s Pride Corporation, a Delaware corporation; and Doris Pilgrim Julian, Aubrey Hal Pilgrim, Paulette Pilgrim Rolston, Evanne Pilgrim, Lonnie “Bo” Pilgrim, Lonnie Ken Pilgrim, Greta Pilgrim Owens and Patrick Wayne Pilgrim (incorporated by reference from Exhibit 2.1 to the Company’s Registration Statement on Form S-1 (No. 33-8805) effective November 14, 1986).

2.2		Agreement and Plan of Merger dated September 27, 2000 (incorporated by reference from Exhibit 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, Protein Acquisition Corporation, a wholly owned subsidiary of the Company, and Gold Kist Inc. (incorporated by reference from Exhibit 99.(D)(1) to Amendment No. 11 to the Company’s Tender Offer Statement on Schedule TO filed on December 5, 2006).

2.4		Stock Purchase Agreement by and between the Company and JBS USA Holdings, Inc., dated September 16, 2009 (incorporated by reference from Exhibit 2.1 of the Company’s Current Report on Form 8-K filed September 18, 2009).

2.5		Amendment No.1 to the Stock Purchase Agreement by and between the Company and JBS USA Holdings, Inc., dated December 28, 2009 (incorporated by reference from Exhibit 2.5 of the Company’s Annual Report on Form 10-K/A filed January 22, 2010).

3.1		Amended and Restated Certificate of Incorporation of the Company (incorporated by reference from Exhibit 3.1 of the Company’s Form 8-A filed on December 27, 2012).

3.2		Amended and Restated Corporate Bylaws of the Company (incorporated by reference from Exhibit 3.2 of the Company’s Form 8-A filed on December 27, 2012).

4.1		Amended and Restated Certificate of Incorporation of the Company (included as Exhibit 3.1).

4.2		Amended and Restated Corporate Bylaws of the Company (included as Exhibit 3.2).

4.3		Stockholders Agreement dated December 28, 2009 between the Company and JBS USA Holdings, Inc., as amended (incorporated by reference from Exhibit 4.1 to the Company’s Form 8-A filed on December 27, 2012).

4.4		Form of Common Stock Certificate (incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 29, 2009).

4.5		Indenture dated as of December 14, 2010 among the Company, Pilgrim’s Pride Corporation of West Virginia, Inc. and The Bank of New York Mellon, as Trustee (incorporated by reference from Exhibit 4.1 of the Company’s Form 8-K filed on December 15, 2010).

4.6		Form of Senior 7.875% Note due 2018 (incorporated by reference from Exhibit 4.3 of the Company’s Form 8- K filed on December 15, 2010).

4.7		Form of Guarantee (incorporated by reference from Exhibit 4.4 of the Company’s Form 8-K filed on December 15, 2010).

		Additional long-term debt instruments are not filed since the total amount of those securities authorized under any such instrument does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of such instruments to the SEC upon request.

10.1		Broiler Grower Contract dated May 6, 1997 between the Company and Lonnie “Bo” Pilgrim (Farm 30) (incorporated by reference from Exhibit 10.49 of the Company’s Quarterly Report on Form 10-Q for the three months ended March 29, 1997).

10.2		Commercial Egg Grower Contract dated May 7, 1997 between the Company and Pilgrim Poultry G.P. (incorporated by reference from Exhibit 10.50 of the Company’s Quarterly Report on Form 10-Q for the three months ended March 29, 1997).

10.3		Agreement dated October 15, 1996 between the Company and Pilgrim Poultry G.P. (incorporated by reference from Exhibit 10.23 of the Company’s Quarterly Report on Form 10-Q for the three months ended January 2, 1999).

10.4		Heavy Breeder Contract dated May 7, 1997 between the Company and Lonnie “Bo” Pilgrim (Farms 44, 45 & 46) (incorporated by reference from Exhibit 10.51 of the Company’s Quarterly Report on Form 10-Q for the three months ended March 29, 1997).

10.5		Broiler Grower Contract dated January 15, 1997 by and between the Company and B.J.M. Farms (incorporated by reference from Exhibit 10.26 of the Company’s Registration Statement on Form S-1 (No. 333-29163) effective June 27, 1997).

10.6		Commercial Property Lease dated December 29, 2000 between the Company and Pilgrim Poultry G.P. (incorporated by reference from Exhibit 10.30 of the Company’s Quarterly Report on Form 10-Q for the three months ended December 30, 2000).

10.7		2005 Deferred Compensation Plan of the Company (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K dated December 27, 2004). †

10.8		Ground Lease Agreement effective February 1, 2008 between Pilgrim’s Pride Corporation and Pat Pilgrim (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K dated February 1, 2008).

10.9		Change to Company Contribution Amount Under the Amended and Restated 2005 Deferred Compensation Plan of the Company (incorporated by reference from Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed July 30, 2008). †

107

10.10		Form of Change in Control Agreement dated as of October 21, 2008 between the Company and certain of its executive officers (incorporated by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on October 27, 2008). †

10.11		Consulting Agreement by and between the Company and Lonnie “Bo” Pilgrim dated September 16, 2009 (incorporated by reference from Exhibit 10.57 of the Company’s Annual Report on Form 10-K filed November 23, 2009). †

10.12		Change in Control Agreement by and between the Company and Donald Jackson dated September 15, 2009 (incorporated by reference from Exhibit 10.1 of the Company’s Current Report filed on September 18, 2009). †

10.13		Credit Agreement dated December 28, 2009 among the Company, To-Ricos, Ltd., To-Ricos Distribution, Ltd., the various subsidiaries of the Company party thereto, CoBank, ACB, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 29, 2009).

10.14		Pilgrim’s Pride Corporation Short-Term Management Incentive Plan (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 30, 2009). †

10.15		Pilgrim’s Pride Corporation Long Term Incentive Plan (incorporated by reference from Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on December 30, 2009). †

10.16		Amendment No. 1 to the Credit Agreement dated as of November 29, 2010, by and among the Company, To-Ricos, Ltd., To-Ricos Distribution, Ltd., the various subsidiaries of the Company party thereto, CoBank, ACB, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.20 of the Company’s Annual Report on Form 10-K filed on February 17, 2011).

10.17		Employment Agreement dated January 14, 2011 between the Company and William Lovette (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on January 18, 2011). †

10.18		Restricted Share Agreement dated January 14, 2011 between the Company and William Lovette (incorporated by reference from Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on January 18, 2011). †

10.19		Amendment No. 2 to the Credit Agreement dated as of April 29, 2011, by and among the Company, To-Ricos, Ltd., To-Ricos Distribution, Ltd., the various subsidiaries of the Company party thereto, CoBank, ACB, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on April 29, 2011).

10.20		Amendment No. 3 to the Credit Agreement dated as of April 29, 2011, by and among the Company, To-Ricos, Ltd., To-Ricos Distribution, Ltd., the various subsidiaries of the Company party thereto, CoBank, ACB, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on June 24, 2011).

10.21		Subordinated Loan Agreement dated as of June 23, 2011, between the Company and JBS USA Holdings, Inc. (incorporated by reference from Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on June 24, 2011).

10.22		Amended and Restated MXN$557,415,000 Credit Agreement dated as of October 19, 2011, by and among Avícola Pilgrim’s Pride de México, S.A. de C.V. (“Avicola”), Pilgrim’s Pride, S. de R.L. de C.V. (“PPS”, together with Avicola, the “Borrowers”), certain subsidiaries of the Borrowers (the “Subsidiary Guarantors”), ING Bank (México), S.A. Institución de Banca Múltiple, ING Grupo Financiero, as lender and ING Capital LLC, as administrative agent and lead arranger (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on October 25, 2011).

108

10.23		Amendment No. 1 to the Subordinated Loan Agreement dated as of October 26, 2011, between the Company and JBS USA Holdings, Inc.(incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 10-Q filed on April 27, 2012).

10.24		Commitment Agreement dated as of December 19, 2011, between the Company and JBS USA Holdings, Inc. (incorporated by reference from Exhibit 10.1 to the Company’s Registration Statement on Form S-3 (No. 333-178614) effective December 30, 2011).

10.25		Amendment No. 4 to the Credit Agreement dated as of December 16, 2011, by and among the Company, To-Ricos, Ltd., To-Ricos Distribution, Ltd., the various subsidiaries of the Company party thereto, CoBank, ACB, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K/A filed on December 20, 2011).

10.26		Amendment No. 2 to the Subordinated Loan Agreement dated as of December 16, 2011, between the Company and JBS USA Holdings, Inc. (incorporated by reference from Exhibit 10.2 of the Company’s Current Report on Form 8-K/A filed on December 20, 2011).

10.27		First Amendment to Amended and Restated MXN$557,415,000 Credit Agreement dated as of December 13, 2011, by and among the Borrowers, the Subsidiary Guarantors, the several banks and other financial institutions party thereto and ING Capital LLC, as administrative agent and lead arranger (incorporated by reference from Exhibit 10.3 of the Company’s Current Report on Form 8-K/A filed on December 20, 2011).

10.28		Waiver and Second Amendment to Amended and Restated Credit Agreement, dated as of June 28, 2012, by and among Avicola Pilgrim’s Pride de Mexico, S.A. de C.V., Pilgrim’s Pride, S. de R.L. de C.V., their subsidiaries, as guarantors, ING Capital LLC, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on October 26, 2012).

10.29		Amendment No. 5 to the Credit Agreement dated as of May 1, 2012, by and among the Company, To-Ricos, Ltd. and To-Ricos Distribution Ltd., CoBank ACB, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on July 27, 2012).

10.30		Pilgrim’s Pride Corporation 2012 Long Term Incentive Program (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on September 10, 2012). †

10.31		Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on September 10, 2012). †

12		Ratio of Earnings to Fixed Charges for the years ended December 30, 2012, December 25, 2011, December 26, 2010, September 26, 2009, September 27, 2008, and the transition period from September 27, 2009 to December 27, 2009.*

21		Subsidiaries of Registrant.*

23.1		Consent of KPMG LLP.*

23.2		Consent of Ernst & Young LLP.*

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1		Certification of Principal Executive Officer of Pilgrim’s Pride Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

32.2		Certification of Principal Financial Officer of Pilgrim’s Pride Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS		XBRL Instance Document**

101.SCH		XBRL Taxonomy Extension Schema**

101.CAL		XBRL Taxonomy Extension Calculation**

101.DEF		XBRL Taxonomy Extension Definition**

101.LAB		XBRL Taxonomy Extension Label**

101.PRE		XBRL Taxonomy Extension Presentation**

*		Filed herewith

**		Furnished herewith

†		Represents a management contract or compensation plan arrangement

109

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 15, 2013.

	PILGRIM’S PRIDE CORPORATION

By:	/s/ Fabio Sandri
	Fabio Sandri
	Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

Signature	Title	Date

/s/ Wesley Mendonça Batista	Chairman of the Board	February 15, 2013
Wesley Mendonça Batista

/s/ William W. Lovette	President and Chief Executive Officer	February 15, 2013
William W. Lovette

	Chief Financial Officer
/s/ Fabio Sandri	(Principal Financial Officer and Duly	February 15, 2013
Fabio Sandri	Authorized Officer)

/s/ Charles Macaluso	Director	February 15, 2013
Charles Macaluso

/s/ David E. Bell	Director	February 15, 2013
David E. Bell

/s/ Don Jackson	Director	February 15, 2013
Don Jackson

/s/ Joesley Mendonça Batista	Director	February 15, 2013
Joesley Mendonça Batista

/s/ Marcus Vinicius Pratini de Moraes	Director	February 15, 2013
Marcus Vinicius Pratini de Moraes

/s/ Michael L. Cooper	Director	February 15, 2013
Michael L. Cooper

/s/ Wallim Cruz de Vasconellos Junior	Director	February 15, 2013
Wallim Cruz de Vasconellos Junior

110

Exhibit Index

2.1		Agreement and Plan of Reorganization dated September 15, 1986, by and among Pilgrim’s Pride Corporation, a Texas corporation; Pilgrim’s Pride Corporation, a Delaware corporation; and Doris Pilgrim Julian, Aubrey Hal Pilgrim, Paulette Pilgrim Rolston, Evanne Pilgrim, Lonnie “Bo” Pilgrim, Lonnie Ken Pilgrim, Greta Pilgrim Owens and Patrick Wayne Pilgrim (incorporated by reference from Exhibit 2.1 to the Company’s Registration Statement on Form S-1 (No. 33-8805) effective November 14, 1986).

2.2		Agreement and Plan of Merger dated September 27, 2000 (incorporated by reference from Exhibit 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, Protein Acquisition Corporation, a wholly owned subsidiary of the Company, and Gold Kist Inc. (incorporated by reference from Exhibit 99.(D)(1) to Amendment No. 11 to the Company’s Tender Offer Statement on Schedule TO filed on December 5, 2006).

2.4		Stock Purchase Agreement by and between the Company and JBS USA Holdings, Inc., dated September 16, 2009 (incorporated by reference from Exhibit 2.1 of the Company’s Current Report on Form 8-K filed September 18, 2009).

2.5		Amendment No.1 to the Stock Purchase Agreement by and between the Company and JBS USA Holdings, Inc., dated December 28, 2009 (incorporated by reference from Exhibit 2.5 of the Company’s Annual Report on Form 10-K/A filed January 22, 2010).

3.1		Amended and Restated Certificate of Incorporation of the Company (incorporated by reference from Exhibit 3.1 of the Company’s Form 8-A filed on December 27, 2012).

3.2		Amended and Restated Corporate Bylaws of the Company (incorporated by reference from Exhibit 3.2 of the Company’s Form 8-A filed on December 27, 2012).

4.1		Amended and Restated Certificate of Incorporation of the Company (included as Exhibit 3.1).

4.2		Amended and Restated Corporate Bylaws of the Company (included as Exhibit 3.2).

4.3		Stockholders Agreement dated December 28, 2009 between the Company and JBS USA Holdings, Inc., as amended (incorporated by reference from Exhibit 4.1 to the Company’s Form 8-A filed on December 27, 2012).

4.4		Form of Common Stock Certificate (incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 29, 2009).

4.5		Indenture dated as of December 14, 2010 among the Company, Pilgrim’s Pride Corporation of West Virginia, Inc. and The Bank of New York Mellon, as Trustee (incorporated by reference from Exhibit 4.1 of the Company’s Form 8-K filed on December 15, 2010).

4.6		Form of Senior 7.875% Note due 2018 (incorporated by reference from Exhibit 4.3 of the Company’s Form 8- K filed on December 15, 2010).

4.7		Form of Guarantee (incorporated by reference from Exhibit 4.4 of the Company’s Form 8-K filed on December 15, 2010).

		Additional long-term debt instruments are not filed since the total amount of those securities authorized under any such instrument does not exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of such instruments to the SEC upon request.

10.1		Broiler Grower Contract dated May 6, 1997 between the Company and Lonnie “Bo” Pilgrim (Farm 30) (incorporated by reference from Exhibit 10.49 of the Company’s Quarterly Report on Form 10-Q for the three months ended March 29, 1997).

10.2		Commercial Egg Grower Contract dated May 7, 1997 between the Company and Pilgrim Poultry G.P. (incorporated by reference from Exhibit 10.50 of the Company’s Quarterly Report on Form 10-Q for the three months ended March 29, 1997).

10.3		Agreement dated October 15, 1996 between the Company and Pilgrim Poultry G.P. (incorporated by reference from Exhibit 10.23 of the Company’s Quarterly Report on Form 10-Q for the three months ended January 2, 1999).

10.4		Heavy Breeder Contract dated May 7, 1997 between the Company and Lonnie “Bo” Pilgrim (Farms 44, 45 & 46) (incorporated by reference from Exhibit 10.51 of the Company’s Quarterly Report on Form 10-Q for the three months ended March 29, 1997).

10.5		Broiler Grower Contract dated January 15, 1997 by and between the Company and B.J.M. Farms (incorporated by reference from Exhibit 10.26 of the Company’s Registration Statement on Form S-1 (No. 333-29163) effective June 27, 1997).

111

10.6		Commercial Property Lease dated December 29, 2000 between the Company and Pilgrim Poultry G.P. (incorporated by reference from Exhibit 10.30 of the Company’s Quarterly Report on Form 10-Q for the three months ended December 30, 2000).

10.7		2005 Deferred Compensation Plan of the Company (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K dated December 27, 2004). †

10.8		Ground Lease Agreement effective February 1, 2008 between Pilgrim’s Pride Corporation and Pat Pilgrim (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K dated February 1, 2008).

10.9		Change to Company Contribution Amount Under the Amended and Restated 2005 Deferred Compensation Plan of the Company (incorporated by reference from Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed July 30, 2008). †

10.10		Form of Change in Control Agreement dated as of October 21, 2008 between the Company and certain of its executive officers (incorporated by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on October 27, 2008). †

10.11		Consulting Agreement by and between the Company and Lonnie “Bo” Pilgrim dated September 16, 2009 (incorporated by reference from Exhibit 10.57 of the Company’s Annual Report on Form 10-K filed November 23, 2009). †

10.12		Change in Control Agreement by and between the Company and Donald Jackson dated September 15, 2009 (incorporated by reference from Exhibit 10.1 of the Company’s Current Report filed on September 18, 2009). †

10.13		Credit Agreement dated December 28, 2009 among the Company, To-Ricos, Ltd., To-Ricos Distribution, Ltd., the various subsidiaries of the Company party thereto, CoBank, ACB, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 29, 2009).

10.14		Pilgrim’s Pride Corporation Short-Term Management Incentive Plan (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 30, 2009). †

10.15		Pilgrim’s Pride Corporation Long Term Incentive Plan (incorporated by reference from Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on December 30, 2009). †

10.16		Amendment No. 1 to the Credit Agreement dated as of November 29, 2010, by and among the Company, To-Ricos, Ltd., To-Ricos Distribution, Ltd., the various subsidiaries of the Company party thereto, CoBank, ACB, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.20 of the Company’s Annual Report on Form 10-K filed on February 11, 2011).

10.17		Employment Agreement dated January 14, 2011 between the Company and William Lovette (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on January 18, 2011). †

10.18		Restricted Share Agreement dated January 14, 2011 between the Company and William Lovette (incorporated by reference from Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on January 18, 2011). †

10.19		Amendment No. 2 to the Credit Agreement dated as of April 22, 2011, by and among the Company, To-Ricos, Ltd., To-Ricos Distribution, Ltd., the various subsidiaries of the Company party thereto, CoBank, ACB, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed on April 29, 2011).

10.20		Amendment No. 3 to the Credit Agreement dated as of June 23, 2011, by and among the Company, To-Ricos, Ltd., To-Ricos Distribution, Ltd., the various subsidiaries of the Company party thereto, CoBank, ACB, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on June 24, 2011).

10.21		Subordinated Loan Agreement dated as of June 23, 2011, between the Company and JBS USA Holdings, Inc. (incorporated by reference from Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on June 24, 2011).

10.22		Amended and Restated MXN$557,415,000 Credit Agreement dated as of October 19, 2011, by and among Avícola Pilgrim’s Pride de México, S.A. de C.V. (“Avicola”), Pilgrim’s Pride, S. de R.L. de C.V. (“PPS”, together with Avicola, the “Borrowers”), certain subsidiaries of the Borrowers (the “Subsidiary Guarantors”), ING Bank (México), S.A. Institución de Banca Múltiple, ING Grupo Financiero, as lender and ING Capital LLC, as administrative agent and lead arranger (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on October 25, 2011).

10.23		Amendment No. 1 to the Subordinated Loan Agreement dated as of October 26, 2011, between the Company and JBS USA Holdings, Inc.(incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 10-Q filed on April 27, 2012).

10.24		Commitment Agreement dated as of December 19, 2011, between the Company and JBS USA Holdings, Inc. (incorporated by reference from Exhibit 10.1 to the Company’s Registration Statement on Form S-3 (No. 333-178614) effective December 30, 2011).

112

10.25		Amendment No. 4 to the Credit Agreement dated as of December 16, 2011, by and among the Company, To-Ricos, Ltd., To-Ricos Distribution, Ltd., the various subsidiaries of the Company party thereto, CoBank, ACB, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.1 of the Company’s Current Report on Form 8-K/A filed on December 20, 2011).

10.26		Amendment No. 2 to the Subordinated Loan Agreement dated as of December 16, 2011, between the Company and JBS USA Holdings, Inc. (incorporated by reference from Exhibit 10.2 of the Company’s Current Report on Form 8-K/A filed on December 20, 2011).

10.27		First Amendment to Amended and Restated MXN$557,415,000 Credit Agreement dated as of December 13, 2011, by and among the Borrowers, the Subsidiary Guarantors, the several banks and other financial institutions party thereto and ING Capital LLC, as administrative agent and lead arranger (incorporated by reference from Exhibit 10.3 of the Company’s Current Report on Form 8-K/A filed on December 20, 2011).

10.28		Waiver and Second Amendment to Amended and Restated Credit Agreement, dated as of June 28, 2012, by and among Avicola Pilgrim’s Pride de Mexico, S.A. de C.V., Pilgrim’s Pride, S. de R.L. de C.V., their subsidiaries, as guarantors, ING Capital LLC, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on October 26, 2012).

10.29		Amendment No. 5 to the Credit Agreement dated as of May 1, 2012, by and among the Company, To-Ricos, Ltd. and To-Ricos Distribution Ltd., CoBank ACB, as administrative agent, and the lenders party thereto (incorporated by reference from Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on July 27, 2012).

10.30		Pilgrim’s Pride Corporation 2012 Long Term Incentive Program (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on September 10, 2012). †

10.31		Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on September 10, 2012). †

12		Ratio of Earnings to Fixed Charges for the years ended December 30, 2012, December 25, 2011, December 26, 2010, September 26, 2009, September 27, 2008, and the transition period from September 27, 2009 to December 27, 2009.*

21		Subsidiaries of Registrant.*

23.1		Consent of KPMG LLP.*

23.2		Consent of Ernst & Young LLP.*

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*

32.1		Certification of Principal Executive Officer of Pilgrim’s Pride Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

32.2		Certification of Principal Financial Officer of Pilgrim’s Pride Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**

101.INS		XBRL Instance Document**

101.SCH		XBRL Taxonomy Extension Schema**

101.CAL		XBRL Taxonomy Extension Calculation**

101.DEF		XBRL Taxonomy Extension Definition**

101.LAB		XBRL Taxonomy Extension Label**

101.PRE		XBRL Taxonomy Extension Presentation**

* Filed herewith

** Furnished herewith

† Represents a management contract or compensation plan arrangement

113

EXHIBIT 12
PILGRIM'S PRIDE CORPORATION
COMPUTATION OF RATIO EARNINGS TO FIXED CHARGES

										Transition
	2012			2011			2010			Period			2009			2008
Earnings:
Income from continuing operations before
income taxes	$	153,062		$	(487,126	)	$	66,488		$	(68,446	)	$	(173,849	)	$	(1,185,909	)
Add: Total fixed charges (see below)		113,011			126,111			132,905			48,899			181,094			158,414
Less: Interest capitalized		(1,717	)		(3,424	)		(1,296	)		(1,082	)		(2,619	)		(5,288	)
Total earnings		264,356			(364,439	)		198,097			(20,629	)		4,626			(1,032,783	)

Fixed charges:
Interest^(a)		106,643			114,955			118,574			45,756			164,548			139,508
Portion of noncancelable lease expense
representative of interest factor^(b)		6,368			11,156			14,331			3,143			16,546			18,906
Total fixed charges		113,011			126,111			132,905			48,899			181,094			158,414

Ratio of earnings to fixed charges		2.34			(c	)		1.49			(d	)		(e	)		(f	)

(a)		Interest includes amortization of capitalized financing fees.
(b)		One-third of noncancelable lease expense is assumed to representative of the interest factor.
(c)		Earnings were insufficient to cover fixed charges by $490.6 million.
(d)		Earnings were insufficient to cover fixed charges by $69.5 million.
(e)		Earnings were insufficient to cover fixed charges by $176.5 million.
(f)		Earnings were insufficient to cover fixed charges by $1,191.2 million.

EXHIBIT 21
PILGRIM'S PRIDE CORPORATION
SUBSIDIARIES OF REGISTRANT

		Jurisdiction of
		Incorporation or
		Organization
US Subsidiaries
PFS Distribution Company		Delaware
Pilgrim's Pride, LLC		Delaware
POPPSA 3, LLC		Delaware
POPPSA 4, LLC		Delaware
PPC Transportation Company		Delaware
Merit Provisions, LLC		Delaware
GC Properties		Georgia
Luker Inc.		Georgia
PPC of Alabama, Inc.		Georgia
Pilgrim's Pride Affordable Housing Corporation		Nevada
Pilgrim's Pride of Nevada, Inc.		Nevada
PPC Marketing, Ltd.		Texas
Pilgrim's Pride Corporation of West Virginia, Inc.		West Virginia

Foreign Subsidiaries
To-Ricos Distribution, Ltd.		Bermuda
To-Ricos, Ltd.		Bermuda
Avícola Pilgrim's Pride de Mexico, S. A. de C.V.		Mexico
Carnes y Productos Avícolas de Mexico S. de R.L. de C.V. (Inactive)		Mexico
Comercializadora de Carnes de Mexico S. de R.L. de C.V.		Mexico
Incubadora Hidalgo S. de R.L. de C.V.		Mexico
Gallina Pesada S.A. de C.V.		Mexico
Grupo Pilgrim's Pride Funding Holdings, S. de R.L. de C.V.		Mexico
Grupo Pilgrim's Pride Funding, S. de R.L. de C.V.		Mexico
Inmobiliaria Avicola Pilgrim's Pride, S. de R.L.		Mexico
Operadora de Productos Avicolas S. de R.L. de C.V. (Inactive)		Mexico
Pilgrim's Pride S. de R.L. de C.V.		Mexico
Servicios Administrativos Pilgrim's Pride S. de R.L. de C.V.		Mexico

EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

The Board of Directors
Pilgrim’s Pride Corporation

We consent to the incorporation by reference in the registration statements (Nos. 333-74984; 333-111929; 333-179563 and 333-163639) on Form S-8 and registration statement (No. 333-130113) on Form S-3 of Pilgrim's Pride Corporation of our reports dated February 15, 2013, with respect to the consolidated balance sheets of Pilgrim's Pride Corporation as of December 30, 2012 and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for the fifty three weeks ended December 30, 2012, and the effectiveness of internal control over financial reporting as of December 30, 2012, which reports appear in the December 30, 2012 annual report on Form 10-K of Pilgrim's Pride Corporation

The audit report covering the December 30, 2012 Consolidated Financial Statements contains an explanatory paragraph that states that we also have audited the retrospective adjustments applied to earnings per share in the 2011 and 2010 consolidated financial statements as described in “Note 15. Stockholder's Equity” under the section “Rights Offering.” In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2011 and 2010 consolidated financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2011 and 2010 consolidated financial statements taken as a whole.

/s/ KPMG LLP

Denver, Colorado
February 15, 2013

EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements:

	(1)		Registration Statement (Form S-8 No. 333-74984) pertaining to Pilgrim's Pride Corporation Employee Stock Investment Plan,

	(2)		Registration Statement (Form S-8 No. 333-111929) pertaining to Pilgrim's Pride Corporation Employee Stock Investment Plan,

	(3)		Registration Statement (Form S-8 No. 333-163639) pertaining to the Amended and Restated Employment Agreement Plan of Pilgrim's Pride Corporation,

	(4)		Registration Statement (Form S-8 No. 333-179563) pertaining to the Pilgrim's Pride Retirement Savings Plan and the To-Ricos Employee Savings and Retirement Plan, and

	(5)		Registration Statement (Form S-8 No. 333-182586) pertaining to the Pilgrim's Pride Corporation Long Term Incentive Plan;

of our report dated February 17, 2012, with respect to the consolidated financial statements, before the effects of the adjustments to retrospectively apply the change in accounting described in “Note 15. Stockholder's Equity,” and schedule of Pilgrim's Pride Corporation included in this Annual Report (Form 10-K) of Pilgrim's Pride Corporation for the year ended December 30, 2012.

/s/ Ernst & Young LLP

Denver, Colorado
February 14, 2013

EXHIBIT 31.1

CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, William W. Lovette, certify that:

1.	I have reviewed this annual report on Form 10-K for the year ended December 30, 2012, of Pilgrim's Pride Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 15, 2013	/s/ William W. Lovette
	William W. Lovette
	Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Fabio Sandri, certify that:

1.	I have reviewed this annual report on Form 10-K for the year ended December 30, 2012, of Pilgrim's Pride Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 15, 2013	/s/ Fabio Sandri
	Fabio Sandri
	Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. § 1350 ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of Pilgrim's Pride Corporation (the “Company”), does hereby certify, to such officer's knowledge, that:

The Annual Report on Form 10-K for the year ended December 30, 2012 (the “Form 10-K”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 15, 2013	/s/ William W. Lovette
	William W. Lovette
	Chief Executive Officer

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. § 1350 ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Date: February 15, 2013	/s/ Fabio Sandri
	Fabio Sandri
	Chief Financial Officer