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 September 29, 2013
  OR
¨ 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 x No ¨

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 x No ¨

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

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

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 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 x No ¨

Number of shares outstanding of the issuer’s common stock, $0.01 par value per share, as of October 31, 2013, was 259,029,033.



INDEX

PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION  
Item 1.       Condensed Consolidated Financial Statements 2
Condensed Consolidated Balance Sheets
      September 29, 2013 and December 30, 2012 2
Condensed Consolidated Statements of Income
      Thirty-Nine Weeks Ended September 29, 2013 and September 23, 2012 3
Condensed Consolidated Statements of Comprehensive Income
      Thirty-Nine Weeks Ended September 29, 2013 and September 23, 2012 4
Condensed Consolidated Statements of Stockholders’ Equity
      Thirty-Nine Weeks Ended September 29, 2013 and September 23, 2012 5
Condensed Consolidated Statements of Cash Flows
      Thirty-Nine Weeks Ended September 29, 2013 and September 23, 2012 6
Notes to Condensed Consolidated Financial Statements as of September 29, 2013 7
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 48
Item 5. Other Information 49
Item 6. Exhibits 49
SIGNATURES 51
EXHIBIT INDEX 52



PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

September 29, 2013 December 30, 2012
      (Unaudited)      
(In thousands)
Cash and cash equivalents $          330,316 $         68,180
Trade accounts and other receivables, less allowance for doubtful  
accounts 407,002 384,930
Account receivable from JBS USA, LLC 4,454 1,514
Inventories 911,086 950,296
Income taxes receivable 66,649 54,719
Prepaid expenses and other current assets 72,825 56,047
Assets held for sale 25,320 27,042
       Total current assets 1,817,652 1,542,728
Deferred tax assets 59,620 97,431
Other long-lived assets 38,831 45,523
Identified intangible assets, net 33,960 38,266
Property, plant and equipment, net   1,159,358 1,189,921
              Total assets $ 3,109,421 $ 2,913,869
 
Accounts payable $ 370,034 $ 312,365
Account payable to JBS USA, LLC 5,893 13,436
Accrued expenses and other current liabilities 302,095 283,540
Income taxes payable 468
Current deferred tax liabilities 80,849 104,482
Current maturities of long-term debt 396 15,886
       Total current liabilities 759,267 730,177
Long-term debt, less current maturities 912,019 1,148,870
Other long-term liabilities 84,566 125,825
       Total liabilities 1,755,852 2,004,872
Common stock 2,590 2,590
Additional paid-in capital 1,644,418 1,642,003
Accumulated deficit (263,507 ) (669,711 )
Accumulated other comprehensive loss (32,397 ) (68,511 )
       Total Pilgrim’s Pride Corporation stockholders’ equity 1,351,104 906,371
Noncontrolling interest 2,465 2,626
       Total stockholders’ equity 1,353,569 908,997
              Total liabilities and stockholders’ equity $ 3,109,421 $ 2,913,869

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

2



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

Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 29, September 23, September 29, September 23,
     2013      2012      2013      2012
(In thousands, except per share data)
Net sales $     2,142,815 $     2,068,478 $     6,363,863 $     5,931,720
Cost of sales 1,906,242 1,962,343 5,726,348 5,571,431
              Gross profit 236,573 106,135 637,515 360,289
Selling, general and administrative expense 43,797 41,782 131,888 131,477
Administrative restructuring charges 3,658 2,647 4,622 5,921
              Operating income 189,118 61,706 501,005 222,891
Interest expense, net of capitalized interest 20,413 25,260 68,199 78,430
Interest income (571 ) (256 ) (1,494 ) (886 )
Foreign currency transaction losses (gains), net 2,682 (7,701 ) 4,771 (5,417 )
Miscellaneous, net (8 ) 413 (730 ) (272 )
              Income before income taxes 166,602 43,990 430,259 151,036
Income tax expense (benefit) 5,578 1,049 24,216 (656 )
              Net income 161,024 42,941 406,043 151,692
Less: Net income (loss) attributable to noncontrolling
       interests 107 10 (161 ) 230
              Net income attributable to Pilgrim’s Pride Corporation $ 160,917 $ 42,931 $ 406,204 $ 151,462
Weighted average shares of common stock outstanding:
              Basic 258,826 258,726 258,825 247,005
              Effect of dilutive common stock equivalents 560 111 341 98
              Diluted 259,386 258,837 259,166 247,103
Net income per share of common stock outstanding:
              Basic $ 0.62 $ 0.17 $ 1.57 $ 0.61
              Diluted $ 0.62 $ 0.17 $ 1.57 $ 0.61

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

3



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

Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 29, September 23, September 29, September 23,
    2013     2012     2013     2012
(In thousands)
Net income $            161,024 $             42,941 $             406,043 $             151,692
Other comprehensive income (loss):
       Net unrealized holding losses on available-for-sale
              securities, net of tax (12 ) (12 )
       Gains (losses) associated with pension and other
              postretirement benefits, net 313 (5,115 ) 36,114 (16,140 )
Total other comprehensive income (loss), net of tax 313 (5,127 ) 36,114 (16,152 )
Comprehensive income 161,337 37,814 442,157 135,540
Less: Comprehensive income (loss) attributable to
       noncontrolling interests 107 10 (161 ) 230
Comprehensive income attributable to
       Pilgrim’s Pride Corporation $ 161,230 $ 37,804 $ 442,318 $ 135,310

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

4



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

Pilgrim’s Pride Corporation Stockholders
Common Stock Accumulated
Additional Other
Paid-in Accumulated Comprehensive Noncontrolling
    Shares     Amount     Capital     Deficit     Income (Loss)     Interests     Total
(In thousands)
Balance at December 30, 2012    258,999 $   2,590 $   1,642,003 $      (669,711 ) $            (68,511 ) $               2,626 $   908,997
Comprehensive income:
       Net income (loss) 406,204 (161 ) 406,043
       Other comprehensive income, net of tax:
              Gains associated with pension and other
              postretirement benefit obligations, net of tax of $0 36,114 36,114
Total comprehensive income 442,157
Share-base compensation plans:
       Common stock issued under compensation plans 30
       Requisite service period recognition 2,415 2,415
Balance at September 29, 2013 259,029 $ 2,590 $ 1,644,418 $ (263,507 ) $ (32,397 ) $ 2,465 $ 1,353,569
 
Balance at December 25, 2011 214,282 $ 2,143 $ 1,443,484 $ (843,945 ) $ (46,070 ) $ 2,818 $ 558,430
Comprehensive income:
       Net income 151,462 230 151,692
       Other comprehensive loss, net of tax:
              Net unrealized holding losses on available-for-sale
              securities, net of tax of $0 (12 ) (12 )
              Losses associated with pension and other
              postretirement benefit obligations, net of tax of $0 (16,140 ) (16,140 )
       Total other comprehensive loss, net of tax (16,152 )
Total comprehensive income 135,540
Issuance of common stock 44,444 444 197,837 198,281
Share-based compensation plans:
       Common stock issued under compensation plans 273 3 3
       Requisite service period recognition 462 462
Balance at September 23, 2012 258,999 $ 2,590 $ 1,641,783 $ (692,483 ) $ (62,222 ) $ 3,048 $ 892,716

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

5



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

Thirty-Nine Weeks Ended
      September 29, 2013       September 23, 2012
(In thousands)
Cash flows from operating activities:
       Net income $            406,043 $            151,692
       Adjustments to reconcile net income to cash provided by operating activities:
              Depreciation and amortization 113,853 108,411
              Foreign currency transaction losses (gains) 3,734 (5,620 )
              Accretion of bond discount 342 342
              Asset impairment 3,457 1,342
              Loss (gain) on property disposals (509 ) 5,134
              Share-based compensation 2,415 465
              Changes in operating assets and liabilities:
                     Restricted cash and cash equivalents 8,153
                     Trade accounts and other receivables (25,458 ) (3,172 )
                     Inventories 39,421 (94,972 )
                     Prepaid expenses and other current assets (17,304 ) (1,120 )
                     Accounts payable, accrued expenses and other current liabilities 69,895 9,636
                     Income taxes (1,818 ) (14,428 )
                     Deposits 1,898 734
                     Long-term pension and other postretirement obligations (3,174 ) (7,120 )
                     Other operating assets and liabilities 3,921 (3,516 )
Cash provided by operating activities 596,716 155,961
Cash flows from investing activities:
       Acquisitions of property, plant and equipment (76,293 ) (62,110 )
       Purchases of investment securities (162 )
       Proceeds from sale or maturity of investment securities 688
       Proceeds from property disposals 3,330 28,687
Cash used in investing activities (72,963 ) (32,897 )
Cash flows from financing activities:
       Proceeds from revolving line of credit 505,600 595,800
       Payments on revolving line of credit, long-term borrowings and capital lease
              obligations (758,283 ) (853,008 )
       Payment of note payable to JBS USA (50,000 )
       Proceeds from sale of common stock 198,282
       Payment of capitalized loan costs (5,006 )
Cash used in financing activities (257,689 ) (108,926 )
Effect of exchange rate changes on cash and cash equivalents (3,928 ) (717 )
Increase in cash and cash equivalents 262,136 13,421
Cash and cash equivalents, beginning of period 68,180 41,609
Cash and cash equivalents, end of period $ 330,316 $ 55,030

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

6



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 one of the largest chicken producers 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 100 countries. Pilgrim’s fresh chicken products consist of refrigerated (nonfrozen) 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 37,500 employees and has the capacity to process 35.6 million birds per week for a total of approximately 10.1 billion pounds of live chicken annually. Approximately 4,100 contract growers supply poultry for the Company’s operations. As of September 29, 2013, JBS USA Holdings, Inc. (“JBS USA”), a wholly owned indirect subsidiary of Brazil-based JBS S.A., beneficially owned 75.5% 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. (“U.S. GAAP”) 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 U.S. GAAP 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 thirty-nine weeks ended September 29, 2013 are not necessarily indicative of the results that may be expected for the year ending December 29, 2013. 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 30, 2012.

     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, 2013) 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, with the exception of inventories that are remeasured using an exchange rate based on inventory turnover. 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 Income.

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. 

7



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.

Reclassifications

     We have made certain reclassifications to the 2012 Consolidated Financial Statements with no impact to reported net income in order to conform to the 2013 presentation.

2. FAIR VALUE MEASUREMENTS

     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. Assets and liabilities measured at fair value must be categorized into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation:

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 in its entirety.

     As of September 29, 2013 and December 30, 2012, the Company held certain items that were required to be measured at fair value on a recurring basis. These included derivative assets and liabilities and deferred compensation plan assets. Derivative assets and liabilities consist of long and short positions on exchange-traded commodity and foreign currency derivative instruments. The Company maintains nonqualified deferred compensation plans for executives and other highly compensated employees. Investments are maintained within a trust and include money market funds, mutual funds and life insurance policies. The cash surrender value of the life insurance policies is invested primarily in mutual funds. The following items were measured at fair value on a recurring basis:

September 29, 2013
      Level 1       Level 2       Level 3       Total
(In thousands)
Derivative assets - commodity futures instruments $      1,394 $      $           $      1,394
Derivative assets - commodity options instruments 1,822 1,822
Derivative assets - foreign currency futures instruments     238               238  
Deferred compensation plan assets 7,440 7,440
Derivative liabilities - commodity futures instruments (3,545 ) (3,545 )

8



December 30, 2012
      Level 1       Level 2       Level 3       Total
(In thousands)
Derivative assets - commodity futures instruments $      1,821 $           $           $     1,821
Deferred compensation plan assets 7,591   7,591
Derivative liabilities - commodity futures instruments (1,530 ) (1,530 )

     The valuation of financial assets and liabilities classified in Level 1 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. 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.

     In addition to the fair value disclosure requirements related to financial instruments carried at fair value, accounting standards require interim disclosures regarding the fair value of all of the Company’s financial instruments. The methods and significant assumptions used to estimate the fair value of financial instruments and any changes in methods or significant assumptions from prior periods are also required to be disclosed. The carrying amounts and estimated fair values of financial assets and liabilities recorded in the Condensed Consolidated Balance Sheets consisted of the following:

September 29, 2013 December 30, 2012
Carrying Fair Carrying Fair Note
    Amount     Value     Amount     Value     Reference
(In thousands)
Derivative assets - commodity futures instruments $     1,394 $     1,394 $     1,821 $     1,821 5
Derivative assets - commodity options instruments 1,822 1,822 5
Derivative assets - foreign currency futures instruments     238       238                 5
Deferred compensation plan assets 7,440 7,440 7,591 7,591
Derivative liabilities - commodity futures instruments (3,545 ) (3,545 ) (1,530 ) (1,530 ) 5
Long-term debt and other borrowing arrangements (912,415 ) (973,089 ) (1,164,756 ) (1,208,730 ) 8

     Derivative assets were recorded at fair value based on quoted market prices and are included in the line item Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheet. Deferred compensation plan assets were recorded at fair value based on quoted market prices and are included in the line item Other assets in the Condensed Consolidated Balance Sheets. Derivative liabilities were recorded at fair value based on quoted market prices and are included in the line item Accrued expenses and other current liabilities on the Condensed Consolidated Balance Sheet. 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 September 29, 2013 or December 30, 2012, as applicable.

     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 $25.5 million were written down to their fair value of $22.4 million, resulting in a loss of $3.1 million recorded in earnings during the thirty-nine weeks ended September 29, 2013. These assets are classified as Level 2 assets because their fair value can be corroborated based on observable market data.

9



3. TRADE ACCOUNTS AND OTHER RECEIVABLES

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

      September 29, 2013       December 30, 2012
(In thousands)
Trade accounts receivable $             399,290 $             381,747
Account receivable from JBS USA, LLC 4,454 1,514
Employee receivables 22 48
Other receivables 12,827 6,892
       Receivables, gross 416,593 390,201
Allowance for doubtful accounts (5,137 ) (3,757 )
       Receivables, net $ 411,456 $ 386,444

4. INVENTORIES

     Inventories consisted of the following:

      September 29, 2013       December 30, 2012
(In thousands)
Live chicken and hens $             420,644 $             405,335
Feed, eggs and other 244,250 307,500
Finished chicken products 245,939 237,159
       Total chicken inventories 910,833 949,994
Commercial feed and other 253 302
       Total inventories $ 911,086 $ 950,296

5. DERIVATIVE FINANCIAL INSTRUMENTS

     The Company utilizes various raw materials in its operations, including corn, soybean meal, soybean oil, sorghum, 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 approximately the next 12 months. The Company may purchase longer-term derivative financial instruments on particular commodities if deemed appropriate. The Company will sometimes take a short position on a derivative instrument to minimize the impact of a commodity's price volatility on its operating results. The Company will also occasionally purchase derivative financial instruments in an attempt to mitigate currency exchange rate exposure related to the financial statements of its Mexico operations that are denominated in Mexican pesos. 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 transaction exposures or fluctuations in foreign currency 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 Income. The Company recognized net gains of $8.0 million and $5.9 million related to changes in the fair value of its derivative financial instruments during the thirteen weeks ended September 29, 2013 and September 23, 2012, respectively. We also recognized net gains of $21.9 million and $3.7 million related to changes in the fair value of our derivative financial instruments during the thirty-nine weeks ended September 29, 2013 and September 23, 2012, respectively. Information regarding the Company’s outstanding derivative instruments and cash collateral posted with (owed to) brokers are included in the following table:

10



      September 29, 2013       December 30, 2012
(Fair values in thousands)
Fair values:
       Commodity derivative assets, gross $ 3,216 $ 1,821
       Commodity derivative liabilities, gross       (3,545 )       (1,530 )
       Cash collateral posted with (owed to) brokers 9,423 (166 )
       Foreign currency derivative assets, gross 238
Derivatives Coverage(a):
       Corn (0.3 )% %
       Soybean meal (2.4 )% %
       Period through which stated percent of needs are covered:
              Corn December 2014 December 2013
              Soybean meal March 2014 December 2013

(a) Derivatives coverage is the percent of anticipated commodity needs covered by outstanding derivative instruments through a specified date.
     

6. PROPERTY, PLANT AND EQUIPMENT

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

      September 29, 2013       December 30, 2012
(In thousands)
Land $      65,341 $      63,788
Buildings 1,083,288 1,081,059
Machinery and equipment 1,535,378 1,498,280
Autos and trucks 58,379 58,526
Construction-in-progress 48,263 47,927
       PP&E, gross 2,790,649 2,749,580
Accumulated depreciation (1,631,291 ) (1,559,659 )
       PP&E, net $ 1,159,358 $ 1,189,921

11



     The Company recognized depreciation expense of $34.3 million and $32.5 million during the thirteen weeks ended September 29, 2013 and September 23, 2012, respectively. We also recognized depreciation expense of $102.3 million and $96.7 million during the thirty-nine weeks ended September 29, 2013 and September 23, 2012, respectively.

     During the thirteen and thirty-nine weeks ended September 29, 2013, the Company sold certain PP&E for cash of $0.4 million and $3.3 million, respectively, and recognized net gains on these sales of $53,000 and $2.0 million, respectively. PP&E sold in 2013 included vehicle maintenance centers in Arkansas, Texas and Georgia, an idled hatchery in North Carolina, excess land in Texas and miscellaneous equipment. During the thirteen and thirty-nine weeks ended September 23, 2012, the Company sold certain PP&E for cash of $16.2 million and $28.7 million, respectively, and recognized net losses on these sales of $1.9 million and $1.4 million, respectively. PP&E sold in 2012 included a commercial egg operation in Texas, a vacant office building in Texas, an idled processing plant in Georgia, an idled feed mill in Arkansas, idled hatcheries in Alabama, Arkansas and Georgia, an idled distribution center in Louisiana, various broiler and breeder farms in Texas, both developed and undeveloped land in Texas and miscellaneous processing equipment.

     The Company scrapped certain unused or obsolete PP&E recognizing net losses of $0.3 million and $2.6 million, during the thirteen weeks ended September 29, 2013 and September 23, 2012, respectively. We also recognized net losses of $1.5 million and $3.7 million during the thirty-nine weeks ended September 29, 2013 and September 23, 2012, respectively.

     Management has committed to the sale of certain properties and related assets, including, but not limited to, processing plants and an office building, 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 September 29, 2013 and December 30, 2012, the Company reported properties and related assets totaling $25.3 million and $27.0 million, respectively, in the line item Assets held for sale on its Condensed Consolidated Balance Sheets. For the thirty-nine weeks ended September 29, 2013 and September 23, 2012, the Company recognized impairment expense on certain of these assets of $3.1 million and $1.3 million, respectively.

     As part of the exit or disposal activities discussed in “Note 13. 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 September 29, 2013, the carrying amount of these idled assets was $55.0 million based on depreciable value of $149.4 million and accumulated depreciation of $94.4 million.

     The Company last tested the recoverability of its long-lived assets held and used in December 2012. 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 thirteen weeks ended September 29, 2013 that required the Company to test its long-lived assets held and used, other than the long-lived assets related to the Batesville, Arkansas complex, for recoverability.

     On October 25, 2013, we sold our smallest processing complex, located in Batesville, Arkansas, to a producer in a niche chicken market in which we do not compete. During the thirteen weeks ended September 29, 2013, the company recognized impairment expense of $0.4 million related to this complex. We view this transaction as a constructive step forward in aligning our facilities to our long-term growth strategy.

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7. CURRENT LIABILITIES

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

      September 29, 2013       December 30, 2012
(In thousands)
Accounts payable:
       Trade accounts $ 294,131 $ 252,644
       Book overdrafts       74,911       58,066
       Other payables 992 1,655
              Total accounts payable 370,034 312,365
Accounts payable to JBS USA, LLC 5,893 13,436
Accrued expenses and other current liabilities:
       Compensation and benefits 83,107 77,376
       Interest and debt-related fees 17,560 10,740
       Insurance and self-insured claims 117,119 108,806
       Commodity derivative liabilities:
              Futures 3,545 1,530
       Other accrued expenses 80,764 85,088
                     Total accrued expenses and other current liabilities 302,095 283,540
$ 678,022 $ 609,341

8. LONG-TERM DEBT AND OTHER BORROWING ARRANGEMENTS

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

      Maturity       September 30, 2013       December 30, 2012
(In thousands)
Senior notes, at 7 ⅞%, net of unaccreted discount 2018 $              497,643 $          497,301
U.S. Credit Facility (defined below):
       Term B-1 note payable at 2.44% and 4.75% 2014 204,880 275,443
       Term B-2 note payable at 9.00% 2014 205,219 283,647
       Revolving note payable on which the Company had funds
              borrowed at 4.25% at December 30, 2012
2018 103,600
Mexico Credit Facility (defined below) with notes payable at TIIE
       Rate plus 2.25% or Equilibrium Interbank Interest Rate plus 4.5%
2014
Other Various 4,673 4,765
       Long-term debt 912,415 1,164,756
       Less: Current maturities of long-term debt (396 ) (15,886 )
              Long-term debt, less current maturities $ 912,019 $ 1,148,870

Senior and Subordinated Notes

     At September 29, 2013, the Company had an aggregate principal balance outstanding of $500.0 million of 7 ⅞% Senior Notes due 2018 (the “2018 Notes”) that are registered under the Securities Act of 1933. The 2018 Notes are unsecured obligations of the Company and are guaranteed by one of the Company’s subsidiaries. Interest is payable on December 15 and June 15 of each year, commencing on June 15, 2011. The indenture governing the 2018 Notes contains various covenants that may adversely affect our ability, among other things, to incur additional indebtedness, incur liens, pay dividends or make certain restricted payments, consummate certain asset sales, enter into certain transactions with JBS USA and our other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of our assets. Additionally, the Company had an aggregate principal balance of $3.9 million of 7 ⅝% senior unsecured notes, 8 ⅜% senior subordinated unsecured notes and 9 ¼% senior unsecured notes outstanding at September 29, 2013.

13



     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 under the Subordinated Loan Agreement. 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 agreed to reimburse JBS USA for the letter of credit costs the Company would otherwise incur under its U.S. Credit Facility (as defined below). During the thirteen and thirty-nine weeks ended September 29, 2013, the Company reimbursed JBS USA $0.6 million and $1.8 million, respectively, for letter of credit costs. As of September 29, 2013, the Company has accrued an obligation of $0.1 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 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 was amended and restated on August 7, 2013. The U.S. Credit Facility currently provides for a $700.0 million revolving credit facility, a Term B facility of approximately $410.1 million and a delayed draw term loan commitment of up to $400 million (the “Delayed Draw Term Loans”). The Company can draw upon the Delayed Draw Term Loan commitment, in one or more advances, between May 1, 2014 and December 28, 2014. 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 $250.0 million and to increase the aggregate Delayed Draw Term Loan commitment by up to an additional $500.0 million, in each case subject to the satisfaction of certain conditions, including obtaining the lenders’ agreement to participate in the increase and an aggregate limit on all commitments under the U.S. Credit Facility of $1.85 billion. The U.S. Credit Facility also provides for a $100 million sub-limit for swingline loans and a $200 million sub-limit for letters of credit. The Term B Loans mature on December 28, 2014 with all principal and unpaid interest due at maturity. The revolving loan commitment under the U.S. Credit Facility matures on August 7, 2018. Any Delayed Draw Term Loans would be payable in quarterly installments beginning in fiscal year 2015 equal to 1.875% of the principal outstanding as of December 28, 2014, with all remaining principal and interest due at maturity on August 7, 2018.

     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. On August 7, 2013, the Company paid loan costs totaling $5.0 million related to the amendment and restatement to the U.S. Credit Facility that is recognized as an asset on its balance sheet. The Company amortizes these capitalized costs to interest expense over the life of the U.S. Credit Facility.

     Subsequent to the end of each fiscal year, a portion of our cash flow must be used to repay outstanding principal amounts under the Term B loans. With respect to 2012, the Company was required to pay approximately $141.2 million of its cash flow toward the outstanding principal under the Term B loans, which the Company paid on April 29, 2013. The excess cash flow payments have been and will continue to be applied to installments of the Term B loans ratably in accordance with the then outstanding amounts thereof. The U.S. Credit Facility also requires us to use the proceeds we receive from certain asset sales and specified debt or equity issuances and upon the occurrence of other events to repay outstanding borrowings under the U.S. Credit Facility. The cash proceeds received by the Company from the Rights Offering were not subject to this requirement. On September 29, 2013, a principal amount of $410.1 million under the Term B loans commitment was outstanding.

     Actual borrowings by the Company under the revolving credit commitment component of the U.S. Credit Facility are subject to a borrowing base, which is a formula based on certain eligible inventory, eligible receivables and restricted cash under the control of CoBank, ACB. As of September 29, 2013, the applicable borrowing base was $700.0 million, the amount available for borrowing under the revolving loan commitment was $670.4 million. The Company had letters of credit of $29.6 million and no outstanding borrowings under the revolving loan commitment as of September 29, 2013.

14



     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. The U.S. Credit Facility requires the Company to comply with a minimum level of tangible net worth covenant. The Company is currently in compliance with this financial covenant. All other financial covenants were eliminated in connection with the August 7, 2013 amendment and restatement to the U.S. Credit Facility. The U.S. Credit Facility also provides that the Company may not incur capital expenditures in excess of $350.0 million in any fiscal year.

     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 other 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 September 29, 2013, the U.S. dollar-equivalent of the loan commitment under the Mexico Credit Facility was $42.4 million. There were no outstanding borrowings under the Mexico Credit Facility at September 29, 2013.

9. INCOME TAXES

     The Company recorded income tax expense of $24.2 million, a 5.6% effective tax rate, for the thirty-nine weeks ended September 29, 2013, compared to an income tax benefit of $0.7 million, a (0.4)% effective tax rate, for the thirty-nine weeks ended September 23, 2012. The income tax expense recognized for the thirty-nine weeks ended September 29, 2013 was primarily the result of the tax expense recorded on the Company’s year-to-date income, offset by a decrease in valuation allowance as a result of year-to-date earnings.

     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 September 29, 2013, the Company does not believe it has sufficient positive evidence to conclude that realization of its federal, state and a portion of its foreign net deferred tax assets is more likely than not to be realized.

     For the thirty-nine weeks ended September 29, 2013 and September 23, 2012, there is no tax effect reflected in other comprehensive income 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 2008 and is no longer subject to Mexico income tax examinations for years prior to 2008.

     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’ proof of claim. In connection with such claim, the Company has filed various petitions in the United States Tax Court (“Tax Court”) in response to the Notices of Deficiency that were issued to the Company. On December 12, 2012, the Company entered into two Stipulation of Settled Issues (“Stipulation” or “Stipulations”) with the IRS that resolved a portion of the IRS’ proof of claim. The Company is still working with the IRS to resolve the portion of the IRS’ amended proof of claim relating to the tax year ended June 30, 2004 for Gold Kist Inc. (“Gold Kist”), a company purchased by Pilgrim’s in 2007. There has been no significant change in the resolution of the IRS’ claim relating to Gold Kist since December 30, 2012. See “Note 15. Commitments and Contingencies” for additional information.

     On September 13, 2013, the Internal Revenue Service (IRS) issued the final, revised Tangible Property Repair Regulations for Internal Revenue Code (IRC) Sections 162(a) and 263(a) which modify and supersede the Temporary Regulations that were issued on December 23, 2011. In addition, the IRS released new proposed regulations for dispositions of tangible property under IRC Section 168. These final and proposed regulations are effective for tax years beginning January 1, 2014. The Company is assessing the applicability of the regulations to the Company’s tax fixed assets. The Company plans to complete this analysis during the fourth quarter of 2013.

10. PENSION AND OTHER POSTRETIREMENT BENEFITS

     The Company sponsors programs that provide retirement benefits to most of its employees. These programs include qualified defined benefit pension plans, nonqualified defined benefit retirement plans, a defined benefit postretirement life insurance plan and defined contribution retirement savings plans. Expenses recognized under all of these retirement plans in the thirteen weeks ended September 29, 2013 and September 23, 2012 totaled $1.9 million and $2.0 million, respectively. Expenses recognized under all of these retirement plans in the thirty-nine weeks ended September 29, 2013 and September 23, 2012 totaled $5.7 million and $6.0 million, respectively.

15



     Net defined benefit pension and other postretirement costs included the following components:

Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 29, 2013 September 23, 2012 September 29, 2013 September 23, 2012
      Pension
Benefits
      Other
Benefits
      Pension
Benefits
      Other
Benefits
      Pension
Benefits
      Other
Benefits
      Pension
Benefits
      Other
Benefits
(In thousands)
Service cost $      (20 ) $     $     13 $     $     $     $     38 $    
Interest cost 1,988 20 2,147 25 5,965 59 6,204 72
Estimated return on
       plan assets
(1,349 ) (2,126 ) (4,048 ) (4,997 )
Amortization of net
       loss (gain)
250 (483 ) (1 ) 751 348 (2 )
              Net costs $ 869 $ 20 $ (449 ) $ 24 $ 2,668 $ 59 $ 1,593 $ 70

     During the thirteen and thirty-nine weeks ended September 29, 2013, the Company contributed $3.3 million and $6.4 million, respectively, to its defined benefit plans.

     The Company remeasures both plan assets and obligations on a quarterly basis. The fair value of plan assets increased from $92.3 million at December 30, 2012 to $101.9 million at September 29, 2013 because of better than expected returns on the invested assets. Projected benefit obligation decreased from $196.4 million at December 30, 2012 to $166.1 million at September 29, 2013 because of an increase of 0.85 percentage points in the discount rate used to calculate the present value of the obligation.

     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.

11. STOCKHOLDERS’ EQUITY

Accumulated Other Comprehensive Loss

     At both September 29, 2013 and December 30, 2012, accumulated other comprehensive loss consisted solely of unrealized actuarial losses related to the Company’s defined benefit pension and other postretirement plans. The following tables provide information regarding the changes in these unrealized actuarial losses during the thirty-nine weeks ended September 29, 2013:

Changes in Unrealized
Actuarial Losses(a)
      (In thousands)
Balance, beginning of period $                   (68,511 )
Other comprehensive income before
       reclassifications
35,363
Amounts reclassified from accumulated other
       comprehensive loss to net income
751
Net current period other comprehensive income 36,114
Balance, end of period $ (32,397 )

     
(a) All amounts are net of tax. Amounts in parentheses indicate debits.

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Details about Accumulated Other Comprehensive Loss
Components
Amount Reclassified
from Accumulated
Other Comprehensive
Loss
(a)
Affected Line Item in the Condensed Consolidated
Statement of Income
      (In thousands)      
Amortization of defined benefit pension and other
       postretirement plan actuarial losses:
       Union Plan(b) $                      (27 )  (d) Cost of goods sold
       Legacy Gold Kist Plans(c) (724 )  (d) Selling, general and administrative expense
              Total before tax (751 )  
Tax benefit (expense)
Total reclassification for the period $ (751 ) Net of tax

     
(a) Amounts in parentheses represent debits to results of operations.
(b) The Company sponsors the Pilgrim’s Pride Retirement Plan for Union Employees (the “Union Plan”), a qualified defined benefit pension plan covering certain locations or work groups with collective bargaining agreements.
(c) The Company sponsors the Pilgrim’s Pride Plan for Legacy Gold Kist Employees, a qualified defined benefit pension plan covering certain eligible U.S. employees who were employed at locations that the Company purchased through its acquisition of Gold Kist in 2007, the Former Gold Kist Inc. Supplemental Executive Retirement Plan, a nonqualified defined benefit retirement plan covering certain former Gold Kist executives, the Former Gold Kist Inc. Directors’ Emeriti Plan, a nonqualified defined benefit retirement plan covering certain former Gold Kist directors and the Gold Kist Inc. Retiree Life Insurance Plan, a defined benefit postretirement life insurance plan covering certain retired Gold Kist employees (collectively, the “Legacy Gold Kist Plans”).
(d) These accumulated other comprehensive income components are included in the computation of net periodic pension cost. See “Note 10. Pension and Other Postretirement Benefits” to the Condensed Consolidated Financial Statements.

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.

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.

12. INCENTIVE COMPENSATION

     The Company sponsors a short-term incentive plan that provides the grant of either cash or share-based bonus awards payable upon achievement of specified performance goals (the “STIP”). Full-time, salaried exempt employees of the Company and its affiliates who are selected by the administering committee are eligible to participate in the STIP. The Company has accrued $12.5 million in costs related to the STIP at September 29, 2013 related to cash bonus awards that could potentially be awarded during the remainder of 2013 and 2014.

     The Company also sponsors a performance-based, omnibus long-term incentive plan that provides for the grant of a broad range of long-term equity-based and cash-based awards to the Company’s officers and other employees, members of the Board and any consultants (the “LTIP”). The equity-based awards that may be granted under the LTIP include “incentive stock options,” within the meaning of the Internal Revenue Code, nonqualified stock options, stock appreciation rights, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”). At September 29, 2013, we have reserved approximately 6.6 million shares of common stock for future issuance under the LTIP.

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     The following awards existed during the thirty-nine weeks ended September 29, 2013:

Estimated
Award             Award       Vesting Forfeiture       Settlement
Type Benefit Plan Quantity Grant Date       Condition       Vesting Date       Rate   Method
RSA Employment Agreement 100,000 January 14, 2011 Service   January 3, 2013 % Stock
RSA Employment Agreement 100,000 January 14, 2011 Service January 3, 2014 % Stock
RSA LTIP 72,675   August 27, 2012 Service April 27, 2014   % Stock
RSU   LTIP 608,561 February 4, 2013   Service   December 31, 2014 9.6559 % Stock
RSA LTIP   15,000   February 25, 2013   Service February 24, 2015   % Stock
RSA LTIP 15,000 February 25, 2013 Service February 24, 2016 % Stock
RSU LTIP 206,933 February 26, 2013 Service December 31, 2014 % Stock

     Compensation costs and the income tax benefit recognized for our share-based compensation arrangements are included below:

Thirteen Weeks Ended Thirty-Nine Weeks Ended
      September 29, 2013       September 23, 2012       September 29, 2013       September 23, 2012
(In thousands)
Share-based compensation costs:
       Cost of goods sold $ 102 $ $ 255 $
       Selling, general and administrative
              expenses
711 166 2,160 464
              Total $ 813 $ 166 $ 2,415 $ 464
 
Income tax benefit $ 151 $ $ 488 $

     The Company’s RSA and RSU activity is included below:

Thirty-Nine Weeks Ended
September 29, 2013 September 23, 2012
Weighted Average Weighted Average
Number Grant Date Fair Value Number Grant Date Fair Value
(In thousands, except weighted average fair values)
RSAs:                  
       Outstanding at beginning of period 273 $      6.54 200       $ 7.10
       Granted 30 8.72
       Vested        (100 ) 7.10
       Outstanding at end of period 203 $ 6.59          200 $ 7.10
 
RSUs:
       Outstanding at beginning of period $ $
       Granted   815     8.82    
       Forfeited (72 ) 8.89  
       Outstanding at end of period 743   $ 8.81 $

     At September 29, 2013, the total unrecognized compensation cost related to all nonvested awards was $5.5 million. That cost is expected to be recognized over a weighted average period of 1.25 years.

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

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13. 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 thirty-nine weeks ended September 29, 2013 or the thirteen and thirty-nine weeks ended September 23, 2012 included the following:

      Facility Closures(a)       Administrative
Integration(b)
      Total
(In thousands, except positions eliminated)
Earliest implementation date October 2008 January 2010
Latest expected completion date September 2014 September 2012
Positions eliminated 2,410 480 2,890
Costs incurred and expected to be incurred:
       Employee-related costs $      2,492 $      864 $      3,356
       Asset impairment costs 15,878 37,362 53,240
       Inventory valuation costs 344 344
       Other exit or disposal costs 15,206 4,112 19,318
              Total exit or disposal costs $ 33,920 $ 42,338 $ 76,258
Costs incurred since earliest implementation date:
       Employee-related costs $ 2,492 $ 864 $ 3,356
       Asset impairment costs 15,878 37,362 53,240
       Inventory valuation costs 344 344
       Other exit or disposal costs 13,749 4,112 17,861
              Total exit or disposal costs $ 32,463 $ 42,338 $ 74,801

Thirteen Weeks Ended September 29, 2013 Thirteen Weeks Ended September 23, 2012
      Facility
Closures
      Administrative
Integration
      Total       Facility
Closures
      Administrative
Integration
      Total
(In thousands)
Asset impairment costs $ 2,629 $ 466 $ 3,095 $ $ $
Other exit or disposal costs 563 563 805 1,993 2,798
       Total exit or disposal costs $      3,192 $     466 $     3,658 $     805 $     1,993 $     2,798
 
Thirty-Nine Weeks Ended September 29, 2013 Thirty-Nine Weeks Ended September 23, 2012
      Facility
Closures
      Administrative
Integration
      Total       Facility
Closures
      Administrative
Integration
      Total
(In thousands)
Employee-related costs $ $ $ $ 78 $ $ 78
Asset impairment costs 2,629 466 3,095 960 382 1,342
Other exit or disposal costs 1,527 1,527 2,737 1,993 4,730
       Total exit or disposal costs $ 4,156 $ 466 $ 4,622 $ 3,775 $ 2,375 $ 6,150

(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.

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     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 thirty-nine weeks ended September 29, 2013 and September 23, 2012:

      Accrued
Severance
      Accrued
Inventory
Charges
      Total
(In thousands)
Balance at December 30, 2012 $      $      808 $      808
       Accruals
       Payment /Disposal (808 ) (808 )
       Adjustments
Balance at September 29, 2013 $ $ $
 
Balance at December 25, 2011 $ 90 $ 793 $ 883
       Accruals 151 151
       Payment /Disposal (155 ) (136 ) (291 )
       Adjustments 78 78
Balance at September 23, 2012 $ 13 $ 808 $ 821

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended
      September 29,
2013
      September 23,
2012
      September 29,
2013
      September 23,
2012
(In thousands)
Cost of sales $      $      151 $      $      229
Administrative restructuring charges 3,658 2,647 4,622 5,921
       Total exit or disposal costs $ 3,658 $ 2,798 $ 4,622 $ 6,150

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended
      September 29,
2013
      September 23,
2012
      September 29,
2013
      September 23,
2012
(In thousands)
Asset impairment costs (Note 6. Property, Plant and
       Equipment)
$      3,095 $      $      3,095 $      1,342
Loss on egg sales and flock depletion expensed as
       incurred
509
Other restructuring costs 563 2,647 1,527 4,070
              Total administrative restructuring charges $ 3,658 $ 2,647 $ 4,622 $ 5,921

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

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.

20



     On December 28, 2009, JBS USA became the holder of the majority of the common stock of the Company. As of September 29, 2013, JBS USA beneficially owned 75.5% of the total outstanding shares of our common stock.

     On March 12, 2012, Lonnie A. Bo Pilgrim (the Founder Director) resigned as a director of Pilgrim’s. On March 26, 2012, the Founder Director and certain entities related to the Founder Director sold 18,924,438 shares of our common stock to JBS USA. Prior to that sale, the Founder Director and certain entities related to the Founder Director collectively owned the second-largest block of our common stock.

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended
      September 29,
2013
      September 23,
2012
      September 29,
2013
      September 23,
2012
(In thousands)
JBS USA:
       Subordinated loan interest(a) $      $      $      $      971
       Letter of credit fees(b) 513 592 1,697 1,776
JBS USA, LLC:
       Purchases from JBS USA, LLC(c) 19,155 18,136 59,945 49,847
       Expenditures paid by JBS USA, LLC on behalf of Pilgrim’s
              Pride Corporation(d)
11,281 14,469 34,659 44,194
       Sales to JBS USA, LLC(c) 13,996 58,527 49,263 177,894
       Expenditures paid by Pilgrim’s Pride Corporation on behalf
              of JBS USA, LLC(d)
630 1,089 1,313 3,645
Former Founder Director:
       Consulting fee paid to former Founder Director(e) 374
       Board fees paid to former Founder Director(e) 45
       Contract grower compensation paid to former Founder
              Director(f)
297
       Sales to former Founder Director 1

     
(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 the thirteen and thirty-nine weeks ended September 29, 2013, we have paid JBS USA $0.6 million and $1.8 million, respectively, for letter of credit costs. As of September 29, 2013, the Company has accrued an obligation of $0.1 million to reimburse JBS USA for letter of credit costs incurred on its behalf.
(c) We routinely execute transactions to both purchase products from JBS USA, LLC and sell products to them. As of September 29, 2013 and December 30, 2012, the outstanding payable to JBS USA, LLC was $5.9 million and $13.4 million, respectively. As of September 29, 2013 and December 30, 2012, the outstanding receivable from JBS USA, LLC was $4.5 million and $1.5 million, respectively. As of September 29, 2013, approximately $0.8 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 2013, we have paid JBS USA $1.0 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 2013, we have paid JBS USA, LLC $33.3 million for net expenditures paid by JBS USA, LLC on our behalf. At September 29, 2013, 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 $4.5 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 Founder Director to serve subsequent terms on the Board. During the period in 2012 in which the former Founder Director was a related party, we paid $0.4 million to him 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 the period in 2012 in which the former Founder Director was a related party, we paid $0.3 million to him under these contracts.

21



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 (“Bankruptcy Court”). 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 September 29, 2013, 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. Oral argument occurred December 3, 2012. On August 27, 2013, the Fifth Circuit reversed the judgment, and entered a judgment in favor of the Company. Plaintiffs thereafter filed a petition for rehearing en banc. Plaintiffs’ petition for rehearing was denied on October 15, 2013. Plaintiffs may seek discretionary review from the Supreme Court of the United States, and any such petition in that regard will be due January 13, 2014. If such petition is granted, the Company intends to vigorously pursue its appellate rights and defend against reinstatement of the underlying judgment of the trial court. The Fifth Circuit's decision and prior favorable trial court rulings regarding the El Dorado grower' claims suggest that the likelihood of any recovery by growers remaining in the case is too remote to maintain the previously-recorded loss accrual. Therefore, the Company reversed the accrual on September 1, 2013. The remaining growers’ claims were scheduled for trial during the summer and fall of 2012. Although the trial associated with the growers’ claims from the Farmerville, Louisiana complex was completed without a ruling, the trial associated with the growers’ claims from the Nacogdoches, Texas complex have not been completed and the trial court has not scheduled a date for resuming the trial, and the trials associated with the growers’ claims from the De Queen and Batesville, Arkansas complexes have been indefinitely postponed by court order. 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.

22



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

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

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

16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

     On December 15, 2010, the Company sold 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 September 29, 2013 and December 30, 2012, the condensed consolidating statements of operations and comprehensive income for the thirteen and thirty-nine weeks ended September 29, 2013 and September 23, 2012, as well as the condensed consolidating statements of cash flows for the thirty-nine weeks ended September 29, 2013 and September 23, 2012 based on the guarantor structure.

23



CONDENSED CONSOLIDATING BALANCE SHEETS
September 29, 2013

(In thousands)
Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
Cash and cash equivalents $        259,985 $        $               70,331 $          $        330,316
Trade accounts and other receivables, less allowance for
       doubtful accounts 352,947 1,925 52,130 407,002
Account receivable from JBS USA, LLC 4,454 4,454
Inventories 793,614 23,845 94,507 (880 ) 911,086
Income taxes receivable 60,948 6,288 (587 ) 66,649
Current deferred tax assets 3,794 506 (4,300 )
Prepaid expenses and other current assets 37,356 110 35,359 72,825
Assets held for sale 8,618 16,702 25,320
              Total current assets 1,517,922 29,674 275,823 (5,767 ) 1,817,652
Intercompany receivable (27,638 ) 95,893 (68,255 )
Investment in subsidiaries 457,862 (457,862 )
Deferred tax assets 63,292 419 (4,091 ) 59,620
Other long-lived assets 38,263 180,568 (180,000 ) 38,831
Identified intangible assets, net 24,444 9,516 33,960
Property, plant and equipment, net 1,014,598 45,529 103,119 (3,888 ) 1,159,358
                            Total assets $ 3,088,743 $ 171,096 $ 569,445 $ (719,863 ) $ 3,109,421
Accounts payable $ 309,014 $ 13,086 $ 47,934 $ $ 370,034
Accounts payable to JBS USA, LLC 5,893 5,893
Accrued expenses and other current liabilities 307,251 31,325 (36,481 ) 302,095
Income taxes payable 587 (587 )
Current deferred tax liabilities 84,572 577 (4,300 ) 80,849
Current maturities of long-term debt 396 396
              Total current liabilities 707,126 44,411 12,617 (4,887 ) 759,267
Long-term debt, less current maturities 937,019 (25,000 ) 912,019
Intercompany payable 68,255 (68,255 )
Deferred tax liabilities 3,794 297 (4,091 )
Other long-term liabilities 81,406 3,160 84,566
              Total liabilities 1,725,551 48,205 84,329 (102,233 ) 1,755,852
              Total Pilgrim’s Pride Corporation stockholders’
                     equity 1,363,192 122,891 482,651 (617,630 ) 1,351,104
Noncontrolling interest 2,465 2,465
              Total stockholders’ equity 1,363,192 122,891 485,116 (617,630 ) 1,353,569
                            Total liabilities and stockholders’ equity $ 3,088,743 $ 171,096 $ 569,445 $ (719,863 ) $ 3,109,421

24



CONDENSED CONSOLIDATING BALANCE SHEETS
December 30, 2012

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

25



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Thirteen Weeks Ended September 29, 2013

(In thousands)
Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
Net sales $        1,889,353 $        132,942 $               245,372 $          (124,852 ) $        2,142,815
Cost of sales 1,676,605 117,753 235,856 (123,972 ) 1,906,242
       Gross profit 212,748 15,189 9,516 (880 ) 236,573
Selling, general and administrative expense 36,976 1,068 5,753 43,797
Administrative restructuring charges 3,126 532 3,658
       Operating income 172,646 14,121 3,231 (880 ) 189,118
Interest expense, net 20,246 167 20,413
Interest income (8 ) (563 ) (571 )
Foreign currency transaction losses (gains) (1 ) 2,683 2,682
Miscellaneous, net (1,508 ) 1,260 (98 ) 338 (8 )
       Income before income taxes 153,917 12,861 1,042 (1,218 ) 166,602
Income tax expense (benefit) 13,643 (8,065 ) 5,578
       Income before equity in earnings of consolidated
              subsidiaries 140,274 12,861 9,107 (1,218 ) 161,024
Equity in earnings of consolidated subsidiaries 20,643 (20,643 )
       Net income 160,917 12,861 9,107 (21,861 ) 161,024
Less: Net income attributable to noncontrolling interest 107 107
       Net income attributable to Pilgrim’s Pride
              Corporation $ 160,917 $ 12,861 $ 9,000 $ (21,861 ) $ 160,917

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
Thirteen Weeks Ended September 29, 2013

(In thousands)
Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
Net income $        160,917 $        12,861 $                 9,107 $          (21,861 ) $         161,024
Other comprehensive income:
       Gains associated with pension and other
              postretirement benefits, net of tax 313 313
Total other comprehensive income, net of tax 313 313
Comprehensive income 161,230 12,861 9,107 (21,861 ) 161,337
Less: Comprehensive income attributable to
       noncontrolling interests 107 107
Comprehensive income attributable to
       Pilgrim’s Pride Corporation $ 161,230 $ 12,861 $ 9,000 $ (21,861 ) $ 161,230

26



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Thirteen Weeks Ended September 23, 2012

(In thousands)
Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
Net sales $        1,809,883 $        71,124 $               246,519 $          (59,048 ) $        2,068,478
Cost of sales 1,741,370 64,999 215,022 (59,048 ) 1,962,343
       Gross profit 68,513 6,125 31,497 106,135
Selling, general and administrative expense 37,172 4,610 41,782
Administrative restructuring charges 2,647 2,647
       Operating income 28,694 6,125 26,887 61,706
Interest expense, net 25,464 (204 ) 25,260
Interest income, net (277 ) 21 (256 )
Foreign currency transaction gains (33 ) (7,668 ) (7,701 )
Miscellaneous, net (348 ) (2 ) 560 203 413
       Income before income taxes 3,888 6,127 34,178 (203 ) 43,990
Income tax expense (benefit) (3,584 ) 2,313 2,320 1,049
       Income before equity in earnings of
              consolidated subsidiaries 7,472 3,814 31,858 (203 ) 42,941
Equity in earnings of consolidated subsidiaries 35,459 (35,459 )
       Net income 42,931 3,814 31,858 (35,662 ) 42,941
Less: Net income attributable to noncontrolling interest 10 10
       Net income attributable to Pilgrim’s Pride
              Corporation $ 42,931 $ 3,814 $ 31,848 $ (35,662 ) $ 42,931

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
Thirteen Weeks Ended September 23, 2012

(In thousands)
Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
Net income $        42,931 $        3,814 $               31,858 $          (35,662 ) $        42,941
Other comprehensive income:  
       Unrealized holding gains on available-for-sale
              securities, net of tax (12 ) (12 )
       Gains associated with pension and other
              postretirement benefits, net of tax (5,115 ) (5,115 )
Total other comprehensive income, net of tax (5,115 ) (12 ) (5,127 )
Comprehensive income 37,816 3,814 31,846 (35,662 ) 37,814
Less: Comprehensive income attributable to
       noncontrolling interests 10 10
Comprehensive income attributable to
       Pilgrim’s Pride Corporation $ 37,816 $ 3,814 $ 31,836 $ (35,662 ) $ 37,804

27



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Thirty-Nine Weeks Ended September 29, 2013

(In thousands)
Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
Net sales $        5,538,779 $        404,360 $               801,270 $          (380,546 ) $        6,363,863
Cost of sales 5,059,584 366,769 679,661 (379,666 ) 5,726,348
       Gross profit 479,195 37,591 121,609 (880 ) 637,515
Selling, general and administrative expense 111,473 3,187 17,228 131,888
Administrative restructuring charges 4,090 532 4,622
       Operating income 363,632 34,404 103,849 (880 ) 501,005
Interest expense, net 67,710 489 68,199
Interest income (14 ) (1,480 ) (1,494 )
Foreign currency transaction losses (gains) (10 ) 4,781 4,771
Miscellaneous, net (5,254 ) 3,569 435 520 (730 )
       Income before income taxes 301,200 30,835 99,624 (1,400 ) 430,259
Income tax expense 528 5,764 17,924 24,216
       Income before equity in earnings of consolidated
              subsidiaries 300,672 25,071 81,700 (1,400 ) 406,043
Equity in earnings of consolidated subsidiaries 105,532 (105,532 )
       Net income 406,204 25,071 81,700 (106,932 ) 406,043
Less: Net loss attributable to noncontrolling interest (161 ) (161 )
       Net income attributable to Pilgrim’s Pride
              Corporation $ 406,204 $ 25,071 $ 81,861 $ (106,932 ) $ 406,204

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
Thirty-Nine Weeks Ended September 29, 2013

(In thousands)
Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
Net income $        406,204 $        25,071 $               81,700 $          (106,932 ) $        406,043
Other comprehensive income:
       Gains associated with pension and other
              postretirement benefits, net of tax 36,114 36,114
Total other comprehensive income, net of tax 36,114 36,114
Comprehensive income 442,318 25,071 81,700 (106,932 ) 442,157
Less: Comprehensive loss attributable to
       noncontrolling interests (161 ) (161 )
Comprehensive income attributable to
       Pilgrim's Pride Corporation $ 442,318 $ 25,071 $ 81,861 $ (106,932 ) $ 442,318

28



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Thirty-Nine Weeks Ended September 23, 2012

(In thousands)
Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
Net sales $        5,192,507 $        219,464 $               707,363 $          (187,614 ) $        5,931,720
Cost of sales 4,934,941 198,081 626,023 (187,614 ) 5,571,431
       Gross profit 257,566 21,383 81,340 360,289
Selling, general and administrative expense 116,726 14,751 131,477
Administrative restructuring charges 5,916 5 5,921
       Operating income 134,924 21,383 66,584 222,891
Interest expense, net 78,234 196 78,430
Interest income (293 ) (593 ) (886 )
Foreign currency transaction losses (gains) 15 (5,432 ) (5,417 )
Miscellaneous, net (829 ) (13 ) 160 410 (272 )
       Income before income taxes 57,797 21,396 72,253 (410 ) 151,036
Income tax expense (benefit) (10,671 ) 8,077 1,938 (656 )
       Income before equity in earnings of
              consolidated subsidiaries 68,468 13,319 70,315 (410 ) 151,692
Equity in earnings of consolidated subsidiaries 82,994 (82,994 )
       Net income 151,462 13,319 70,315 (83,404 ) 151,692
Less: Net income attributable to noncontrolling interest 230 230
       Net income attributable to Pilgrim’s Pride
              Corporation $ 151,462 $ 13,319 $ 70,085 $ (83,404 ) $ 151,462

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
Thirty-Nine Weeks Ended September 23, 2012

(In thousands)
Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
Net income $        151,462 $        13,319 $               70,315 $          (83,404 ) $        151,692
Other comprehensive income:
       Unrealized holding gains on available-for-sale
              securities, net of tax (12 ) (12 )
       Gains associated with pension and other
              postretirement benefits, net of tax (16,140 ) (16,140 )
Total other comprehensive income, net of tax (16,140 ) (12 ) (16,152 )
Comprehensive income 135,322 13,319 70,303 (83,404 ) 135,540
Less: Comprehensive income attributable to
       noncontrolling interests 230 230
Comprehensive income attributable to
       Pilgrim’s Pride Corporation $ 135,322 $ 13,319 $ 70,073 $ (83,404 ) $ 135,310

29



CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Thirty-Nine Weeks Ended September 29, 2013

(In thousands)
Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
       Cash flows provided by operating activities $        551,027 $        4,235 $                 41,974 $              (520 ) $        596,716
Cash flows from investing activities:  
       Acquisitions of property, plant and equipment (63,298 ) (4,240 ) (8,755 ) (76,293 )
       Purchases of investment securities
       Proceeds from property sales and disposals 2,288 5 1,037 3,330
              Cash used in investing activities (61,010 ) (4,235 ) (7,718 ) (72,963 )
Cash flows from financing activities:
       Payments on note payable to JBS USA Holdings, Inc.
       Proceeds from long-term debt 505,600 505,600
       Payments on long-term debt (758,283 ) (758,283 )
       Proceeds from sale of common stock
       Payment of capitalized loan costs (5,006 ) (5,006 )
       Other financing activities (520 ) 520
              Cash used in financing activities (257,689 ) (520 ) 520 (257,689 )
Effect of exchange rate changes on cash and cash equivalents (3,928 ) (3,928 )
Increase in cash and cash equivalents 232,328 29,808 262,136
Cash and cash equivalents, beginning of period 27,657 40,523 68,180
Cash and cash equivalents, end of period $ 259,985 $ $ 70,331 $ $ 330,316

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Thirty-Nine Weeks Ended September 23, 2012

(In thousands)
Subsidiary Subsidiary Eliminations/
      Parent       Guarantor       Non-Guarantors       Adjustments       Consolidation
       Cash flows provided by operating activities $        138,384 $        1,299 $                16,257 $                 21 $        155,961
Cash flows from investing activities:
       Acquisitions of property, plant and equipment (53,577 ) (1,329 ) (7,204 ) (62,110 )
       Purchases of investment securities (73 ) (89 ) (162 )
       Proceeds from sale or maturity of investment securities 57 631 688
       Proceeds from property sales and disposals 27,360 1,327 28,687
       Cash used in investing activities (26,233 ) (1,329 ) (5,335 ) (32,897 )
Cash flows from financing activities:
       Payments on note payable to JBS USA Holdings, Inc. (50,000 ) (50,000 )
       Proceeds from long-term debt 595,800 595,800
       Payments on long-term debt (853,008 ) (853,008 )
       Proceeds from sale of common stock 198,282 198,282
       Other financing activities 21 (21 )
              Cash provided by (used in) financing activities (108,926 ) 21 (21 ) (108,926 )
Effect of exchange rate changes on cash and cash equivalents (717 ) (717 )
Increase (decrease) in cash and cash equivalents 3,225 (30 ) 10,226 13,421
Cash and cash equivalents, beginning of period 13,733 30 27,846 41,609
Cash and cash equivalents, end of period $ 16,958 $ $ 38,072 $ $ 55,030

30



ITEM 2. 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Company

     We are one of the largest chicken producers in the world, with operations in the United States (“U.S.”), Mexico and Puerto Rico. Our products are sold to foodservice, retail and frozen entrée customers. Our 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, we export chicken products to approximately 100 countries. Our fresh chicken products consist of refrigerated (nonfrozen) whole chickens, whole cut-up chickens and selected chicken parts that are either marinated or non-marinated. Our 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 37,500 employees and has the capacity to process 35.6 million birds per week for a total of approximately 10.1 billion pounds of live chicken annually. Approximately 4,100 contract growers supply poultry for our operations. As of September 29, 2013, JBS USA Holdings, Inc. (“JBS USA”), a wholly owned indirect subsidiary of Brazil-based JBS S.A., beneficially owned 75.5% of our outstanding common stock.

     We operate on a 52/53-week fiscal year that ends on the Sunday falling on or before December 31. You should assume any reference we make to a particular year (for example, 2013) 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 $160.9 million, or $0.62 per diluted common share, for the thirteen weeks ended September 29, 2013 compared to net income attributable to Pilgrim’s Pride Corporation of $42.9 million, or $0.17 per diluted common share, for the thirteen weeks ended September 23, 2012. These operating results included gross profit of $236.6 million and $106.1 million, respectively. For the thirteen weeks ended September 29, 2013 and September 23, 2012, we recognized administrative restructuring charges of $3.7 million and $2.6 million, respectively.

     We reported net income attributable to Pilgrim’s Pride Corporation of $406.2 million, or $1.57 per diluted common share, for the thirty-nine weeks ended September 29, 2013 compared to net income attributable to Pilgrim’s Pride Corporation of $151.5 million, or $0.61 per diluted common share, for the thirty-nine weeks ended September 23, 2012. These operating results included gross profit of $637.5 million and $360.3 million, respectively. For the thirty-nine weeks ended September 29, 2013 and September 23, 2012, we recognized administrative restructuring charges of $4.6 million and $5.9 million, respectively.

     During the thirty-nine weeks ended September 29, 2013 and September 23, 2012, $596.7 million and $156.0 million of cash was provided by operations, respectively. At September 29, 2013, we had cash and cash equivalents totaling $330.3 million.

     Market prices for corn decreased during the thirteen weeks ended September 29, 2013 to a low of $4.49 per bushel and soybean meal continued its volatility with a high of $535.30 per ton and a low of $396.00 per ton. Market prices for feed ingredients remain volatile. Consequently, there can be no assurance that our feed ingredient prices will not 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:

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Corn Soybean Meal
      Highest Price       Lowest Price       Highest Price       Lowest Price
2013:
       Third Quarter $     7.17 $     4.49 $     535.30 $     396.00
       Second Quarter   7.18 6.29 490.30 391.80
       First Quarter 7.41 6.80 438.50 398.20
2012:  
       Fourth Quarter   8.46 6.88   518.00 393.00
       Third Quarter 8.49 5.70 541.80 407.50
       Second Quarter 6.77 5.51 437.50 374.30
       First Quarter 6.79 5.93 374.50 299.00
2011 7.99   5.72 391.00 273.50
2010 6.15 3.25 364.90 249.60

     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, wheat, sorghum and natural gas. We will also occasionally purchase derivative financial instruments in an attempt to mitigate currency exchange rate exposure related to the financial statements of our Mexico operations that are denominated in Mexican pesos. We do not designate derivative financial instruments that we purchase to mitigate commodity purchase or foreign currency transaction exposures as cash flow hedges; therefore, we recognize changes in the fair value of these derivative financial instruments immediately in earnings. During the thirteen weeks ended September 29, 2013 and September 23, 2012, we recognized gains of $8.0 million and $5.9 million, respectively, related to changes in the fair values of our derivative financial instruments. During the thirty-nine weeks ended September 29, 2013 and September 23, 2012, we recognized gains of $21.9 million and gains of $3.7 million, respectively, related to changes in the fair values of our derivative financial instruments.

     Although changes in the market price paid for feed ingredients impact cash outlays at the time we purchase the ingredients, such changes do not immediately impact cost of sales. The cost of feed ingredients is recognized in cost of sales, on a first-in-first-out basis, at the same time that the sales of the chickens that consume the feed grains are recognized. Thus, there is a lag between the time cash is paid for feed ingredients and the time the cost of such feed ingredients is reported in cost of goods sold. For example, corn delivered to a feedmill and paid for one week might be used to manufacture feed the following week. However, the chickens that eat that feed might not be processed and sold for another 42-63 days, and only at that time will the costs of the feed consumed by the chicken become included in cost of goods sold.

     Commodities such as corn, soybean meal and wheat are actively traded through various exchanges with future market prices quoted on a daily basis. These quoted market prices, although a good indicator of the commodity's base price, do not represent the final price for which we can purchase these commodities. There are several components in addition to the quoted market price, such as freight, storage and seller premiums, that are included in the final price that we pay for grain. Although changes in quoted market prices may be a good indicator of the commodity’s base price, the components mentioned above may have a larger impact on the total change in grain costs recognized from period to period. The prices related to the other components were especially high this year as we transitioned from a year of record low grain stocks due to the drought to a year with normal grain stocks.

     Market prices for chicken products are currently at levels sufficient to offset the high cost of feed ingredients. However, 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 September 29, 2013, we recognized total costs of $3.7 million, which included asset impairment costs of $3.1 million and live operations rationalization costs of $0.6 million. During the thirteen weeks ended September 23, 2012, we recognized total costs of $2.8 million, which included charges related to other restructuring activities totaling $2.2 million and live operations rationalization costs totaling $0.6 million. During the thirty-nine weeks ended September 29, 2013, we recognized total costs related to exit and disposal efforts of $4.6 million, which consisted of asset impairment costs of $3.1 million and live operations rationalization costs of $1.5 million. During the thirty-nine weeks ended September 23, 2012, we recognized total costs related to exit and disposal efforts of $6.2 million, which included live operations rationalization costs of $2.6 million, charges related to other restructuring activities totaling $2.1 million, asset impairment costs of $1.3 million and employee-related costs of $0.1 million. We expect to incur additional costs related to ongoing exit or disposal efforts totaling approximately $1.5 million.

32



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

     In January 2012, we 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 our common stock, rounded up to the next largest whole number, at a subscription price of $4.50 per share for each share of our 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 privileges or their over-subscription privileges was February 29, 2012. On March 7, 2012, we 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. We incurred costs directly attributable to the Rights Offering of $1.7 million that we deferred and charged against the proceeds of the Rights Offering in Additional Paid-in Capital on our Condensed Consolidated Balance Sheet. We used the net proceeds of $198.3 million for additional working capital to improve our capital position and for general corporate purposes. We also used a portion of the net proceeds to repay the outstanding principal amount of $50.0 million, plus accrued interest, of our subordinated debt owed to JBS USA and to repay indebtedness under the U.S. Credit Facility (as defined below).

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

Business Segment and Geographic Reporting

     We operate in one reportable business segment, as a producer and seller of chicken products we either produce or purchase for resale in the U.S., Puerto Rico and Mexico. We conduct separate operations in the U.S., Puerto Rico and Mexico; however, for geographic reporting purposes, we include Puerto Rico within 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 September 29, 2013 Compared to Thirteen Weeks Ended September 23, 2012

     Net sales. Net sales generated in the thirteen weeks ended September 29, 2013 increased $74.3 million, or 3.6%, from net sales generated in the thirteen weeks ended September 23, 2012. The following table provides net sales information:

              Change from
Thirteen Thirteen Weeks Ended
Weeks Ended September 23, 2012
Sources of net sales September 29, 2013 Amount        Percent
(In thousands, except percent data)  
United States $ 1,932,634 $ 81,700 4.4 %   (a)
Mexico 210,181 (7,363 )    (3.4 )%   (b)
       Total net sales $       2,142,815 $       74,337        3.6 %

33



(a) U.S. net sales generated in the thirteen weeks ended September 29, 2013 increased $81.7 million, or 4.4%, from U.S. net sales generated in the thirteen weeks ended September 23, 2012 primarily because of increased net revenue per pound sold. Increased net revenue per pound sold, which resulted primarily from higher market prices, contributed $167.2 million, or 9.0 percentage points, to the revenue increase. A decrease in volume partially offset the increase in net revenue per pound sold by $85.5 million, or 4.6 percentage points, to the revenue increase. Included in U.S. net sales generated in the thirteen weeks ended September 29, 2013 and September 23, 2012 were net sales to JBS USA, LLC totaling $14.0 million and $58.5 million, respectively. Other factors affecting U.S. net sales were immaterial.
     
(b) Mexico net sales generated in the thirteen weeks ended September 29, 2013 decreased $7.4 million, or 3.4%, from Mexico net sales generated in the thirteen weeks ended September 23, 2012. A decrease in sales price primarily due to decreased net revenue per pound sold contributed $23.4 million, or 10.8 percentage points, to the revenue decrease. An increase in unit sales volume and the movement in the exchange rate between the Mexican peso and the U.S. dollar, partially offset the revenue decrease by $16.0 million, or 7.4 percentage points. Other factors affecting Mexico net sales were immaterial.

     Gross profit. Gross profit generated in the thirteen weeks ended September 29, 2013 increased by $130.4 million, or 122.9%, from gross profit generated in the thirteen weeks ended September 23, 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
September 29, September 23, 2012 September 29, September 23,
Components of gross profit       2013       Amount       Percent       2013       2012
In thousands, except percent data
Net sales $      2,142,815 $      74,337 3.6 % 100.0% 100.0%
Cost of sales 1,906,242 (56,101 ) (2.9 )% 89.0% 94.9%   (a)(b)
       Gross profit $ 236,573 $ 130,438 122.9 % 11.0% 5.1%

Thirteen Change from
        Weeks Ended       Thirteen Weeks Ended
September 29, September 23, 2012
Sources of gross profit 2013 Amount       Percent
(In thousands, except percent data)
United States $ 229,843 151,458 193.2 %
Mexico 6,730 (21,020 ) (75.7 )%
       Total gross profit $       236,573 $        130,438        122.9 %

Thirteen Change from
        Weeks Ended       Thirteen Weeks Ended
September 29, September 23, 2012
Sources of cost of sales 2013 Amount       Percent
(In thousands, except percent data)
United States $      1,702,791 $      (69,759 ) (3.9 )%   (a)
Mexico 203,451 13,658 7.2 %   (b)
       Total cost of sales $ 1,906,242 $ (56,101 )        (2.9 )%

(a) Cost of sales incurred by our U.S. operations in the thirteen weeks ended September 29, 2013 decreased $69.8 million, or 3.9%, from cost of sales incurred by our U.S. operations in the thirteen weeks ended September 23, 2012 primarily because of (i) inventory reduction efforts in the prior year of $42.4 million, (ii) an $11.5 million decrease from the same period in the prior year in contract packing costs, (iii) a $9.4 million decrease in legal settlements and favorable adjustments to accrued settlement liabilities, (iv) a $5.1 million decrease in freight and storage costs, (v) the August 2012 disposal of our commercial egg business, which incurred cost of sales totaling $3.4 million in the thirteen weeks ended September 23, 2012, and (vi) a $3.1 million decrease in losses recognized on the sale of assets. A $2.0 million decrease from the same period in the prior year in insurance recoveries and a $1.1 million decrease in derivative gains partially offset the decrease in cost of sales. Other factors affecting U.S. cost of sales were immaterial.
     
(b) Cost of sales incurred by our Mexico operations in the thirteen weeks ended September 29, 2013 increased $13.7 million, or 7.2%, from cost of sales incurred by our Mexico operations in the thirteen weeks ended September 23, 2012. Increased volume and unfavorable foreign currency translation contributed $14.3 million, or 7.5 percentage points to the increase in cost of sales. Lower overhead costs partially offset the increase in cost of sales by $0.6 million or 0.3 percentage points. Other factors affecting Mexico cost of sales were immaterial.

34



     Operating income. Operating income generated in the thirteen weeks ended September 29, 2013 increased $127.4 million, or 206.5%, from operating income generated in the thirteen weeks ended September 23, 2012. The following tables provide information regarding operating income information:

Thirteen Change from Percent of Net Sales
Weeks Ended Thirteen Weeks Ended Thirteen Weeks Ended
September 29, September 23, 2012 September 29, September 23,
Components of operating income       2013       Amount       Percent       2013       2012
(In thousands, except percent data)
Gross profit $      236,573 $      130,438 122.9 % 11.0% 5.1%
SG&A expense 43,797 2,015 4.8 % 2.0% 2.0%   (a)(b)
Administrative restructuring charges 3,658 1,011 38.2 % 0.2% 0.1%   (c)
       Operating income $ 189,118 $ 127,412 206.5 % 8.8% 3.0%

Thirteen Change from
        Weeks Ended       Thirteen Weeks Ended
September 29, September 23, 2012
Sources of operating income 2013 Amount       Percent
(In thousands, except percent data)
United States $      187,354 $      149,527 395.3 %
Mexico 1,764 (22,115 ) (92.6 )%
       Total operating income $       189,118 $        127,412        206.5 %

Thirteen Change from
        Weeks Ended       Thirteen Weeks Ended
September 29, September 23, 2012
Sources of SG&A expense 2013 Amount       Percent
(In thousands, except percent data)
United States $      38,831 $      921 2.4 %   (a)
Mexico 4,966 1,094 28.3 %   (b)
       Total SG&A expense $ 43,797 $ 2,015        4.8 %

Thirteen Change from
        Weeks Ended       Thirteen Weeks Ended
September 29, September 23, 2012
Sources of administrative restructuring charges 2013 Amount       Percent
(In thousands, except percent data)
United States $      3,658 $      1,011 38.2 %   (c)
       Total administrative restructuring charges $      3,658 $      1,011        38.2 %

(a) SG&A expense incurred by our U.S. operations in the thirteen weeks ended September 29, 2013 increased $0.9 million, or 2.4%, from SG&A expense incurred by our U.S. operations in the thirteen weeks ended September 23, 2012 primarily because of (i) a $4.5 million increase from the same period in the prior year in payroll, benefits and other employee-related expenses and (ii) a $2.5 million increase in insurance and tax related expenses. These increases were partially offset by (i) a $3.6 million decrease from the same period in the prior year in professional fees and outside services expenses, (ii) a $0.7 million decrease in depreciation and lease expenses, (iii) a $0.5 million decrease in shared service department operating expenses, (iv) a $0.5 million decrease in sales brokerage expenses and (v) a $0.4 million decrease in marketing and development expenses. Other factors affecting U.S. SG&A expense were immaterial.
     
(b) SG&A expense incurred by our Mexico operations in the thirteen weeks ended September 29, 2013 increased $1.1 million, or 28.3%, from SG&A expense incurred by our Mexico operations in the thirteen weeks ended September 23, 2012 primarily because of a $1.1 million increase from the same period in the prior year in professional fees. Other factors affecting Mexico SG&A expense were immaterial.
(c) Administrative restructuring charges incurred in the thirteen weeks ended September 29, 2013 increased $1.0 million from administrative restructuring charges incurred in the thirteen weeks ended September 23, 2012. In the thirteen weeks ended September 29, 2013, we incurred administrative restructuring charges related to noncash impairment charges of $3.1 million and live operations rationalization totaling $0.6 million. In the thirteen weeks ended September 23, 2012, we incurred administrative restructuring charges composed of $2.0 million related to the scrapping of certain unused or obsolete assets and $0.6 million related to other restructuring activities.

     Net interest expense. Consolidated interest expense decreased 20.6% to $19.8 million recognized in the thirteen weeks ended September 29, 2013 from $25.0 million recognized in the thirteen weeks ended September 23, 2012. This decrease resulted primarily from lower average borrowings. This decrease was partially offset by a higher weighted average interest rate compared to the same period in the prior year. Average borrowings decreased from $1.20 billion in the thirteen weeks ended September 23, 2012 to $910.1 million in the thirteen weeks ended September 29, 2013. The weighted average interest rate increased from 7.01% in the thirteen weeks ended September 23, 2012 to 7.08% in the thirteen weeks ended September 29, 2013.

35



     Income taxes. We recognized income tax expense of $5.6 million for the thirteen weeks ended September 29, 2013, compared to income tax expense of $1.0 million for the thirteen weeks ended September 23, 2012. The income tax expense reported for the thirteen weeks ended September 29, 2013 was primarily the result of the tax expense recorded on our income during the current period, offset by a decrease in valuation allowance as a result of earnings during the current period. The income tax expense reported for the thirteen weeks ended September 23, 2012 was primarily the result of the tax expense recorded on our earnings in the current period, offset by a decrease in reserves for unrecognized tax benefits and a decrease in valuation allowance as a result of earnings in the current period.

Thirty-Nine Weeks Ended September 29, 2013 Compared to Thirty-Nine Weeks Ended September 23, 2012

     Net sales. Net sales generated in the thirty-nine weeks ended September 29, 2013 increased $432.1 million, or 7.3%, from net sales generated in the thirty-nine weeks ended September 23, 2012. The following table provides net sales information:

Thirty-Nine Change from
        Weeks Ended       Thirty-Nine Weeks Ended
September 29, September 23, 2012
Sources of net sales 2013 Amount       Percent
(In thousands, except percent data)
United States $      5,662,991 $      350,713 6.6 %   (a)
Mexico 700,872 81,430 13.1 %   (b)
       Total net sales $ 6,363,863 $ 432,143 7.3 %

(a) U.S. net sales generated in the thirty-nine weeks ended September 29, 2013 increased $350.7 million, or 6.6%, from U.S. net sales generated in the thirty-nine weeks ended September 23, 2012 primarily because of an increase in the net revenue per pound sold. Increased net revenue per pound sold, which resulted primarily from higher market prices, contributed $505.9 million, or 9.5 percentage points, to the revenue increase. A decrease in volume partially offset the increase in net revenue per pound sold by $155.2 million, or 2.9 percentage points. Included in U.S. net sales generated in the thirty-nine weeks ended September 29, 2013 and September 23, 2012 were net sales to JBS USA, LLC totaling $49.3 million and $177.9 million, respectively. Other factors affecting U.S. net sales were immaterial.
     
(b) Mexico net sales generated in the thirty-nine weeks ended September 29, 2013 increased $81.4 million, or 13.1%, from Mexico net sales generated in the thirty-nine weeks ended September 23, 2012. An increase in sales price, primarily due to increased net revenue per pound sold and the movement in the exchange rate between the Mexican peso and the U.S. dollar, contributed $93.1 million, or 15.0 percentage points. A decrease in unit sales volume, which resulted primarily from decreased bird weights, partially offset the revenue increase by $11.7 million, or 1.9 percentage points. Other factors affecting Mexico net sales were immaterial.

     Gross profit. Gross profit generated in the thirty-nine weeks ended September 29, 2013 increased by $277.2 million, or 76.9%, from gross profit generated in the thirty-nine weeks ended September 23, 2012. The following tables provide information regarding gross profit and cost of sales information:

Thirty-Nine Change from Percent of Net Sales
Weeks Ended Thirty-Nine Weeks Ended Thirty-Nine Weeks Ended
September 29, September 23, 2012 September 29, September 23,
Components of gross profit       2013       Amount       Percent       2013       2012
In thousands, except percent data
Net sales $      6,363,863 $      432,143 7.3 % 100.0% 100.0%
Cost of sales 5,726,348 154,917 2.8 % 90.0% 93.9%   (a)(b)
       Gross profit $ 637,515 $ 277,226 76.9 % 10.0% 6.1%

Thirty-Nine Change from
        Weeks Ended       Thirty-Nine Weeks Ended
September 29, September 23, 2012
Sources of gross profit 2013 Amount       Percent
(In thousands, except percent data)
United States $      523,108 $      234,533 81.3 %
Mexico 114,407 42,693 59.5 %
       Total gross profit $ 637,515 $ 277,226        76.9 %

36



Thirty-Nine Change from
        Weeks Ended       Thirty-Nine Weeks Ended
September 29, September 23, 2012
Sources of cost of sales 2013 Amount       Percent
(In thousands, except percent data)
United States $      5,139,883 $      116,179 2.3 %   (a)
Mexico 586,465 38,738 7.1 %   (b)
       Total cost of sales $ 5,726,348 $ 154,917 2.8 %

(a) Cost of sales incurred by our U.S. operations in the thirty-nine weeks ended September 29, 2013 increased $116.2 million, or 2.3%, from cost of sales incurred by our U.S. operations in the thirty-nine weeks ended September 23, 2012. The increase in cost of sales was primarily because of a $176.1 million increase from the same period in the prior year in live production costs, which increased primarily because of higher feed ingredient costs. Partially offsetting the increase was (i) the August 2012 disposal of our commercial egg business, which incurred cost of sales totaling $18.7 million in the thirty-nine weeks ended September 23, 2012, (ii) a $16.2 million decrease from the same period in the prior year in freight and storage costs, (iii) a $15.0 million decrease in derivative gains, (iv) a $5.8 million decrease in legal settlements and favorable adjustments to accrued settlement liabilities and (v) a $4.8 million decrease in losses recognized on the sale of assets. Other factors affecting U.S. cost of sales were immaterial.
     
(b) Cost of sales incurred by our Mexico operations in the thirty-nine weeks ended September 29, 2013 increased $38.7 million, or 7.1%, from cost of sales incurred by our Mexico operations in the thirty-nine weeks ended September 23, 2012. Higher overhead costs and unfavorable foreign currency translation contributed $49.2 million, or 9.0 percentage points, to the increase in cost of sales. Decreased sales volume partially offset the increase in cost of sales by $10.3 million or 1.9 percentage points. Other factors affecting Mexico cost of sales were immaterial.

     Operating income. Operating income generated in the thirty-nine weeks ended September 29, 2013 increased $278.1 million, or 124.8%, from operating income generated in the thirty-nine weeks ended September 23, 2012. The following tables provide information regarding operating income information:

Thirty-Nine Change from Percent of Net Sales
Weeks Ended Thirty-Nine Weeks Ended Thirty-Nine Weeks Ended
September 29, September 23, 2012 September 29, September 23,
Components of operating income       2013       Amount       Percent       2013       2012
(In thousands, except percent data)
Gross profit $      637,515 $      277,226 76.9 % 10.0% 6.1%
SG&A expense 131,888 411 0.3 % 2.1% 2.2%   (a)(b)
Administrative restructuring charges 4,622 (1,299 ) (21.9 )% 0.1% 0.1%   (c)
       Operating income $ 501,005 $ 278,114 124.8 % 7.9% 3.8%

Thirty-Nine Change from
        Weeks Ended       Thirty-Nine Weeks Ended
September 29, September 23, 2012
Sources of operating income 2013 Amount       Percent
(In thousands, except percent data)
United States $      401,101 $      238,128 146.1 %
Mexico 99,904 39,986 66.7 %
       Total operating income $ 501,005 $ 278,114        124.8 %

Thirty-Nine Change from
        Weeks Ended       Thirty-Nine Weeks Ended
September 29, September 23, 2012
Sources of SG&A expense 2013 Amount       Percent
(In thousands, except percent data)
United States $ 117,385 (2,295 ) (1.9 )%   (a)
Mexico 14,503 2,706 22.9 %   (b)
       Total SG&A expense $       131,888 $        411        0.3 %