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

          FORM 10-Q         

(Mark One)

x        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 24, 2012
OR
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______
 
Commission File number 1-9273

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

Delaware 75-1285071
   
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
 
1770 Promontory Circle,
Greeley, CO 80634-9038
(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code: (970) 506-8000

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

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   No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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   No  o

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 definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes   No  o

Number of shares outstanding of the issuer’s common stock, $0.01 par value per share, as of July 27, 2012, was 258,926,358.



INDEX

PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited) 2
Condensed Consolidated Balance Sheets
       June 24, 2012 and December 25, 2011 2
Condensed Consolidated Statements of Operations
       Thirteen and Twenty-Six weeks ended June 24, 2012 and June 26, 2011 3
Condensed Consolidated Statements of Stockholders’ Equity
         Twenty-Six weeks ended June 24, 2012 and June 26, 2011 4
Condensed Consolidated Statements of Cash Flows
       Twenty-Six weeks ended June 24, 2012 and June 26, 2011 5
Notes to Condensed Consolidated Financial Statements as of June 24, 2012 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
Item 3. Quantitative and Qualitative Disclosures about Market Risk 42
Item 4. Controls and Procedures 45
PART II. OTHER INFORMATION 46
Item 1. Legal Proceedings 46
Item 1A.       Risk Factors 49
Item 5. Other Information 49
Item 6. Exhibits 50
SIGNATURES 52
EXHIBIT INDEX 53



PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

      June 24, 2012       December 25, 2011
(Unaudited)
(In thousands)
Cash and cash equivalents $ 49,227 $ 41,609
Restricted cash and cash equivalents 4,666 7,680
Investment in available-for-sale securities 156 157
Trade accounts and other receivables, less allowance for doubtful  
       accounts 347,389 349,222
Account receivable from JBS USA, LLC   24,932   21,198
Inventories   987,992     879,094
Income taxes receivable 65,495 59,067
Prepaid expenses and other current assets 43,395 52,350
Assets held for sale 44,713 53,816
              Total current assets 1,567,965 1,464,193
Investment in available-for-sale securities 474 497
Deferred tax assets 71,099 71,099
Other long-lived assets 48,843 57,921
Identified intangible assets, net 41,230 44,083
Property, plant and equipment, net 1,209,796 1,241,752
                     Total assets $ 2,939,407 $ 2,879,545
 
Accounts payable $ 342,101 $ 328,864
Account payable to JBS USA, LLC 6,746 11,653
Accrued expenses and other current liabilities 280,871 281,797
Current deferred tax liabilities 79,247 79,248
Current maturities of long-term debt 15,617 15,611
              Total current liabilities 724,582 717,173
Long-term debt, less current maturities 1,214,619 1,408,001
Note payable to JBS USA Holdings, Inc. 50,000
Other long-term liabilities 145,469 145,941
              Total liabilities 2,084,670 2,321,115
Common stock 2,589 2,143
Additional paid-in capital 1,641,619 1,443,484
Accumulated deficit (735,414 ) (843,945 )
Accumulated other comprehensive loss (57,095 ) (46,070 )
              Total Pilgrim’s Pride Corporation stockholders’ equity 851,699 555,612
Noncontrolling interest 3,038 2,818
              Total stockholders’ equity 854,737 558,430
                     Total liabilities and stockholders’ equity $      2,939,407 $         2,879,545

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

2



PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Thirteen Weeks Ended Twenty-Six Weeks Ended
   June 24, 2012    June 26, 2011    June 24, 2012    June 26, 2011
(In thousands, except per share data)
Net sales $     1,974,469 $     1,922,690 $     3,863,242 $     3,815,166
Cost of sales 1,830,380 1,966,961 3,609,088 3,911,199
Operational restructuring charges 1,957   3,305
              Gross profit (loss) 144,089 (46,228 ) 254,154   (99,338 )
Selling, general and administrative expense 44,439 51,628 89,695 104,876  
Administrative restructuring charges 389 850 3,274 1,268
              Operating income (loss) 99,261 (98,706 ) 161,185 (205,482 )
Interest expense, net of capitalized interest 24,925 27,426 53,170 54,933
Interest income (356 )   (278 ) (630 ) (988 )
Foreign currency transaction losses (gains) 8,212     44     2,284 (2,691 )
Miscellaneous, net   (315 ) (1,436 ) (685 ) (2,507 )
              Income (loss) before income taxes 66,795 (124,462 ) 107,046 (254,229 )
Income tax expense (benefit) (2,358 ) 3,470   (1,705 ) (6,402 )
              Net income (loss) 69,153 (127,932 ) 108,751 (247,827 )
Less: Net income (loss) attributable to noncontrolling interests (205 ) 209 220 1,074
              Net income (loss) attributable to Pilgrim’s Pride  
                     Corporation $ 69,358 $ (128,141 ) $ 108,531 $ (248,901 )
Comprehensive income (loss) $ 57,708 $ (128,148 ) $ 97,726 $ (248,558 )
Comprehensive income (loss) attributable to noncontrolling
       interests (205 ) 209 220 1,074
              Comprehensive income (loss) attributable to Pilgrim's Pride
                     Corporation $ 57,913 $ (128,357 ) $ 97,506 $ (249,632 )
Weighted average shares of common stock outstanding:
              Basic (Note 13. Stockholders' Equity) 258,726 224,996 241,144 224,996
              Effect of common stock equivalents 115 92
              Diluted 258,841 224,996 241,236 224,996
Net income (loss) per share of common stock outstanding:
              Basic $ 0.27 $ (0.57 ) $ 0.45 $ (1.11 )
              Diluted $ 0.27 $ (0.57 ) $ 0.45 $ (1.11 )

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

3



PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)

Pilgrim’s Pride Corporation Stockholders
Accumulated
Common Stock Additional Other
Paid-in Accumulated Comprehensive   Noncontrolling
      Shares       Amount       Capital       Deficit       Income (Loss)       Interests       Total
(In thousands)
Balance at December 25, 2011 214,282 $ 2,143   $ 1,443,484 $ (843,945 ) $ (46,070 ) $ 2,818 $ 558,430
Comprehensive income (loss):                  
       Net income     108,531   220   108,751
       Other comprehensive loss, net of tax:          
              Losses associated with pension and other
                     postretirement benefit obligations, net of tax of $0 (11,025 ) (11,025 )
       Total other comprehensive loss, net of tax   (11,025 )
Total comprehensive income 97,726
Issuance of common stock 44,444 444 197,838 198,282
Share-based compensation plans:
       Common stock issued under compensation plans 200 2 2
       Requisite service period recognition 297 297
Balance at June 24, 2012 258,926 $ 2,589 $ 1,641,619 $ (735,414 ) $ (57,095 ) $ 3,038 $ 854,737
Balance at December 26, 2010 214,282 $ 2,143 $ 1,442,810 $ (348,653 ) $ (23,637 ) $ 5,933 $ 1,078,596
Comprehensive income (loss):
       Net income (loss) (248,901 ) 1,074 (247,827 )
       Other comprehensive loss, net of tax:
              Net unrealized holding losses on available-for-sale
                     securities, net of tax of $0 (720 ) (720 )
              Losses associated with pension and other
                     postretirement benefit obligations, net of tax of $0 (11 ) (11 )
       Total other comprehensive loss, net of tax (731 )
Total comprehensive loss (248,558 )
Share-based compensation 269 269
Other activity 107 1,480 (4,197 ) (2,610 )
Balance at June 26, 2011 214,282 $      2,143 $      1,443,186 $      (596,074 ) $        (24,368 ) $         2,810 $      827,697

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

4



PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Twenty-Six Weeks Ended
      June 24, 2012       June 26, 2011
(In thousands)
Cash flows from operating activities:  
Net income (loss) $ 108,751 $ (247,827 )
       Adjustments to reconcile net income (loss) to cash provided by (used in) operating          
              activities:    
              Depreciation and amortization 71,980 103,075
              Foreign currency transaction losses 1,948
              Accretion of bond discount 228 225
              Impairment expense 1,342 2,808
              Loss (gain) on property disposals 628 (342 )
              Share-based compensation 299 269
              Deferred income tax benefit (9,695 )
       Changes in operating assets and liabilities:
              Restricted cash and cash equivalents 8,013 (530 )
              Trade accounts and other receivables (2,123 ) (55,676 )
              Inventories (109,638 ) 64,748
              Prepaid expenses and other current assets 8,763 (14,448 )
              Accounts payable, accrued expenses and other current liabilities 7,403 18,630
              Income taxes (14,698 ) 573
              Deposits 160 2,180
              Other operating assets and liabilities (2,734 ) (4,162 )
Cash provided by (used in) operating activities 80,322 (140,172 )
Cash flows from investing activities:
                     Acquisitions of property, plant and equipment (37,561 ) (103,152 )
                     Purchases of investment securities (162 ) (3,383 )
                     Proceeds from sale or maturity of investment securities 58 2,634
                     Proceeds from property disposals 12,461 4,877
Cash used in investing activities (25,204 ) (99,024 )
Cash flows from financing activities:
                     Proceeds from revolving line of credit and long-term borrowings 391,300 580,289
                     Payments on revolving line of credit, long-term borrowings and capital lease
                            obligations (584,904 ) (455,931 )
                     Proceeds from note payable to JBS USA Holdings, Inc. 50,000
                     Payment of note payable to JBS USA Holdings, Inc. (50,000 )
                     Proceeds from sale of common stock, net 198,282
                     Purchase of remaining interest in subsidiary (2,504 )
                     Payment of capitalized loan costs (4,395 )
                     Other financing activities (106 )
Cash provided by (used in) financing activities (45,322 ) 167,353
Effect of exchange rate changes on cash and cash equivalents (2,178 ) 330
Increase (decrease) in cash and cash equivalents 7,618 (71,513 )
Cash and cash equivalents, beginning of period 41,609 106,077
Cash and cash equivalents, end of period $      49,227 $      34,564

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

5



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Business

     Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms) is the second-largest chicken company in the world, with operations in the United States (“U.S.”), Mexico and Puerto Rico. Pilgrim's products are sold to foodservice, retail and frozen entrée customers. The Company's primary distribution is through retailers, foodservice distributors and restaurants throughout the United States and Puerto Rico and in the northern and central regions of Mexico. Additionally, the Company exports chicken products to approximately 105 countries. Pilgrim's fresh chicken products consist of refrigerated whole chickens, whole cut-up chickens and selected chicken parts that are either marinated or non-marinated. The Company's prepared chicken products include fully cooked, ready-to-cook and individually frozen chicken parts, strips, nuggets and patties, some of which are either breaded or non-breaded and either marinated or non-marinated. 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. Pilgrim's has approximately 38,000 employees and has 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. Approximately 3,900 contract growers supply poultry for the Company's operations. As of June 24, 2012, JBS USA Holdings, Inc. ("JBS USA") a wholly owned indirect subsidiary of Brazil-based JBS S.A., beneficially owned 75.3% of the Company's outstanding common stock.

Consolidated Financial Statements

     The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments unless otherwise disclosed) considered necessary for a fair presentation have been included. Operating results for the thirteen and twenty-six weeks ended June 24, 2012 are not necessarily indicative of the results that may be expected for the year ending December 30, 2012. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 25, 2011.

     Pilgrim’s operates on 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 Condensed Consolidated Financial Statements applies to our fiscal year and not the calendar year.

     The Condensed Consolidated Financial Statements include the accounts of the Company 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 non-monetary 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. Currency exchange gains or losses are included in the line item Foreign currency transaction losses (gains) in the Condensed Consolidated Statements of Operations.

Reclassifications

     We have made certain reclassifications to the 2011 Condensed Consolidated Financial Statements with no impact to reported net loss in order to conform to the 2012 presentation.

Reportable Segment

     We operate in one reportable business segment, as a producer and seller of chicken products we either produce or purchase for resale.

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.

6



Book Overdraft

     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 Condensed Consolidated Statements of Cash Flows.

2. 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 either the thirteen and twenty-six weeks ended June 24, 2012 or the thirteen and twenty-six weeks ended June 26, 2011 included the following:

Administrative
      Facility Closures(a)       Integration(b)       Total
(In thousands, except positions eliminated)
Earliest implementation date October 2008 January 2010
Latest expected completion date September 2014 March 2012
Positions eliminated 2,410 480 2,890
Costs expected to be incurred:
       Employee-related costs $ 3,170 $ 14,578 $ 17,748
       Asset impairment costs 17,902 32,530 50,432
       Inventory valuation costs 850 850
       Other exit or disposal costs 19,433 19,433
              Total exit or disposal costs $ 41,355 $ 47,108 $ 88,463
Costs incurred since inception:
       Employee-related costs $ 3,170 $ 14,578 $ 17,748
       Asset impairment costs 17,902 32,530 50,432
       Inventory valuation costs 850 850
       Other exit or disposal costs 7,181 7,181
              Total exit or disposal costs $      29,103 $      47,108 $      76,211

Thirteen Weeks Ended June 24, 2012 Twenty-Six Weeks Ended June 24, 2012
Facility Administrative Facility Administrative
      Closures       Integration       Total       Closures       Integration       Total
(In thousands)
Employee-related costs $ $ $ $ 78 $ $ 78
Asset impairment costs 960 382 1,342
Other exit or disposal costs 389 389 1,932 1,932
       Total exit or disposal costs $ 389 $ $ 389 $ 2,970 $ 382 $ 3,352
   
Thirteen Weeks Ended June 26, 2011 Twenty-Six Weeks Ended June 26, 2011
Facility Administrative Facility Administrative
      Closures       Integration       Total       Closures       Integration       Total
  (In thousands)
Employee-related costs $  — $ 76 $ 76 $ $ 616 $ 616
Asset impairment costs 1,957 850 2,807 3,723 850 4,573
       Total exit or disposal costs $      1,957 $      926 $      2,883 $      3,723 $      1,466 $      5,189

(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.

7



     Accrued severance costs are included in Accrued expenses and other current liabilities and accrued inventory charges are included in Inventories on the accompanying Condensed Consolidated Balance Sheets. The following table sets forth activity that was recorded through the Company’s accrued exit or disposal cost accounts during the twenty-six weeks ended June 24, 2012 and June 26, 2011:

Accrued
Accrued Inventory
      Severance       Charges       Total
(In thousands)
Balance at December 25, 2011 $      90 $      793 $      883
       Accruals
       Payment /Disposal (155 ) (136 ) (291 )
       Adjustments 78 78
Balance at June 24, 2012 $ 13 $ 657 $ 670
Balance at December 26, 2010 $ 4,150 $ 793 $ 4,943
       Accruals 1,290 1,290
       Payment /Disposal (3,864 ) (3,864 )
       Adjustments (674 ) (674 )
Balance at June 26, 2011 $ 902 $ 793 $ 1,695

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

Thirteen Weeks Ended Twenty-Six Weeks Ended
      June 24, 2012       June 26, 2011       June 24, 2012       June 26, 2011
(In thousands)
Cost of sales $      $      $      78 $     
Operational restructuring charges 1,957 3,305
Selling, general and administrative expense 76 616
Administrative restructuring charges 389 850 3,274 1,268
       Total exit or disposal costs $      389 $      2,883 $      3,352 $      5,189

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

Thirteen Weeks Ended Twenty-Six Weeks Ended
      June 24, 2012       June 26, 2011       June 24, 2012       June 26, 2011
(In thousands)
Operational restructuring charges:
       Asset impairment costs (Note 8. Property, Plant and  
              Equipment) $      $      1,957 $      $      3,305
Administrative restructuring charges:  
       Asset impairment costs (Note 8. Property, Plant and    
              Equipment) $ $ 850 $ 1,342 $ 1,268
       Loss on egg sales and flock depletion expensed as
              incurred 54 509
       Other restructuring costs 335 1,423
              Total administrative restructuring charges $ 389 $ 850 $ 3,274 $ 1,268

     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 our lenders under our U.S. Credit Facility (as defined in Note 10 - Long-term Debt and Other Borrowing Arrangements). 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.

8



3. FAIR VALUE MEASUREMENTS

     The asset (liability) amounts recorded in the Condensed Consolidated Balance Sheets (carrying amounts) and the estimated fair values of financial instruments at June 24, 2012 and December 25, 2011 consisted of the following:

June 24, 2012 December 25, 2011
Carrying Fair Carrying Fair Note
     Amount      Value      Amount      Value      Reference
(In thousands)
Short-term investments in available-for-sale
       securities $     156 $     156 $     157 $     157 6
Commodity derivative assets(a): 7
       Futures 5,123 5,123 2,870 2,870
       Options 2,348 2,348
Long-term investments in available-for-sale    
       securities 474 474 497 497 6
Commodity derivative liabilities(b):     7
       Futures   (1,353 ) (1,353 )   (2,120 ) (2,120 )
       Options     (603 )   (603 )
Long-term debt and other borrowing      
       arrangements(c) (1,230,236 ) (1,261,818 ) (1,423,612 ) (1,421,517 ) 10
Note payable to JBS USA (50,000 ) (50,077 ) 10, 14

(a)   Commodity derivative assets are included in Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet.
(b)   Commodity derivative liabilities are included in Accrued expenses and other current liabilities on the Condensed 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 June 24, 2012 or December 25, 2011, as applicable.

     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 required 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 June 24, 2012, the Company held certain items that are 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.

9



     The following items were measured at fair value on a recurring basis at June 24, 2012:

      Level 1 Level 2 Level 3 Total
(In thousands)
Short-term investments in available-for-sale securities $            $      156       $            $      156
Commodity derivative assets:  
       Futures 5,123 5,123
       Options 2,348 2,348
Long-term investments in available-for-sale securities 474 474
Commodity derivative liabilities:
       Futures (1,353 ) (1,353 )

     Financial assets and liabilities classified in Level 1 at June 24, 2012 include cash and cash equivalents, restricted cash and cash equivalents, equity securities and 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 financial 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 financial 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 the twenty-six weeks ended June 24, 2012 and June 26, 2011, respectively, related to the Company’s investment in a fund-of-funds asset that is measured at fair value on a recurring basis using Level 3 inputs:

Twenty-Six Weeks Ended
June 24, 2012       June 26, 2011
(In thousands)
Balance at beginning of period $             59 $       1,190
Included in other comprehensive income 51
Sale of securities (59 )
Balance at end of period $ $ 1,241

     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. Certain long-lived assets held for sale with a carrying amount of $2.0 million were written down to their fair value of $0.7 million, resulting in a loss of $1.3 million recorded in earnings during the twenty-six weeks ended June 24, 2012. These assets are classified as Level 2 assets because their fair value can be corroborated based on observable market data.

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4. TRADE ACCOUNTS AND OTHER RECEIVABLES

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

June 24, 2012       December 25, 2011
(In thousands)
Trade accounts receivable $       342,592 $       337,411
Account receivable from JBS USA, LLC 24,932 21,198
Other receivables 9,630 16,974
       Receivables, gross 377,154 375,583
Allowance for doubtful accounts (4,833 ) (5,163 )
       Receivables, net $      372,321 $      370,420

5. INVENTORIES

     Inventories consisted of the following:

June 24, 2012       December 25, 2011
(In thousands)
Chicken:
       Live chicken and hens $      393,500 $       363,590
       Feed, eggs and other 278,543 238,449
       Finished chicken products 312,587 273,363
              Total chicken inventories 984,630 875,402
Other products:
       Commercial feed, table eggs and other 3,344 3,674
       Distribution inventories (other than chicken products) 18 18
              Total other products inventories 3,362 3,692
                     Total inventories $ 987,992 $ 879,094

6. 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:

      June 24, 2012       December 25, 2011
Amortized       Fair Amortized       Fair
Cost Value Cost Value
(In thousands)
Cash equivalents:
       Fixed income securities $      50 $      51 $      $     
Short-term investments:
       Fixed income securities $ 151 $ 156 $ 152 $ 157
Long-term investments:    
       Fixed income securities $ 400 $ 474 $ 367 $ 438
       Other 59 59

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     Maturities for the Company’s investments in fixed income securities as of June 24, 2012 were as follows:

Amount       Percent
  (In thousands)
Matures in less than one year $        207 30 %
Matures between one and two years 54 8 %
Matures between two and five years 228 34 %
Matures in excess of five years 192 28 %
$ 681        100 %

     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.

     Certain investments are held in trust as compensating balance arrangements for our insurance liability and are 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.

7. DERIVATIVE FINANCIAL INSTRUMENTS

     The Company utilizes various raw materials in its operations, including corn, soybean meal, soybean oil, sorghum 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 fair value of derivative assets is included in the line item Prepaid expenses and other current assets on the Condensed 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.

     We have not designated the derivative financial instruments that we have purchased to mitigate commodity purchase exposures as cash flow hedges. Therefore, we recognized 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 the line item Cost of sales in the Condensed Consolidated Statements of Operations. The Company recognized net gains of $2.4 million and net losses of $5.7 million related to changes in the fair value of its derivative financial instruments during the thirteen weeks ended June 24, 2012 and June 26, 2011, respectively. We also recognized net losses of $2.2 million and net gains of $26.3 million related to changes in the fair value of our derivative financial instruments during the twenty-six weeks ended June 24, 2012 and June 26, 2011, respectively.

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

June 24, 2012 December 25, 2011
(Fair values in thousands)
Fair values:              
       Commodity derivative assets $      7,471 $      2,870
       Commodity derivative liabilities (1,353 ) (2,723 )
       Cash collateral posted with (owed to) brokers (1,682 ) 3,271
Derivatives Coverage:      
       Corn (a) (a)
       Soybean meal 1.6 %   (a)
       Sorghum 50.6 %     n/a
       Period through which stated percent of needs are covered:  
              Corn (a) (a)
              Soybean meal May 2013 (a)
              Sorghum December 2012 n/a
Written put options outstanding(b):
       Fair value $ 2,348 $ (603 )
       Number of contracts:
              Corn 500
              Sorghum 1,395
       Expiration dates December 2012 March 2012
Short positions on outstanding futures derivative instruments(b):
       Fair value $ 2,643 $ 495
       Number of contracts:
              Corn 1,286 2,531
              Soybean meal 119 96

(a)       Derivatives coverage is the percent of anticipated corn and soybean meal needs covered by outstanding derivative instruments through a specified date. As of June 24, 2012, the Company's open short derivative positions for corn exceeded its long derivative positions. The Company will sometimes purchase short derivative instruments to offset negative price exposure on future fixed cash purchases. These positions expire by June 2013.
(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.

8. PROPERTY, PLANT AND EQUIPMENT

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

June 24, 2012 December 25, 2011
(In thousands)
Land       $ 64,030       $ 65,413
Buildings 1,080,037 1,077,789
Machinery and equipment     1,492,689 1,492,251
Autos and trucks 58,248     58,518
Construction-in-progress 41,495   36,094  
       PP&E, gross 2,736,499 2,730,065
Accumulated depreciation (1,526,703 ) (1,488,313 )
       PP&E, net $      1,209,796 $       1,241,752

     The Company recognized depreciation expense of $32.3 million and $48.2 million during the thirteen weeks ended June 24, 2012 and June 26, 2011, respectively. We also recognized depreciation expense of $64.2 million and $95.1 million during the twenty-six weeks ended June 24, 2012 and June 26, 2011, respectively.

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     During the thirteen and twenty-six weeks ended June 24, 2012, the Company sold certain PP&E for cash of $9.4 million and $12.5 million, respectively, and recognized net gains on these sales of $0.3 million and net losses of $0.6 million, respectively. PP&E sold in 2012 included a vacant office building in Texas, an idled processing plant in Georgia, idled hatcheries in Alabama 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 the thirteen and twenty-six weeks ended June 26, 2011, the Company sold certain PP&E for cash of $0.5 million and $4.9 million, respectively, and recognized net losses of $0.8 million and net gains of $0.3 million, respectively, on these sales. PP&E sold in 2011 included an idled feed mill in Georgia, various broiler and breeder farms in Texas, undeveloped land in Texas and miscellaneous processing equipment.

     Management has committed to the sale of certain properties and related assets, including, but not limited to, processing plants, office buildings and farms, which 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 June 24, 2012 and December 25, 2011, the Company reported properties and related assets totaling $44.7 million and $53.8 million, respectively, in Assets held for sale on its Condensed Consolidated Balance Sheets. For the twenty-six weeks ended June 24, 2012, the Company recognized impairment expense of $1.3 million on certain of these assets. The Company did not recognize any impairment expense for the thirteen weeks ended June 24, 2012.

     On July 17, 2012, the Company reached an agreement to sell its commercial egg operations, which have been classified as held for sale since December 2011, to Cal-Maine Foods, Inc. The Company expects to close the transaction in August 2012.

     As part of the exit or disposal activities discussed in “Note 2. Exit or Disposal Activities,” the Company closed or idled various processing complexes, processing plants, hatcheries and broiler farms throughout the U.S. 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 June 24, 2012, the carrying amount of these idled assets was $61.0 million based on depreciable value of $151.5 million and accumulated depreciation of $90.5 million.

     The Company last tested the recoverability of its long-lived assets held and used in December 2011. At that time, the Company determined that the carrying amount of its long-lived assets held and used was recoverable over the remaining life of the primary asset in the group and that long-lived assets held and used passed the Step 1 recoverability test under ASC 360-10-35, Impairment or Disposal of Long-Lived Assets. There were no indicators present during the twenty-six weeks ended June 24, 2012 that required the Company to test its long-lived assets held and used for recoverability.

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9. CURRENT LIABILITIES

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

June 24, 2012 December 25, 2011
(In thousands)
Accounts payable:            
       Trade accounts $ 275,958   $ 294,662
       Book overdrafts 65,277   32,958
       Other payables 866 1,244
              Total accounts payable 342,101 328,864
Accounts payable to JBS USA, LLC 6,746 11,653
Accrued expenses and other current liabilities:  
       Compensation and benefits   80,288 72,328
       Interest and debt-related fees 9,762 13,809
       Insurance and self-insured claims 99,971 102,256
       Commodity derivative liabilities:
              Futures 1,353 2,120
              Options 603
       Other accrued expenses 89,215 89,855
       Pre-petition obligations 282 826
              Total accrued expenses and other current liabilities 280,871 281,797
$       629,718 $       622,314

10. LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS

     Long-term debt and other borrowing arrangements consisted of the following components:

      Maturity       June 24, 2012       December 25, 2011
(In thousands)
Senior notes, at 7 7/8%, net of unaccreted discount 2018 $ 497,073 $ 496,846
U.S. Credit Facility Term B-1 note payable at 4.75% 2014 275,443 275,443
U.S. Credit Facility Term B-2 note payable at 9.00% 2014 291,396 299,145
U.S. Credit Facility with one revolving note payable on which the
       Company had funds borrowed at 4.22% and 6.25% 2014 161,500 347,300
Mexico Credit Facility with notes payable at TIIE Rate plus 2.25% or    
       Equilibrium Interbank Interest Rate plus 4.5% 2014  
JBS USA Subordinated Loan Agreement with one term note payable at    
       9.845%   2015     50,000
Other Various 4,824 4,878
       Long-term debt 1,230,236 1,473,612  
       Less: Current maturities of long-term debt (15,617 ) (15,611 )
              Long-term debt, less current maturities $         1,214,619 $         1,458,001

Senior and Subordinated Notes

     At June 24, 2012, the Company had an aggregate principal balance of $500.0 million of 7 7/8% 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. Additionally, the Company had an aggregate principal balance of $3.9 million of 7 5/8% senior unsecured notes, 8 3/8% senior subordinated unsecured notes and 9 1/4% senior unsecured notes outstanding at June 24, 2012.

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     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, the Company has also agreed to reimburse JBS USA up to $56.5 million for potential draws upon letters of credit issued on 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 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 reimburses JBS USA for the letter of credit costs the Company would otherwise incur under its U.S. Credit Facility. In the thirteen weeks ended June 24, 2012, the Company reimbursed JBS USA $1.4 million for letter of credit costs incurred from November 2011 through May 2012. As of June 24, 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 cap 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. In April 2011, the Company paid approximately $46.3 million of its excess cash flow toward the outstanding principal under the Term B loans. After giving effect to this prepayment and other prepayments of the Term B loans, the Term B loans must be repaid in 16 quarterly installments of approximately $3.9 million beginning on April 15, 2011, with the final installment due on December 28, 2014. The Company did not have excess cash flow from 2011 to be applied toward the outstanding principal under the Term B loans. 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 June 24, 2012, a principal amount of $566.8 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 June 24, 2012, the applicable borrowing base was $676.9 million, the amount available for borrowing under the revolving loan commitment was $476.2 million and outstanding borrowings and letters of credit under the revolving loan commitment were $161.5 million and $39.2 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 4.00:1.00 for periods calculated from September 24, 2012 and thereafter. The Company is currently in compliance with the modified consolidated tangible net worth covenant. The Company also expects to be in compliance with the modified fixed charge coverage ratio and senior secured leverage ratio financial covenants when the requirement to comply with this covenant resumes in the quarter ended December 30, 2012.

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     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 and (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 June 24, 2012, the U.S. dollar-equivalent of the loan commitment under the Mexico Credit Facility was $40.2 million. There were no outstanding borrowings under the Mexico Credit Facility at June 24, 2012.

11. INCOME TAXES

     The Company recorded an income tax benefit of $1.7 million, a (1.6)% effective tax rate, for the twenty-six weeks ended June 24, 2012, compared to an income tax benefit of $6.4 million, a 2.5% effective tax rate, for the twenty-six weeks ended June 26, 2011. The income tax benefit recognized for the twenty-six weeks ended June 24, 2012 was primarily the result of a decrease in reserves for unrecognized tax benefits and a decrease in valuation allowance as a result of earnings in the current period, offset by the tax expense recorded on the Company's year-to-date income.

     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 June 24, 2012, the Company does not believe it has sufficient positive evidence to conclude that realization of its federal, state and foreign net deferred tax assets is more likely than not to be realized.

     For the twenty-six weeks ended June 24, 2012 and June 26, 2011, there is no tax effect reflected in other comprehensive loss because the Company has a valuation allowance.

     With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations for years prior to 2003 and is no longer subject to Mexico income tax examinations for years prior to 2006. The Company continues to be under examination for Gold Kist and its subsidiaries for the tax years ended June 30, 2004 through December 27, 2006. The Company is currently working with the Internal Revenue Service (“IRS”) through the normal processes and procedures that are available to all taxpayers outside of bankruptcy to resolve the IRS' proofs of claim. There has been no significant change in the resolution of the IRS' claim since December 25, 2011. See “Note 15. Commitments and Contingencies” for additional information.

12. 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, defined contribution retirement savings plans and deferred compensation plans. Under all of our retirement plans, the Company’s expenses were $2.4 million and $3.0 million in the thirteen weeks ended June 24, 2012 and June 26, 2011, respectively, and $4.6 million and $5.3 million in the twenty-six weeks ended June 24, 2012 and June 26, 2011, respectively.

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     The following table provides the components of net periodic benefit cost for the defined benefit plans mentioned above:

Thirteen Weeks Ended Twenty-Six Weeks Ended
June 24, 2012 June 26, 2011 June 24, 2012 June 26, 2011
Pension Other Pension Other Pension Other Pension Other
    Benefits      Benefits      Benefits      Benefits      Benefits      Benefits      Benefits      Benefits
(In thousands)
Service cost $ 13 $ $ 47 $ $ 25 $ $ 99 $
Interest cost 2,028 23 2,211 30 4,057 47 4,676 64
Estimated return on plan assets (1,436 ) (1,665 ) (2,871 ) (3,521 )
Amortization of prior service cost     1     2    
Amortization of net loss (gain) 416 (1 ) 26 831 (1 )   54
       Net periodic benefit cost $      1,021 $      22 $      620 $      30 $      2,042 $      46 $      1,310 $      64

     During the thirteen and twenty-six weeks ended June 24, 2012, the Company contributed $2.8 million and $4.4 million to its defined benefit plans, respectively.

     Beginning in the current year, the Company began remeasuring both plan assets and obligations on a quarterly basis.

13. 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 Condensed 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.

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     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 the thirteen and twenty-six weeks ended June 26, 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)
Thirteen weeks ended June 26, 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 $ (0.60 ) $ (0.57 ) $ 0.03
       Net loss per weighted average diluted share $ (0.60 ) $ (0.57 )   $ 0.03
Twenty-six weeks ended June 26, 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 $ (1.16 ) $ (1.11 ) $ 0.05
       Net loss per weighted average diluted share $                  (1.16 ) $      (1.11 ) $      0.05

Share-Based Compensation

     The Company granted 200,000 restricted shares of its common stock to William W. Lovette, the Company’s Chief Executive Officer, effective January 14, 2011 in connection with the employment agreement with Mr. Lovette. Restrictions on fifty percent of these shares will lapse on January 3, 2013 and restrictions on the remaining shares will lapse on January 3, 2014, subject to Mr. Lovette’s continued employment with the Company through the applicable vesting 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. Assuming no forfeiture of shares, the Company will recognize share-based compensation expense of $0.7 million ratably from January 14, 2011 to January 3, 2013. The Company will also recognize share-based compensation expense of $0.7 million ratably from January 14, 2011 to January 3, 2014. The Company recognized share-based compensation expense totaling $0.2 million during both the thirteen weeks ended June 24, 2012 and June 26, 2011 and share-based compensation expense totaling $0.3 million during both the twenty-six weeks ended June 24, 2012 and June 26, 2011.

Anti-dilutive Common Stock Equivalents

     Due to the net loss incurred in the thirteen and twenty-six weeks ended June 26, 2011, the Company did not include 8,157 and 11,591 common stock equivalents, respectively, in the calculations of the denominators used for net loss per weighted average diluted common share outstanding as these common stock equivalents would be anti-dilutive.

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.

14. 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 and certain entities related to Mr. Pilgrim collectively owned the second-largest block of our common stock. On March 12, 2012, Mr. Pilgrim (the "Founder Director") resigned as a director of Pilgrim's. On March 26, 2012, Mr. Pilgrim and certain entities related to Mr. Pilgrim sold 18,924,438 shares of our common stock to JBS USA. This transaction increased JBS USA's beneficial ownership to 75.3% of the total outstanding shares of our common stock.

19



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

Thirteen Weeks Ended Twenty-Six Weeks Ended
June 24, June 26, June 24, June 26,
      2012       2011       2012       2011
(In thousands) (In thousands)
JBS USA:
       Subordinated loan interest(a) $      $      $      971 $     
       Letter of credit fees(b) 592 1,184
JBS USA, LLC:    
       Purchases from JBS USA, LLC(c) 16,982 37,981 31,711 78,027
       Expenditures paid by JBS USA, LLC on behalf of Pilgrim’s Pride
              Corporation(d) 14,400 6,281 29,725 14,150
       Sales to JBS USA, LLC(c) 61,225 17,989 119,367 41,723
       Expenditures paid by Pilgrim’s Pride Corporation on behalf of JBS
              USA, LLC(d) 1,432 479 2,556 650
Former Founder Director:
       Consulting fee paid to former Founder Director(e) 374 374 748
       Board fees paid to former Founder Director(e) 39 45 76
       Contract grower compensation paid to former Founder Director(f) 369 297 669
       Sales to former Founder Director 4 1 5

(a)       On June 23, 2011, we executed a subordinated loan agreement with JBS USA that provided an aggregate loan commitment of $100.0 million and immediately borrowed $50.0 million under the resulting facility at an interest rate of 9.845% per annum. On March 7, 2012, we repaid the outstanding $50.0 million loan, along with $3.5 million accrued interest, and terminated the loan commitment under the agreement.
(b) Beginning on October 26, 2011, JBS USA arranged for letters of credit to be issued on its account in the amount of $56.5 million to an insurance company on our behalf in order to allow that insurance company to return cash it held as collateral against potential liability claims. We agreed to reimburse JBS USA up to $56.5 million for potential draws upon these letters of credit. We reimburse JBS USA for the letter of credit costs we would have otherwise incurred under our credit facilities. During 2012, we have paid JBS USA $1.4 million for letter of credit costs. At June 24, 2012, the outstanding payable to JBS USA for letter of credit costs was $0.2 million.
(c) We routinely execute transactions to both purchase products from JBS USA, LLC and sell products to them. As of June 24, 2012 and December 25, 2011, the outstanding payable to JBS USA, LLC was $6.7 million and $11.7 million, respectively. As of June 24, 2012 and December 25, 2011, the outstanding receivable from JBS USA, LLC was $24.9 million and $21.2 million, respectively. As of June 24, 2012, approximately $1.9 million of goods from JBS USA, LLC were in transit and not reflected on our Condensed Consolidated Balance Sheet.
(d) On January 19, 2010, we executed an agreement with JBS USA, LLC in order to allocate costs associated with the procurement of SAP licenses and maintenance services by JBS USA, LLC for the combined companies. Under this agreement, the fees associated with procuring SAP licenses and maintenance services are allocated between us 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 each underlying SAP license agreement. During 2012, we have paid JBS USA $0.6 million for the procurement of such licenses and services. On May 5, 2010, we executed an agreement with JBS USA, LLC in order to allocate the costs of supporting the business operations through one consolidated corporate team. Expenditures paid by JBS USA, LLC on our behalf are reimbursed by us and expenditures paid by us on behalf of JBS USA, LLC are reimbursed by JBS USA, LLC. This agreement expires on May 5, 2015. During 2012, we have paid JBS USA, LLC $14.4 million for net expenditures paid by JBS USA, LLC on our behalf. At June 24, 2012, the outstanding net payable to JBS USA resulting from affiliate trade, procurement of SAP licenses and maintenance services and support of the business operations through one consolidated corporate team was $5.4 million.
(e) On December 28, 2009, we executed a consulting agreement with the former Founder Director. The terms of the agreement on that date included, among other things, that the former Founder Director (i) will provide services to us that are comparable in the aggregate with the services provided by him to us prior to December 28, 2009, (ii) will be appointed to our Board of Directors and, during the term of the agreement, will be nominated for subsequent terms on the Board, (iii) will be compensated for services rendered to us at a rate of $1.5 million per annum for a term of five years, (iv) will be subject to customary non-solicitation and non-competition provisions and (v) will 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 our employees. As a result of his resignation as Founder Director, we are no longer required to nominate the Former Director to serve subsequent terms on the Board. During 2012, we have paid $0.4 million to the former Founder Director under this agreement.
(f) We have executed various grower contracts with the former Founder Director that provide for the placement of our flocks on farms owned by the former Founder Director during the grow-out phase of production. These contracts include terms that are substantially identical to those included in contracts executed by us with unaffiliated parties. The former Founder Director can terminate the contracts upon completion of the grow-out phase for each flock. We can terminate the contracts within a specified period of time pursuant to regulations by the Grain Inspection, Packers and Stockyards Administration of the U.S. Department of Agriculture. During 2012, we have paid $0.3 million to the former Founder Director under these contracts.

     On March 2, 2011, the Company agreed to purchase the home of Bill Lovette, our Chief Executive Officer, 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 has not yet been resold. The Company will be responsible for commissions and closing costs on the resale of the home.

20



     The Company executed a brand license agreement on June 19, 2012 under which it has granted to JBS Aves Ltda. a license to use the Company's name, trademark and various other intellectual property and materials in connection with certain of their poultry products. The license fee will be calculated based on metric tons of poultry product sold by JBS Aves Ltda. bearing the Company's name and trademark. The Company did not recognize any income under the license agreement during the thirteen weeks ended June 24, 2012.

15. COMMITMENTS AND CONTINGENCIES

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

     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. For a discussion of the material legal proceedings and claims, see Part II, Item 1. “Legal Proceedings.” 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, Pilgrim’s and six of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Northern District of Texas, Fort Worth Division. The cases were jointly administered under Case No. 08-45664. The Company emerged from Chapter 11 on December 28, 2009. The Company is the named defendant in several pre-petition lawsuits that, as of June 24, 2012, have not been resolved. 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.

     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 Shelia 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 rejecting the El Dorado growers' contracts. The trial court 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. 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. While the outstanding judgment is reasonably possible, the Company has recorded an estimated probable loss that is less than the outstanding judgment. The remaining growers' claims are now scheduled to be tried in the summer and fall of 2012. 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.

     The IRS has filed an amended proof of claim in the Bankruptcy Court pursuant to which the IRS asserts claims that total $74.7 million. We have 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 assert 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 has 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 intend to work 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.

21



     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. The matter is currently in litigation before the Tax Court.

     On August 10, 2010, we filed two petitions in Tax Court. The first petition relates to three Notices of Deficiency that were issued to us with respect to our 2003, 2005 and 2007 tax years. The second petition relates to a Notice of Deficiency that was issued to us with respect to Gold Kist’s tax year ended June 30, 2005 and its short tax year ended September 30, 2005. Both cases are currently in litigation before the Tax Court.

     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 cases. If adversely determined, the outcome could have a material effect on the Company’s operating results and financial position.

     The Notices of Deficiency and the Tax Court proceedings discussed above cover the same tax years and the same amounts that were asserted by the IRS in its $74.7 million amended proof of claim that was filed in the Bankruptcy Court.

     Among the other claims that were pending against the Company were 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 reached an agreement to settle this matter for $1.5 million, which the court approved on May 2, 2012. The case has been dismissed with prejudice in accordance with the terms of the settlement agreement.

16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

     On December 15, 2010, the Company closed on the sale of $500.0 million of 7 ⅞% Senior Notes due 2018 (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 June 24, 2012 and December 25, 2011, as well as the condensed consolidating statements of operations and cash flows for the thirteen and twenty-six weeks ended June 24, 2012 and June 26, 2011 based on the guarantor structure.

22



CONDENSED CONSOLIDATING BALANCE SHEETS
June 24, 2012

Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
(In thousands)
Cash and cash equivalents $      24,988 $      $      24,239 $       $      49,227
Restricted cash and cash equivalents 4,666 4,666
Investment in available-for-sale securities 156 156
Trade accounts and other receivables, less allowance for  
       doubtful accounts 292,044 15,285 40,060 347,389
Account receivable from JBS USA, LLC 24,932 24,932
Inventories 869,863 22,767 95,362 987,992
Income taxes receivable 59,722 6,781 (1,008 ) 65,495
Current deferred tax assets 4,003 1,492 (5,495 )
Prepaid expenses and other current assets 21,478 188 21,729 43,395
Assets held for sale 28,778 15,935 44,713
              Total current assets 1,321,805 42,243 210,420 (6,503 ) 1,567,965
Investment in available-for-sale securities 474 474
Intercompany receivable 33,609 32,218 (65,827 )
Investment in subsidiaries 339,489 (339,489 )
Deferred tax assets 75,392 7 (4,300 ) 71,099
Other long-lived assets 48,351 180,492 (180,000 ) 48,843
Identified intangible assets, net 29,423 11,807 41,230
Property, plant and equipment, net 1,063,036 47,112 103,536 (3,888 ) 1,209,796
                     Total assets $ 2,911,105 $ 121,573 $ 506,736 $ (600,007 ) $ 2,939,407
Accounts payable $ 294,107 $ 12,276 $ 35,718 $ $ 342,101
Account payable to JBS USA, LLC 6,746 6,746
Accrued expenses and other current liabilities 221,578 19,864 39,426 3 280,871
Income taxes payable 1,008 (1,008 )
Current deferred tax liabilities 83,809 933 (5,495 ) 79,247
Current maturities of long-term debt 15,617 15,617
              Total current liabilities 621,857 32,140 77,085 (6,500 ) 724,582
Long-term debt, less current maturities 1,239,619 (25,000 ) 1,214,619
Intercompany payable 65,830 (65,830 )
Deferred tax liabilities 4,003 297 (4,300 )
Other long-term liabilities 297,264 3,205 (155,000 ) 145,469
              Total liabilities 2,158,740 36,143 146,417 (256,630 ) 2,084,670
              Total Pilgrim’s Pride Corporation stockholders’
                     equity 752,365 85,430 357,281 (343,377 ) 851,699
Noncontrolling interest 3,038 3,038
              Total stockholders’ equity 752,365 85,430 360,319 (343,377 ) 854,737
                     Total liabilities and stockholders’ equity $ 2,911,105 $ 121,573 $ 506,736 $ (600,007 ) $ 2,939,407

23



CONDENSED CONSOLIDATING BALANCE SHEETS
December 25, 2011

Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
(In thousands)
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

24



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Thirteen Weeks Ended June 24, 2012

Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
(In thousands)
Net sales $      1,743,061 $      71,854 $             227,555 $         (68,001 ) $      1,974,469
Cost of sales 1,626,219 65,539   206,623   (68,001 ) 1,830,380
              Gross profit 116,842 6,315 20,932 144,089
Selling, general and administrative expense 39,336 5,103 44,439
Administrative restructuring charges 389 389
              Operating income 77,117 6,315 15,829 99,261
Interest expense, net 24,694 231 24,925
Interest income (7 ) (349 ) (356 )
Foreign currency transaction losses 25 8,187 8,212
Miscellaneous, net (363 ) (2 ) 129 (79 ) (315 )
              Income before income taxes 52,768 6,317 7,631 79 66,795
Income tax expense (benefit) (2,410 ) 2,385 (2,333 ) (2,358 )
              Income before equity in earnings of consolidated
                     subsidiaries 55,178 3,932 9,964 79 69,153
Equity in earnings of consolidated subsidiaries 14,105 (14,105 )
              Net income (loss) 69,283 3,932 9,964 (14,026 ) 69,153
Less: Net loss attributable to noncontrolling interest (205 ) (205 )
              Net income (loss) attributable to Pilgrim’s Pride
                     Corporation $ 69,283 $ 3,932 $ 10,169 $ (14,026 ) $ 69,358
 
Comprehensive income (loss) $ 57,838 $ 3,932 $ 9,964 $ (14,026 ) $ 57,708
Comprehensive loss attributable to
       noncontrolling interests (205 ) (205 )
Comprehensive income (loss) attributable to
       Pilgrim's Pride Corporation $ 57,838 3,932 $ 10,169 $ (14,026 ) $ 57,913

25



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Thirteen Weeks Ended June 26, 2011

Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
(In thousands)
Net sales $      1,547,207 $      119,650 $             321,531 $         (65,698 ) $      1,922,690
Cost of sales 1,582,084 106,940 343,635   (65,698 ) 1,966,961
Operational restructuring charges 1,957 1,957
              Gross profit (loss) (36,834 ) 12,710 (22,104 ) (46,228 )
Selling, general and administrative expense 43,663 7,965 51,628
Administrative restructuring charges 850 850
              Operating income (loss) (81,347 ) 12,710 (30,069 ) (98,706 )
Interest expense, net 27,312 114 27,426
Interest income (53 ) (225 ) (278 )
Foreign currency transaction losses 28 16 44
Miscellaneous, net 26,579 1,225 (29,150 ) (90 ) (1,436 )
              Income (loss) before income taxes (135,213 ) 11,485 (824 ) 90 (124,462 )
Income tax expense (benefit) (1,222 ) 4,336 356 3,470
              Income (loss) before equity in earnings of
                     consolidated subsidiaries (133,991 ) 7,149 (1,180 ) 90 (127,932 )
Equity in earnings of consolidated subsidiaries 5,764 (5,764 )
              Net income (loss) (128,227 ) 7,149 (1,180 ) (5,674 ) (127,932 )
Less: Net income attributable to noncontrolling
       interests 209 209
              Net income (loss) attributable to Pilgrim’s Pride
                     Corporation $ (128,227 ) $ 7,149 $ 4,998 $ (5,674 ) $ (128,141 )
 
Comprehensive income (loss) $ (128,443 ) $ 7,149 $ (1,180 ) $ (5,674 ) $ (128,148 )
Comprehensive income attributable to
       noncontrolling interests 209 209
Comprehensive income (loss) attributable to  
       Pilgrim's Pride Corporation $ (128,443 ) $ 7,149 $ (1,389 ) $ (5,674 ) $ (128,357 )

26



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Twenty-Six Weeks Ended June 24, 2012

Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
(In thousands)
Net sales $      3,382,624 $      148,340 $              460,844 $       (128,566 ) $      3,863,242
Cost of sales 3,193,571 133,082 411,001 (128,566 ) 3,609,088
              Gross profit 189,053 15,258 49,843 254,154
Selling, general and administrative expense 79,554 10,141 89,695
Administrative restructuring charges 3,269 5 3,274
              Operating income 106,230 15,258 39,697 161,185
Interest expense, net 52,770 400 53,170
Interest income (16 ) (614 ) (630 )
Foreign currency transaction losses 48 2,236 2,284
Miscellaneous, net (481 ) (11 ) (400 ) 207 (685 )
              Income (loss) before income taxes 53,909 15,269 38,075 (207 ) 107,046
Income tax expense (benefit) (7,087 ) 5,764 (382 ) (1,705 )
              Income (loss) before equity in earnings of
                     consolidated subsidiaries 60,996 9,505 38,457 (207 ) 108,751
Equity in earnings of consolidated subsidiaries 47,745 (47,745 )
              Net income (loss) 108,741 9,505 38,457 (47,952 ) 108,751
Less: Net income attributable to noncontrolling
       interest 220 220
              Net income (loss) attributable to Pilgrim’s Pride
                     Corporation $ 108,741 $ 9,505 $ 38,237 $ (47,952 ) $ 108,531
 
Comprehensive income (loss) $ 97,716 $ 9,505 $ 38,457 $ (47,952 ) $ 97,726
Comprehensive income attributable to
       noncontrolling interests 220 220
Comprehensive income (loss) attributable to
       Pilgrim's Pride Corporation $ 97,716 9,505 $ 38,237 $ (47,952 ) $ 97,726

27



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Twenty-Six Weeks Ended June 26, 2011

Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
(In thousands)
Net sales $      3,089,877 $      229,660 $              645,154 $        (149,525 ) $      3,815,166
Cost of sales 3,170,191 209,011 681,522 (149,525 ) 3,911,199
Operational restructuring charges 3,305 3,305
              Gross profit (loss) (83,619 ) 20,649 (36,368 ) (99,338 )
Selling, general and administrative expense 88,824 16,052 104,876
Administrative restructuring charges 1,268 1,268
              Operating income (loss) (173,711 ) 20,649 (52,420 ) (205,482 )
Interest expense, net 54,499 434 54,933
Interest income (354 ) (634 ) (988 )
Foreign currency transaction gains (173 ) (2,518 ) (2,691 )
Miscellaneous, net 51,757 2,352 (57,048 ) 432 (2,507 )
              Income (loss) before income taxes (279,440 ) 18,297 7,346 (432 ) (254,229 )
Income tax expense (benefit) (15,972 ) 6,907 2,663 (6,402 )
              Income (loss) before equity in earnings of
                     consolidated subsidiaries (263,468 ) 11,390 4,683 (432 ) (247,827 )
Equity in earnings of consolidated subsidiaries 15,000 (15,000 )
              Net income (loss) (278,468 ) 11,390 4,683 14,568 (247,827 )
Less: Net income attributable to noncontrolling
       interest 1,074 1,074
              Net income (loss) attributable to Pilgrim’s Pride
                     Corporation $ (278,468 ) $ 11,390 $ 3,609 $ 14,568 $ (248,901 )
                                       
Comprehensive income (loss) $ (279,199 ) $ 11,390 $ 4,683 $ 14,568 $ (248,558 )
Comprehensive income attributable to
       noncontrolling interests 1,074 1,074
Comprehensive income (loss) attributable to
       Pilgrim's Pride Corporation $ (279,199 ) 11,390 $ 3,609 $ 14,568 $ (249,632 )

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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Twenty-Six Weeks Ended June 24, 2012

Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
(In thousands)
Cash provided by operating activities $      77,717 $         620 $                1,761 $               224 $            80,322
Cash flows from investing activities:
       Acquisitions of property, plant and equipment (32,535 ) (642 ) (4,384 ) (37,561 )
       Purchases of investment securities (73 ) (89 ) (162 )
       Proceeds from sale or maturity of investment securities 58 58
       Proceeds from property sales and disposals 11,640 821 12,461
              Cash used in investing activities (20,910 ) (642 ) (3,652 ) (25,204 )
Cash flows from financing activities:
       Payments on note payable to JBS USA Holdings, Inc. (50,000 ) (50,000 )
       Proceeds from long-term debt 391,300 391,300
       Payments on long-term debt (584,904 ) (584,904 )
       Proceeds from sale of common stock 198,282 198,282
       Other financing activities 224 (224 )
              Cash provided by (used in) financing activities (45,322 ) 224 (224 ) (45,322 )
Effect of exchange rate changes on cash and cash equivalents (2,178 ) (2,178 )
Increase (decrease) in cash and cash equivalents 11,485 (22 ) (3,845 ) 7,618
Cash and cash equivalents, beginning of period 13,733 30 27,846 41,609
Cash and cash equivalents, end of period $ 25,218 $ 8 $ 24,001 $ $ 49,227

29



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Twenty-Six Weeks Ended June 26, 2011

Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
(In thousands)
Cash provided by (used in) operating activities $      (194,575 ) $      7,740 $                44,485 $           2,178 $            (140,172 )
Cash flows from investing activities:
       Acquisitions of property, plant and equipment (91,020 ) (7,746 ) (4,386 ) (103,152 )
       Purchases of investment securities (3,383 ) (3,383 )
       Proceeds from sale or maturity of investment securities 2,634 2,634
       Proceeds from property sales and disposals 3,799 6 1,072 4,877
              Cash used in investing activities (87,221 ) (7,740 ) (4,063 ) (99,024 )
Cash flows from financing activities:
       Proceeds from long-term debt 580,289 580,289
       Payments on long-term debt (455,931 ) (455,931 )
       Proceeds from note payable to JBS Holdings, Inc. 50,000 50,000
       Purchase of remaining interest in subsidiary 106 (2,610 ) (2,504 )
       Payment of capitalized loan costs (4,395 ) (4,395 )
       Other financing activities (538 ) 432 (106 )
              Cash provided by (used in) financing activities 170,069 (538 ) (2,178 ) 167,353
Effect of exchange rate changes on cash and cash equivalents 330 330
Increase (decrease) in cash and cash equivalents (111,727 ) 40,214 (71,513 )
Cash and cash equivalents, beginning of period 67,685 38,392 106,077
Cash and cash equivalents, end of period $ (44,042 ) $ $ 78,606 $ $ 34,564

30



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

Description of the Company

     Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms) is the second-largest chicken company in the world, with operations in the United States (“U.S.”), Mexico and Puerto Rico. Pilgrim's products are sold to foodservice, retail and frozen entrée customers. The Company's primary distribution is through retailers, foodservice distributors and restaurants throughout the United States and Puerto Rico and in the northern and central regions of Mexico. Additionally, the Company exports chicken products to approximately 105 countries. Pilgrim's fresh chicken products consist of refrigerated whole chickens, whole cut-up chickens and selected chicken parts that are either marinated or non-marinated. The Company's prepared chicken products include fully cooked, ready-to-cook and individually frozen chicken parts, strips, nuggets and patties, some of which are either breaded or non-breaded and either marinated or non-marinated. 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. Pilgrim's has approximately 38,000 employees and has 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. Approximately 3,900 contract growers supply poultry for the Company's operations. As of June 24, 2012, JBS USA Holdings, Inc. ("JBS USA"), a wholly owned indirect subsidiary of Brazil-based JBS S.A., owned 75.3% of the Company's outstanding common stock.

     Pilgrim’s operates on 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 report applies to our fiscal year and not the calendar year.

Executive Summary

     We reported net income attributable to Pilgrim’s Pride Corporation of $69.4 million, or $0.27 per diluted common share, for the thirteen weeks ended June 24, 2012 compared to a net loss attributable to Pilgrim’s Pride Corporation of $128.1 million, or $0.57 per diluted common share, for the thirteen weeks ended June 26, 2011. These operating results included gross profit of $144.1 million and gross losses of $46.2 million for the respective periods. For the thirteen weeks ended June 26, 2011 we recognized operational restructuring charges of $2.0 million. For the thirteen weeks ended June 24, 2012, we did not recognize operational restructuring charges. For the thirteen weeks ended June 24, 2012 and June 26, 2011, we recognized administrative restructuring charges of $0.4 million and $0.9 million, respectively.

     We reported net income attributable to Pilgrim’s Pride Corporation of $108.5 million, or $0.45 per diluted common share, for the twenty-six weeks ended June 24, 2012 compared to a net loss attributable to Pilgrim’s Pride Corporation of $248.9 million, or $1.11 per diluted common share, for the twenty-six weeks ended June 26, 2011. These operating results included gross profit of $254.2 million and gross losses of $99.3 million for the respective periods. For the twenty-six weeks ended June 26, 2011 we recognized operational restructuring charges of $3.3 million. For the twenty-six weeks ended June 24, 2012, we did not recognize operational restructuring charges. For the twenty-six weeks ended June 24, 2012 and June 26, 2011, we recognized administrative restructuring charges of $3.3 million and $1.3 million, respectively.

     During the twenty-six weeks ended June 24, 2012, $80.3 million of cash was provided by operations and during the twenty-six weeks ended June 26, 2011, $140.2 million of cash was used in operations. At June 24, 2012, we had cash and cash equivalents totaling $49.2 million.

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     Market prices for corn remained volatile during the thirteen weeks ended June 24, 2012, ranging from $5.51 per bushel to $6.77 per bushel. Market prices for soybean meal increased during the thirteen weeks ended June 24, 2012 to a high of $437.50 per ton. Between the date of this report and July 23, 2012, market prices for corn and soybean meal reached highs of $8.64 per bushel and $565.00 per ton, respectively. We believe these market highs resulted primarily from uncertainty as to future crop yields given current drought conditions in most of the grain-growing regions in the U.S. There can be no assurance that our feed ingredient prices will not continue to increase materially and that such increases would not negatively impact our financial position, results of operations and cash flow. 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 three years:

Corn Soybean Meal
      Highest Price       Lowest Price       Highest Price       Lowest Price
2012:
       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 6.15 3.25 364.90 249.60
2009(a) 4.50 3.00 433.40 264.80

(a)       For the fifty-two weeks ended December 27, 2009.

     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. 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. The Company recognized net gains of $2.4 million and net losses of $5.7 million related to changes in the fair value of its derivative financial instruments during the thirteen weeks ended June 24, 2012 and June 26, 2011, respectively. The Company recognized net losses of $2.2 million and net gains of $26.3 million related to changes in the fair value of its derivative financial instruments during the twenty-six weeks ended June 24, 2012 and June 26, 2011, respectively.

     Market prices for chicken products are currently at levels sufficient to offset the higher costs of feed ingredients. There can be no assurance that chicken prices will not decrease due to such factors as competition from other proteins and substitutions by consumers of non-protein foods because of uncertainty surrounding the general economy and unemployment.

     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 the thirteen weeks ended June 24, 2012, we recognized total costs of $0.4 million, which included facility closure costs of $0.4 million. During the thirteen weeks ended June 26, 2011, we recognized total costs of $2.9 million, which included asset impairment costs of $2.8 million and employee-related costs of $0.1 million, related to exit or disposal efforts. During the twenty-six weeks ended June 24, 2012, we recognized total costs of $3.4 million, which included facility closure costs of $1.9 million, asset impairment costs of $1.4 million and employee-related costs of $0.1 million, related to exit or disposal efforts. During the twenty-six weeks ended June 26, 2011, we recognized total costs of $5.2 million, which included asset impairment costs of $4.6 million and employee-related costs of $0.6 million, related to exit or disposal efforts. We expect to incur additional costs related to ongoing exit or disposal efforts totaling $12.3 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 secured revolving credit and term loan agreement with CoBank ACB, as administrative agent and collateral agent, and certain other lenders party thereto (the “U.S. Credit Facility”). 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.

     On November 18, 2011, we sold certain real property, inventory, equipment, accounts receivable and other assets related to our distribution business to JBS USA, LLC and JBS Trading International, Inc. On December 2, 2011, we sold certain real property, inventory, livestock, equipment, accounts receivable and other assets related to our pork business to Swift Pork Company, a wholly owned subsidiary of JBS USA, LLC. Our distribution business generated net income of $1.7 million on net sales of $174.8 million during the twenty-six weeks ended June 26, 2011. Our pork business incurred a net loss of $1.0 million on net sales of $15.4 million during the twenty-six weeks ended June 26, 2011.

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     On July 17, 2012, the Company reached an agreement to sell its commercial egg operations, which have been classified as held for sale since December 2011, to Cal-Maine Foods, Inc. The Company expects to close the transaction in August 2012.

     In January 2012, Pilgrim's commenced a stock rights offering (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 Condensed 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.

     Trade authorities in Mexico, the top international market for U.S. chicken in recent years, are currently investigating U.S. producers over dumping complaints lodged by certain Mexican chicken processors. These Mexican chicken processors allege U.S. producers sold chicken legs and thighs on the Mexican market below their cost of production in 2010. We cannot predict the outcome of this investigation.

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

Thirteen Weeks Ended June 24, 2012 Compared to Thirteen Weeks Ended June 26, 2011

     Net sales. Net sales generated in the thirteen weeks ended June 24, 2012 increased $51.8 million, or 2.7%, from net sales generated in the thirteen weeks ended June 26, 2011. The following table provides net sales information:

Thirteen Change from
Weeks Ended Thirteen Weeks Ended
June 24, June 26, 2011
Sources of net sales       2012       Amount       Percent
(In thousands, except percent data)
United States $      1,776,740 $      51,905 3.0 %  (a)
Mexico 197,729 (126 ) (0.1 )%  (b)
       Total net sales $ 1,974,469 $ 51,779 2.7 %

(a)       U.S. net sales generated in the thirteen weeks ended June 24, 2012 increased $51.9 million, or 3.0%, from U.S. net sales generated in the thirteen weeks ended June 26, 2011 primarily because of the increased net revenue per pound sold. Increased net revenue per pound sold, which resulted primarily from an increase in market prices, contributed $96.7 million, or 5.7 percentage points, to the revenue increase. A decrease in pounds sold, which resulted in part from the fourth quarter 2011 disposals of our distribution and pork businesses, partially offset the impact of net revenue per pound by $46.8 million, or 2.7 percentage points. The disposed distribution and pork businesses generated net sales of $93.4 million during the thirteen weeks ended June 26, 2011. Included in U.S. net sales generated during the thirteen weeks ended June 24, 2012 and June 26, 2011 were net sales to JBS USA, LLC totaling $61.2 million and $18.0 million, respectively.
(b) Mexico net sales generated in the thirteen weeks ended June 24, 2012 decreased $0.1 million, or 0.1%, from Mexico net sales generated in the thirteen weeks ended June 26, 2011. A decrease in sales price primarily due to the movement in the exchange rate between the Mexican peso and the U.S. dollar contributed $24.9 million, or 13.7 percentage points, to the revenue decrease. An increase in unit sales volume, which resulted primarily from higher customer demand, partially offset the decrease in sales price by $24.7 million, or 13.6 percentage points. Other factors affecting the increase in Mexico net sales were immaterial.

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     Gross profit (loss). Gross profit (loss) increased by $190.3 million, or 411.7%, from a loss of $46.2 million generated in the thirteen weeks ended June 26, 2011 to a profit of $144.1 million incurred in the thirteen weeks ended June 24, 2012. The following tables provide information regarding gross profit and cost of sales information:

Thirteen Change from Percent of Net Sales
Weeks Ended Thirteen Weeks Ended Thirteen Weeks Ended
June 24, June 26, 2011 June 24, June 26,
Components of gross profit       2012       Amount       Percent       2012       2011
In thousands, except percent data
Net sales $      1,974,469 $      51,779 2.7 % 100.0 % 100.0 %
Cost of sales 1,830,380 (136,581 ) (6.9 )% 92.7 % 102.3 %  (a)(b)
Operational restructuring charges (1,957 ) NA % 0.1 %  (c)
       Gross profit $ 144,089 $ 190,317 (411.7 )% 7.3 % (2.4 )%

Thirteen Change from
Weeks Ended Thirteen Weeks Ended
June 24, June 26, 2011
Sources of gross profit       2012       Amount       Percent
(In thousands, except percent data)
United States $      125,855 $      180,159 331.8 %  (a)
Mexico 18,234 10,158 125.8 %  (b)
       Total gross profit $ 144,089 $ 190,317 411.7 %

Thirteen Change from
Weeks Ended Thirteen Weeks Ended
June 24, June 26, 2011
Sources of cost of sales       2012       Amount       Percent
(In thousands, except percent data)
United States $      1,650,885 $      (126,297 ) (7.1 )%  (a)
Mexico 179,495 (10,284 ) (5.4 )%  (b)
       Total cost of sales $ 1,830,380 $ (136,581 ) (6.9 )%

Thirteen Change from
Weeks Ended Thirteen Weeks Ended
June 24, June 26, 2011
Sources of operational restructuring charges       2012       Amount       Percent
(In thousands, except percent data)
United States $      $      (1,957 ) NA  (c)
Mexico NA
       Total cost of sales $ $ (1,957 ) NA

(a)       Cost of sales incurred by the U.S. operations during the thirteen weeks ended June 24, 2012 decreased $126.3 million, or 7.1%, from cost of sales incurred by the U.S. operations during the thirteen weeks ended June 26, 2011 primarily because of the fourth quarter 2011 disposals of our distribution and pork businesses, the October 2011 closing of our Dallas facility and decreased depreciation. Our distribution and pork businesses recognized aggregate cost of sales for the thirteen weeks ended June 26, 2011 of $72.5 million. The elimination of these costs contributed 4.1 percentage points to the decrease in cost of sales. The closing of our Dallas plant contributed $21.5 million, or 1.2 percentage points, to the decrease in cost of sales. Lower depreciation costs contributed $15.7 million, or 0.9 percentage points, to the decrease in cost of sales. Other factors affecting cost of sales were immaterial.
(b) Cost of sales incurred by the Mexico operations during the thirteen weeks ended June 24, 2012 decreased $10.3 million, or 5.4%, from cost of sales incurred by the Mexico operations during the thirteen weeks ended June 26, 2011. Foreign currency translation contributed $28.8 million, or 15.2 percentage points, to the decrease in cost of sales and overhead costs contributed $5.0 million, or 2.6 percentage points, to the decrease in cost of sales. Increased sales volume and feed costs partially offset the decrease by $10.2 million and $13.3 million, respectively.
(c) During the thirteen weeks ended June 26, 2011, we incurred noncash impairment charges of $2.0 million that were recognized as operational restructuring charges.

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     Operating income (loss). Operating income (loss) changed by $198.0 million, or 200.6%, from a loss of $98.7 million generated in the thirteen weeks ended June 26, 2011 to income of $99.3 million generated in the thirteen weeks ended June 24, 2012. The following tables provide information regarding operating income, SG&A expense and administrative restructuring charges:

Thirteen Change from Percent of Net Sales
Weeks Ended Thirteen Weeks Ended Thirteen Weeks Ended
June 24, June 26, 2011 June 24, June 26,
Components of operating income       2012       Amount       Percent       2012       2011
(In thousands, except percent data)
Gross profit $      144,089 $      190,317 411.7 % 7.3 % (2.4 )%
SG&A expense 44,439 (7,189 ) (13.9 )% 2.3 % 2.7 %  (a)(b)
Administrative restructuring charges 389 (461 ) (54.2 )% % %  (c)
       Operating income $ 99,261 $ 197,967 200.6 % 5.0 % (5.1 )%

Thirteen Change from
Weeks Ended Thirteen Weeks Ended
June 24, June 26, 2011
Sources of operating income       2012       Amount       Percent
(In thousands, except percent data)
United States $      84,999 $      186,444 183.8 %       
Mexico 14,262 11,523 420.7 %
       Total operating income $ 99,261 $ 197,967 200.6 %

Thirteen Change from
Weeks Ended Thirteen Weeks Ended
June 24, June 26, 2011
Sources of SG&A expense       2012       Amount       Percent
(In thousands, except percent data)
United States $      40,467 $      (5,824 ) (12.6 )%  (a)
Mexico 3,972 (1,365 ) (25.6 )%  (b)
       Total SG&A expense $ 44,439 $ (7,189 ) (13.9 )%

Thirteen Change from
Weeks Ended Thirteen Weeks Ended
June 24, June 26, 2011
Sources of administrative restructuring charges       2012       Amount       Percent
(In thousands, except percent data)
United States $      389 $      (461 ) (54.2 )%  (c)
Mexico NA
       Total administrative restructuring charges $ 389 $ (461 ) (54.2 )%

(a)       SG&A expense incurred by the U.S. operations during the thirteen weeks ended June 24, 2012 decreased $5.8 million, or 12.6%, from SG&A expense incurred by the U.S. operations during the thirteen weeks ended June 26, 2011 primarily because of (i) a $3.2 million decrease from the same period in the prior year in professional fees and outside services, (ii) a $2.2 million decrease from the same period in the prior year in salaries and wages, (iii) a decrease of $0.7 million from the same period in the prior year in brokerage expenses and (iv) a decrease of $1.0 million from the same period in the prior year in insurance expenses. Other factors affecting SG&A expense were immaterial.
(b) SG&A expense incurred by the Mexico operations during the thirteen weeks ended June 24, 2012 decreased $1.4 million, or 25.6%, from SG&A expense incurred by the Mexico operations during the thirteen weeks ended June 26, 2011. Decreased expenses related to freight and storage accounted for $1.4 million of the decrease in SG&A expense. Other factors affecting SG&A expense were immaterial.
(c) Administrative restructuring charges incurred during the thirteen weeks ended June 24, 2012 decreased $0.5 million from administrative restructuring charges incurred during the thirteen weeks ended June 26, 2011. During the thirteen weeks ended June 24, 2012, we incurred administrative restructuring charges composed of (i) a $0.1 million loss on egg sales and flock depletion and (ii) charges related to other restructuring activities totaling $0.3 million. During the thirteen weeks ended June 26, 2011, we incurred noncash impairment charges of $0.9 million that were recognized as administrative restructuring charges.

     Net interest expense. Net interest expense decreased 9.5% to $24.6 million recognized in the thirteen weeks ended June 24, 2012 from $27.1 million recognized in the thirteen weeks ended June 26, 2011. This resulted primarily from a $3.1 million decrease on long term debt interest expense due to lower average borrowings. This decrease was partially offset by an increase of $0.6 million in costs associated with the letters of credit JBS USA has arranged on its account and a higher weighted average interest rate compared to the same period in the prior year. Average borrowings decreased from $1.48 billion in the thirteen weeks ended June 26, 2011 to $1.21 billion in the thirteen weeks ended June 24, 2012. The weighted average interest rate recognized increased from 6.63% in the thirteen weeks ended June 26, 2011 to 7.03% in the thirteen weeks ended June 24, 2012.

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     Income taxes. The Company recognized an income tax benefit of $2.4 million for the thirteen weeks ended June 24, 2012, compared to an income tax expense of $3.5 million for the thirteen weeks ended June 26, 2011. The income tax benefit reported for the thirteen weeks ended June 24, 2012 was primarily the result of a decrease in reserves for unrecognized tax benefits and a decrease in valuation allowance as a result of earnings in the current period, offset by the tax expense recorded on the Company's year-to-date income. The income tax expense reported for the thirteen weeks ended June 26, 2011 was primarily the result of adjusting the tax benefit recorded on the Company's year-to-date loss that was expected to be realized, over the tax benefit recorded during the thirteen weeks ended March 27, 2011 calculated on the Company's projected full-year loss.

     Net income attributable to noncontrolling interests. For the thirteen weeks ended June 24, 2012 and June 26, 2011, we recognized a net loss of $0.2 million and net income of $0.2 million attributable to noncontrolling interests in certain of our consolidated subsidiaries, respectively.

Twenty-Six Weeks Ended June 24, 2012 Compared to Twenty-Six Weeks Ended June 26, 2011

     Net sales. Net sales generated in the twenty-six weeks ended June 24, 2012 increased $48.1 million, or 1.3%, from net sales generated in the twenty-six weeks ended June 26, 2011. The following table provides net sales information:

Twenty-Six Change from
Weeks Ended Twenty-Six Weeks Ended
June 24, June 26, 2011
Sources of net sales       2012       Amount       Percent
(In thousands, except percent data)
United States $ 3,461,344 $ 26,230 0.8 %  (a)
Mexico 401,898 21,846 5.7 %  (b)
       Total net sales $ 3,863,242 $ 48,076 1.3 %

(a)       U.S. net sales generated in the twenty-six weeks ended June 24, 2012 increased $26.2 million, or 0.8%, from U.S. net sales generated in the twenty-six weeks ended June 26, 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 $202.4 million, or 5.9 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 $176.2 million, or 5.1 percentage points. The disposed distribution and pork businesses generated net sales of $190.1 million during the twenty-six weeks ended June 26, 2011. Included in U.S. net sales generated during the twenty-six weeks ended June 24, 2012 and June 26, 2011 were net sales to JBS USA, LLC totaling $119.4 million and $41.7 million, respectively.
(b) Mexico net sales generated in the twenty-six weeks ended June 24, 2012 increased $21.8 million, or 5.7%, from Mexico net sales generated in the twenty-six weeks ended June 26, 2011. An increase in unit sales volume, which resulted primarily from higher customer demand, contributed $31.9 million, or 8.4 percentage points, to the revenue increase. A decrease in sales price, primarily because of the movement in the exchange rate between the Mexican peso and the U.S. dollar, partially offset the increase in unit sales volume by $10.1 million, or 2.7 percentage points. Other factors affecting the increase in Mexico net sales were immaterial.

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     Gross profit (loss). Gross profit (loss) increased by $353.5 million, or 355.8%, from a loss of $99.3 million generated in the twenty-six weeks ended June 26, 2011 to a profit of $254.2 million incurred in the twenty-six weeks ended June 24, 2012. The following tables provide information regarding gross profit and cost of sales information:

Twenty-Six Change from Percent of Net Sales
Weeks Ended Twenty-Six Weeks Ended Twenty-Six Weeks Ended
June 24, June 26, 2011 June 24, June 26,
Components of gross profit       2012       Amount       Percent       2012       2011
In thousands, except percent data
Net sales $      3,863,242 $      48,076 1.3 % 100.0 % 100.0 %
Cost of sales 3,609,088 (302,111 ) (7.7 )% 93.4 % 102.5 %  (a)(b)
Operational restructuring charges (3,305 ) NA % 0.1 %  (c)
       Gross profit $ 254,154 $ 353,492 (355.8 )% 6.6 % (2.6 )%

Twenty-Six Change from
Weeks Ended Twenty-Six Weeks Ended
June 24, June 26, 2011
Sources of gross profit       2012       Amount       Percent
(In thousands, except percent data)
United States $      210,190 $      326,289 281.0 %  (a)
Mexico 43,964 27,203 162.3 %  (b)
       Total gross profit $ 254,154 $ 353,492 355.8 %

Twenty-Six Change from
Weeks Ended Twenty-Six Weeks Ended
June 24, June 26, 2011
Sources of cost of sales       2012       Amount       Percent
(In thousands, except percent data)
United States $      3,251,154 $      (296,754 ) (8.4 )%  (a)
Mexico 357,934 (5,357 ) (1.5 )%  (b)
       Total cost of sales $ 3,609,088 $ (302,111 ) (7.7 )%

Twenty-Six Change from
Weeks Ended Twenty-Six Weeks Ended
June 24, June 26, 2011
Sources of operational restructuring charges       2012       Amount       Percent
(In thousands, except percent data)
United States $      $      (3,305 ) NA  (c)
Mexico NA
       Total cost of sales $ $ (3,305 ) NA

(a)       Cost of sales incurred by the U.S. operations during the twenty-six weeks ended June 24, 2012 decreased $296.8 million, or 8.4%, from cost of sales incurred by the U.S. operations during the twenty-six weeks ended June 26, 2011 primarily because of our first quarter 2011 focused inventory reduction efforts, the fourth quarter 2011 disposals of our distribution and pork businesses, the October 2011 closure of our Dallas facility and decreased depreciation. Our focused inventory reduction efforts during the twenty-six weeks ended June 26, 2011 contributed $120.5 million, or 3.4 percentage points, of the decrease in cost of sales. Our distribution and pork businesses recognized aggregate cost of sales for the twenty-six weeks ended June 26, 2011 of $170.7 million. The elimination of these costs contributed 4.8 percentage points to the decrease in cost of sales. The closing of our Dallas plant contributed $49.1 million, or 1.4 percentage points, to the decrease in cost of sales. Lower depreciation costs contributed $30.2 million, or 0.9 percentage points, to the decrease in cost of sales. Increases in feed ingredients and packaging costs partially offset the impact of the factors listed above on the cost of sales comparison by $59.4 million, or 1.7 percentage points. Other factors affecting cost of sales were immaterial.
(b) Cost of sales incurred by the Mexico operations during the twenty-six weeks ended June 24, 2012 decreased $5.4 million, or 1.5%, from cost of sales incurred by the Mexico operations during the twenty-six weeks ended June 26, 2011. Foreign currency translation contributed $41.7 million, or 11.5 percentage points, to the decrease in cost of sales and overhead costs contributed $7.5 million, or 2.0 percentage points, to the decrease in cost of sales. Increased sales volume and feed costs partially offset the decrease by $28.1 million and $15.7 million, respectively.
(c) During the twenty-six weeks ended June 26, 2011, we incurred noncash impairment charges of $1.3 million that were recognized as operational restructuring charges.

37



     Operating income (loss). Operating income (loss) changed by $366.7 million, or 178.4%, from a loss of $205.5 million generated in the twenty-six weeks ended June 26, 2011 to income of $161.2 million generated in the twenty-six weeks ended June 24, 2012. The following tables provide information regarding operating income, SG&A expense and administrative restructuring charges:

Twenty-Six Change from Percent of Net Sales
Weeks Ended Twenty-Six Weeks Ended Twenty-Six Weeks Ended
June 24, June 26, 2011 June 24, June 26,
Components of operating income       2012       Amount       Percent       2012       2011
(In thousands, except percent data)
Gross profit $      254,154 $      353,492 355.8 % 6.6 % (2.6 )%
SG&A expense 89,695 (15,181 ) (14.5 )% 2.3 % 2.8 %  (a)(b)
Administrative restructuring charges 3,274 2,006 158.2 % 0.1 % %  (c)
       Operating income $ 161,185 $ 366,667 178.4 % 4.2 % (5.4 )%

Twenty-Six Change from
Weeks Ended Twenty-Six Weeks Ended
June 24, June 26, 2011
Sources of operating income       2012       Amount       Percent
(In thousands, except percent data)
United States $      125,146 $      336,862 159.1 %       
Mexico 36,039 29,805 478.1 %
       Total operating income $ 161,185 $ 366,667 178.4 %

Twenty-Six Change from
Weeks Ended Twenty-Six Weeks Ended
June 24, June 26, 2011
Sources of SG&A expense       2012       Amount       Percent
(In thousands, except percent data)
United States $      81,770 $      (12,579 ) (13.3 )%  (a)
Mexico 7,925 (2,602 ) (24.7 )%  (b)
       Total SG&A expense $ 89,695 $ (15,181 ) (14.5 )%

Twenty-Six Change from
Weeks Ended Twenty-Six Weeks Ended
June 24, June 26, 2011
Sources of administrative restructuring charges       2012       Amount       Percent
(In thousands, except percent data)
United States $      3,274 $      2,006 158.2 %  (c)
Mexico NA
       Total administrative restructuring charges $ 3,274 $ 2,006 158.2 %

(a)       SG&A expense incurred by the U.S. operations during the twenty-six weeks ended June 24, 2012 decreased $12.6 million, or 13.3%, from SG&A expense incurred by the U.S. operations during the twenty-six weeks ended June 26, 2011 primarily because of (i) a $6.1 million decrease from the same period in the prior year in professional fees and outside services, (ii) a $3.8 million decrease from the same period in the prior year in salaries and wages, (iii) a decrease of $2.1 million from the same period in the prior year in brokerage expenses and (iv) a decrease of $2.0 million from the same period in the prior year in insurance expenses. Other factors affecting SG&A expense were immaterial.
(b) SG&A expense incurred by the Mexico operations during the twenty-six weeks ended June 24, 2012 decreased $2.6 million, or 24.7%, from SG&A expense incurred by the Mexico operations during the twenty-six weeks ended June 26, 2011. Decreased expenses related to freight and storage accounted for $3.3 million of the decrease in SG&A expense. They were partially offset by an increase in vehicle and automotive expenses of $0.6 million. Other factors affecting SG&A expense were immaterial.
(c) Administrative restruc